Kuwait says talks with Saudi to restart Neutral Zone oil output ongoing

KUWAIT (Reuters) - OPEC members Kuwait and Saudi Arabia are still in talks about restarting oil production from the jointly-operated fields in the Neutral Zone and negotiations are “very positive”, Kuwait’s deputy foreign minister said on Saturday.

The comments by Khaled al-Jarallah came after Kuwaiti newspapers al-Qabas and al-Rai reported earlier, citing unidentified sources, that the two Gulf oil producers had agreed to resume crude output from the oilfields in the Saudi–Kuwaiti divided zone.

The two countries halted output from the jointly run oilfields - Khafji and Wafra - in the so-called Neutral Zone more than three years ago, cutting some 500,000 barrels per day or 0.5 percent of global oil supply.

Jarallah said that “when the final deal about this zone is reached, the two countries will start discussing the resumption of the oil production”, state news agency KUNA reported.

One source familiar with the Neutral Zone’s oil operations told Reuters that restarting production from the joint fields, once a final agreement has been reached, would be done in phases and it would take months for the output to return to its full capacity before the closure of the fields.

Any increase in oil production from the zone will be compensated by a supply cut from other fields by both Saudi Arabia and Kuwait as both countries are committed to their targets under the so-called OPEC+ oil output reduction agreement, the source added.

The closure of the fields was a political sticking point between the two allies and senior officials have been trying to resolve the issue for months.

Oil output in the Neutral Zone, which dates back to 1920s treaties establishing regional borders, is divided equally between Saudi Arabia and Kuwait.

Al-Qabas said oil industry and government officials representing both countries had met on Thursday and had signed an agreement. Al-Rai said there had been an “historic agreement” without giving details.

Al-Qabas said production would restart in Khafji soon after some administrative procedures and within three months for Wafra.

Khafji is operated by Al-Khafji Joint Operations Co, a joint venture between Kuwait Gulf Oil Company and AGOC, a subsidiary of state oil firm Saudi Aramco. It was shut in October 2014 for environmental reasons and had been producing 280,000 to 300,000 bpd before its closure.

Wafra has been shut since May 2015 due to operating difficulties. It has an output capacity of about 220,000 bpd of Arabian Heavy crude. U.S. oil major Chevron operates the field on behalf of the Saudi government.

Reporting by Rania El Gamal and Ahmed Hagagy; Writing by Sylvia Westall; Editing by Christina Fincher and Mark Potter