In the spotlight: Saudi Aramco

Given its dominance, the state company faces the challenge of single-handedly enhancing the country’s oil production, and boosting receipts. Thankfully, help is at-hand with gas production – Aramco has formed partnerships with a number of international oil companies (IOCs).

The company’s operations encompass land totalling more than 1.5 million km2, including territorial waters in the Arabian Gulf and the Red Sea. Most production comes from fields in the coastal plains of the Eastern Province in an area extending 300 km north and south of the Dhahran oil city.

Among those fields fully owned by the company are the Ghawar Field, the world’s largest field overall; the Safaniya Field, the world’s largest offshore field; and the Shaybah Field, one of the world’s largest of its kind.

By most conventional benchmarks, Saudi Aramco is by far the world’s most profitable company.


 

Undoubtedly, there still remains considerable untapped oil and gas potential at Aramco’s disposal; large stretches of territory remain unexplored. Seizing such opportunities desperately requires additional investment.

Expansion

The head of the Saudi Aramco group confirmed in February 2008 that Saudi Arabia’s ambitious plans to expand oil and refining capacity are on track. Economic turmoil and the promotion of alternative fuels such as ethanol have, however, clouded the future of global oil demand somewhat.

Saudi Aramco announced plans in May 2008 to invest US$129 billion in new energy projects over the next five years. Such investment will focus on the expansion of crude oil, natural gas, and refining capacity.

Khalid al-Falih, who assumed the role of CEO and president at Aramco on January 1st, said in 2008 that $70 billion of the total had been earmarked for international and domestic joint ventures. This leaves around $59 billion for projects led solely by Aramco.

The figure of $129 billion is nearly $40 billion higher than previous official estimates of Saudi investment over the next five years, which stood at $90 billion. Al-Falih said Aramco was focusing on downstream capacity development, believing that this area offers the greatest potential for future growth.

In order to increase E&P in the gas sector, Aramco has enlisted the help of a number of IOCs and this looks set to continue. “I do not see why they would not take further steps to involve IOCs. They have now broken through the psychological barrier – especially with the Empty Quarter blocks,” explains Catherine Hunter, research manager at Global Insight.

“In contrast, I don’t think there’s is any chance at all of them involving international companies in oil projects. If you look at their current schedule, this would be the time that they would seek outside support if they were going to and they have not,” adds Hunter.

Developments

In January 2008 it was announced that the 500 000 bpd Khursaniyah oil project, which was due to start producing in December 2007, was suffering from start-up delays. The extent of the delay has not been specified, with production from Khursaniyah now due to commence “upon completion of commissioning activities,” according to an Aramco statement.

In the meantime, Aramco will make available additional volumes of Arab Light crude from existing unused capacity, which is in excess of 1 million bpd.

So far, work has been completed on Khursaniyah’s main water injection facilities in preparation for oil production, and production wells have been drilled and pipelines installed.

“They have set a pretty ambitious schedule for developing them that they seem determined to stick to at all costs – even if it means significant cost escalation. So costs have gone up quite significantly across all projects in the region, but Aramco are more concerned with fulfilling their promise to up production rather than staying within their budget,” says Hunter, speaking of Aramco’s progress.

In May 2007, Saudi Arabia’s Minister of Petroleum and Mineral Resources Ali al-Naimi, announced that Aramco had discovered two new oil fields located south of al-Ghawar, in the eastern region.

The Mabrouk-I well is reported to have produced flow rates of 5600 bpd of heavy crude and 56 634 cm2 per day of associated gas. The Derwaza-I well produced flow rates of 5569 bpd of light crude oil and 79 287cm2 of gas. According to Saudi Press Agency, actual production levels from the two wells will exceed these figures. The new discoveries illustrate Aramco’s considerable opportunities in its remaining unexplored reserves.

Partnerships

April 2007 saw the first energy contract between the Russian and Saudi Arabian states. Saudi Aramco and Russia’s Stroytransgaz, a subsidiary of state-owned Gazprom, plan to build an oil pipeline in Saudi Arabia, which will be worth more than $100 million, according to Russian news agency RIA Novosti. After almost six decades of no diplomatic relations between the two resource-rich countries, the contract presents a leap in their strategic relations, as well as offering Russia access to a completely new energy market.

Similarly, January 2007 saw Saudi Aramco announce plans to award a $1 billion contract to Belgian dredging contractor Jan De Nul to help it develop the 900 000 bpd offshore Manifa oil field. The $10 billion Manifa development programme is a vital pillar of the firm’s output growth strategy, and aims to add the 900 000 bpd of crude output by mid-2011.

Looking ahead

Given its tremendous assets and monopoly-hold over the Saudi energy market, Aramco shows no signs of a downturn in growth any time soon. Strong energy prices will doubtless reap huge profits for the company.

Vast opportunities, in the form of untapped or undiscovered reserves, still present themselves. Whether Aramco will take full advantage of such offerings depends largely on its willingness to make considerable investments into the sector. The future of Saudi Arabia really is in Aramco’s hands.