Kuwait Scraps Multibillion-Dollar Oil Tenders After Cost Overruns

(MENAFN- The Arabian Post) Arabian Post Staff -Dubai

Kuwait has cancelled nine upstream oil tenders with a combined value approaching $10 billion after bids submitted by overseas contractors exceeded the approved budget by a wide margin, signalling a pause in the country's near-term expansion plans and a reset of procurement expectations across the energy sector.

The tenders were issued by the state-owned Kuwait Oil Company, the upstream investment arm tasked with boosting crude production capacity to meet national targets. They formed part of a broader push to expand output, improve field infrastructure and modernise facilities as Kuwait positions itself within OPEC's long-term supply outlook. However, the Central Agency for Public Tenders has endorsed the company's request to scrap the packages and reissue them at a later stage after pricing and scope are reviewed.

Officials familiar with the decision said the bids came in substantially above internal estimates, reflecting a combination of higher global engineering and construction costs, tighter capacity among international contractors and increased risk premiums attached to complex upstream projects. The move underscores the challenges faced by oil producers seeking to execute large capital programmes amid inflationary pressures and supply chain constraints that have reshaped project economics.

Tender cancellations highlight budget discipline

The cancelled packages covered a range of upstream works, including field development, surface facilities and related infrastructure designed to lift production capacity over the medium term. Kuwait Oil Company had aimed to accelerate progress on several mature fields while preparing for new developments, aligning with the country's stated ambition to raise capacity beyond four million barrels per day later in the decade.

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By pulling the tenders, authorities signalled that budget discipline would take precedence over speed. The Central Agency for Public Tenders' approval indicates alignment across government bodies on the need to recalibrate procurement rather than accept elevated costs that could ripple through future projects. Officials indicated the tenders would be reissued once scopes are refined and market conditions reassessed, though no timeline has been announced.

Industry executives said the outcome reflects a broader recalculation by national oil companies across the Gulf, many of which are weighing the trade-off between maintaining aggressive expansion schedules and keeping capital spending within politically and fiscally acceptable limits. With energy prices fluctuating and competition for skilled contractors intensifying, bidders have increasingly priced in contingencies that strain client budgets.

Contractors, for their part, argue that higher bids mirror real-world costs. Engineering, procurement and construction firms face rising wages, equipment shortages and longer delivery times for critical components. Risk allocation has also shifted, with contractors less willing to absorb uncertainties related to permitting, logistics and performance guarantees without compensation.

Implications for output strategy and contractors

For Kuwait, the cancellations do not amount to an abandonment of expansion goals but rather a tactical delay. The country remains committed to sustaining and growing production capacity, particularly as it manages reservoir pressure and decline rates in mature fields. Reissuing the tenders could involve breaking packages into smaller lots, adjusting technical specifications or adopting alternative contracting models to attract more competitive pricing.

The decision may also prompt closer engagement with bidders before re-tendering. Market sounding exercises, revised cost benchmarks and clearer risk-sharing frameworks are likely to feature as authorities seek to narrow the gap between expectations and bids. Analysts noted that similar approaches have helped other producers bring costs under control without compromising project quality.

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For foreign contractors, the episode serves as a reminder that Gulf clients are increasingly selective, even as project pipelines remain robust. Companies with strong local partnerships, efficient supply chains and a track record of cost control may be better positioned when the tenders return to market. Others may need to recalibrate margins or propose innovative delivery methods to stay competitive.

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