Barclays: Saudi Arabia refocusing Aramco’s strategy

Saudi Arabia, with domestic oil use trimming exports and threatening the kingdom’s trade position, is refocusing the strategy of its national oil company, according to a Barclays analyst.

James C. West writes in a research note that Saudi Aramco is emphasizing natural gas development, pursuing opportunities in unconventional resources, and trying to become a technological leader.

The new push for on natural gas in part represents an attempt to displace subsidized oil in power generation. Saudi oil use increased to 2.9 million b/d, 25% of production, in 2012 from 1.6 million b/d, 17% of production, in 2000.

With internal consumption rising, Saudi Arabia has less oil available for the exports on which its economy and external accounts depend.

“Reversing this trend is a priority in Riyadh,” West says.

Barclays expects Aramco to increase spending on exploration and production to $15 billion this year from $11 billion in 2012, largely to develop gas resources and unconventional resource potential, including deep water.

With gas reserves of 288 tcf, fourth largest in the world, Saudi Arabia increased gas production to 9.9 bcfd last year from 8.9 bcfd in 2011. Barclays expects the increase to continue as the kingdom “transforms to a natural-gas-based industrial economy from oil currently.”

Aramco is expanding nonassociated gas production from three offshore fields: Karan, Arabiyah, and Hasbah. And it has identified three areas of promise for unconventional development: the Northwest off Tabuk Province, South Ghawar in the Eastern Province, and Rub al-Khali (Empty Quarter).

Discouraging gas development are subsidies now keeping the domestic gas price at 75¢/MMbtu.

“We think gas prices will rise in the near future and improve shale activity in the region,” West says.

Aramco now operates 142 rigs—51 drilling for gas and 91 for oil—and plans to add 37 rigs by yearend, mostly for natural gas, according to the analyst. West says 200 rigs could be operating in Saudi Arabia by the end of 2014, although Aramco’s plans to develop gas and unconventional resources could push the total higher.

West noted recent Aramco gas discoveries in the Red Sea, including some in deep water, and said the company plans to drill seven exploratory gas wells in the province by yearend (OGJ Online, June 5, 2013).

One drillship is operating in the Red Sea, he noted, adding, “We expect this count to increase due to the success of the first deepwater well.” The deepwater prospects underlie thick salt strata, he said.

In the area of technology, Saudi Aramco has established 11 international research and development centers since 2010 and entered research partnerships in South Korea and France. West expects the strategy to accelerate deepwater and shale activity.

“Aramco is advancing from a traditional consumer of technology to a global innovator, largely to solve its own onshore and offshore challenges,” West writes.

Aramco Pres. and Chief Executive Officer Khalid A. Al-Falih made that shift part of a globalization strategy he described in a 2011 interview (OGJ Online, May 25, 2011).

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