RIYADH: Saudi Arabia is locked in what appears to be a last ditch effort with international oil companies (IOCs) to salvage a multi-billion dollar gas project deal, an industry source said on Saturday.

However Riyadh and the Royal Dutch/Shell-led consortium involved in Core Venture 3 (CV3) are now discussing different possibilities for the five-billion-dollar scheme, part of the Natural Gas Initiative, the source told AFP.

"Discussions are not over yet with the CV3 consortium ... All kinds of discussions are going on ... Different aspects and options are being considered at the same time," said the source, requesting anonymity.

The consortium to develop the Shaybah field in Rubi al-Khali (the Empty Quarter) also includes TotalFinaElf and Conoco.

The Middle East Economic Survey (MEES) reports in its Monday edition that the discussions on CV3 are "on an exploration-only basis" which means that power, water and petrochemical plants have been dropped from the original bid.

After signing preliminary agreements with IOCs for three major projects in June 2001, Saudi Arabia and the companies have repeatedly missed deadlines to sign final deals, failing to agree on commercial terms and gas reserves.

On June 5, ExxonMobil, which was awarded the lead role for the first and second core ventures, said it received a letter from Oil Minister Ali al-Nuaimi regarding CV1, but declined to say if the project was scrapped.

Saudi oil sources said talks on CV1 had been abandoned, but the US oil giant insisted that the consortium has not sought to terminate its negotiations with the kingdom.

So far, neither Saudi Arabia nor ExxonMobil have officially announced that the project was cancelled. CV2 was earlier shelved by the Saudis for reconsideration.

The quantity of gas on offer remained the principal unresolved issue as foreign companies demanded larger acreage to ensure more gas in order to offset the risks involved in the investments.

"CV3 partners had been more proactive, more flexible, more open to find an agreement," than others, the source said. "In addition, the Saudis are not in as pressing need for CV3 as they are for CV1," the source added.

The source said that no "deadline has been fixed for the ongoing talks, but the Saudis want to finish it as soon as possible," as the consortium is waiting for Riyadh's final word.

The companies had insisted they should be given part of the areas reserved for Saudi Aramco, the giant national oil company, which have more gas potential, but the Saudi government rejected the demand.

In case the talks are cancelled, the projects will either be restructured to separate the components or re-offered to include new bidders.

In the event of a major restructuring of the projects, national energy giants Saudi Aramco and Saudi Basic Industries Corp (SABIC) were expected to play a major role in association with the foreign companies.

MEES said Saudi Arabia is already reviewing alternative options for the Gas Initiative, including the possibility of "opening up new specific and focused packages based on the three core areas."

It added that the downstream aspects of the initiative would go to international tender.

Saudi Arabia, which sits atop the world's biggest oil reserves, has proven natural gas reserves of 224 trillion cubic feet (6.6 trillion cubic meters).