Kuwait and Saudi Arabia start work to resume oil output from Khafji

Kuwait and Saudi Arabia have started preparation work to resume crude oil production from the al-Khafji oilfield jointly operated by the two countries, with initial output expected around the end of February, two industry sources said.

Kuwait and Saudi Arabia, both members of the Organization of the Petroleum Exporting Countries (OPEC), agreed last year to end a five-year dispute over the area known as the Neutral Zone, allowing production to resume at two jointly run fields that can pump up to 0.5% of the world's oil supply.

Trial production of about 10,000 barrels per day (bpd) from Khafji will start around Feb. 25, a Kuwaiti oil official told Reuters on condition of anonymity, adding that this would be "sufficient to test all installations and their operational efficiency".

The field should be pumping about 60,000 bpd by August, the official said. Another 10,000 bpd of trial output from the Wafra field will start by late March, the official said, adding that production is expected to increase to 80,000 bpd from the field within six months of starting trial production.

Output is expected to reach 175,000 bpd from al-Khafji and 145,000 bpd from Wafra after a year of restarting the fields, the official said. Kuwait newspaper Al-Rai reported on Sunday that production at al-Khafji will start by the end of February and that testing of oil and gas pipelines and facilities has already begun.

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

Wafra has been shut since May 2015 and had output capacity of about 220,000 bpd. US oil major Chevron operates the field on behalf of the Saudi government. Saudi Arabia and Kuwait have been reducing oil supply as part of an agreement between OPEC, Russia and other producers, a group known as OPEC+. That deal expires in March.

Saudi Energy Minister Prince Abdulaziz bin Salman told Reuters in December that resuming production from the oilfields would not affect the countries' commitments under the OPEC+ agreement. Production would be gradual and any increase from the zone will be compensated for by a cut from other fields, industry sources had told Reuters.