Although the overarching goal of Saudi Arabia’s Vision 2030 is diversifying away from hydrocarbons, the plan has led to significant project announcements in the oil and gas sector. Additionally, with the energy sector being a substantial contributor to the government’s revenues, the windfall will help fund the government’s share of investments despite its heavy CAPEX burden, S&P’s latest report finds.
Middle East oil and gas companies continue reaping the benefits of commodity price increases in the year to date. Brent crude oil prices are currently hovering just below $90/bbl, after temporarily hitting $127/bbl in March 2022.
Saudi Aramco has publicly announced that its 2022 capex will be at $40 to $50 billion as it continues focusing on upstream and downstream investments. The company has also announced plans to expand its crude oil production capacity to 13 million barrels per day by 2027 and boost gas production by more than 50% by 2030, in addition to the long-term goal of up to 4 mmbpd liquids-to-chemicals, all of which requires continuous capex.
Oilfield services sector
Increased investments in oil and gas will also provide cash-flow visibility for the Saudi oilfield services (OFS) sector, S&P notes. To boost the Kingdom’s production capacity, Saudi oil giant Aramco publicly announced plans to double its offshore fleet to 90 by 2024.
In May 2022, the oil giant also announced 16 jack-up contracts for 80 rig years, with most contracts lasting five years plus two optional years. As a result, S&P expects some clarity around the backlogs of OFS companies that have growing exposure to Saudi Arabia.
In Q2 2022, the global jack-up market recorded the most rig years signed in a
quarter for more than five years, with over 70% of the awards coming from the Middle East. In November alone, ten multi-year jackup contracts were signed, with Saudi oil giant Aramco continuing to drive the majority of the contracts, according to Evercore ISI’s Offshore Rig Market Snapshot.
In September 2022, ADES announced plans to acquire seven drilling jack-ups from Seadrill for $628 million, with four already contracted with Saudi Aramco.
The OFS sector is just emerging from prolonged pricing pressures and demand weakness dating from the oil price decline of 2014-2015. Therefore, most OFS and drilling companies started 2022 with high cash flow leverage.
