The 40-year-old oil drilling rights of Arabian Oil Co., Japan's largest oil producer, in a major oil field in Saudi Arabia expired Monday morning as last-minute negotiations with Riyadh over the weekend ended in failure. Trade chief Takashi Fukaya expressed deep regret after the oil concessions officially expired at 6 a.m. Monday, or midnight Sunday in Saudi Arabia. But he stressed that the oil supply to Japan will not be affected. Meanwhile, Arabian Oil President Keiichi Konaga told a press conference that the firm plans to streamline its operations and will consider a merger with other companies. He contended that the cuts in operations from the expiration of the concessions in Saudi Arabia will not cause a capital deficit. Konaga also said the firm will immediately begin talks with Kuwait for the renewal of drilling rights in the Kuwait-controlled portion of the field beyond January 2003. On Sunday evening, Konaga returned to Tokyo empty-handed from the talks with Saudi officials in Riyadh. Said Fukaya: "We did our utmost to help (Arabian Oil's talks with Riyadh) by making numerous proposals to Saudi Arabia. We're full of regret that the negotiations have now broken off despite our last-ditch effort." The Khafji oil field is located in the former neutral zone between Saudi Arabia and Kuwait. Arabian Oil produced around 280,000 barrels of oil per day in 1998 at Khafji. Its shipment to Japan accounts for 3.5 percent of Japan's total oil imports, but the loss of drilling rights at the Saudi Arabian half of Khafji, the largest oil field developed by a Japanese company, marks a setback for Japan's long-standing policy of securing self-developed sources of oil as a precaution against energy crises. With its concessions with Kuwait in the remaining half of the Khafji field valid until January 2003, Arabian Oil will continue operations there with an affiliate of Saudi Aramco, Saudi Arabia's state-run oil company. The Saudi Aramco affiliate will take over operations from Arabian Oil on the Saudi side of Khafji, halving Arabian Oil's assets there and profits from that oil field. Fukaya stressed that the supply of crude oil from the Khafji field to Japan will not be affected as the Aramco affiliate will continue to sell crude oil to Japanese oil wholesalers. "This issue will not change the friendly ties between Japan and Saudi Arabia. Oil supply-and-demand relations will not change for the time being," Fukaya said. Negotiations broke down over Tokyo's rejection of a Saudi demand that Japan, as a condition for renewing the oil concessions, build a 1,400-km mining railway in the desert. "As trade minister and a politician, I figured it is just impossible for Japan to accept such a request to shoulder the unprofitable project at taxpayers' expense," he said, adding, however, that he fully understands the Saudi's intention to use the railway for the development of mineral resources. The Japanese government will now withdraw an economic aid package of 800 billion yen to Saudi Arabia, including a 140 billion yen preferential loan for the railway project that it had offered as an incentive for renewing drilling rights, Fukaya said. Arabian Oil had also offered some 70 billion yen to supplement the railway package proposed by the government. Fukaya said Japan needs to break away from its heavy dependency on oil imported from the Middle East. In 1999, the region accounted for 85.2 percent of Japan's petroleum imports, with Saudi Arabia accounting for 18.8 percent of the total. He also pledged that the government will continue efforts to ensure the safety of nuclear energy, seek alternative energy resources and promote energy-saving measures. On Japan's development of oil fields, Fukaya said there is no change in Tokyo's policy that the development of overseas oil fields is a desirable course for resource-poor Japan. "We will continue to step up efforts to that end," he said. Fukaya went on to say that his ministry will back up Arabian Oil after it loses the major foothold overseas. At a separate news conference, Chief Cabinet Secretary Mikio Aoki said Japan will seek to strengthen friendly ties through the Japan-Saudi Arabia cooperation initiatives announced in October 1998. Those initiatives include Japan's assistance of human- resources development in Saudi Arabia and of more joint ventures, Aoki said.
