Saudi Aramco is asking for discounts of up to 25 per cent to oil and gas rig providers as it tries to lower operational costs due to low oil prices.

Sources in the upstream hydrocarbons sector have stated that markdowns of anything between 15-25 per cent are being requested as the price for oil remains lodged under $60 a barrel. However, the most providers of rigs for both onshore and offshore are willing to offer is between 5-7 per cent.

“Giving a 25 per cent discount would mean a lot of companies would be losing money on every deal,” says an executive from a rig provider. “There has to be some sort of compromise because no one will be prepared to offer such a large discount while knowing that Aramco needs to keep production high.”

Despite shrinking oil prices, Saudi Aramco has maintained high production of about 9.6 million barrels a day(b/d) to sustain its market share. This means the rig count in the kingdom is not expected to fall that much in 2015, with experts predicting maybe two or three rigs maximum. However, cashflow is also being managed carefully across all of the oil major’s operations.

“They will be trimming some rigs, but most will be older rigs and will be replaced with new facilities,” says a source working in the Middle East upstream industry. “There is an element of opportunism here, especially as most contracts are locked-in and difficult to change, but no one will want to risk being frozen out in the future either.”

One compromise would be to renegotiate contracts so they are linked to the oil price. This means pre-arranged discounts could be offered during the leaner periods and better rates paid while the oil prices are correspondingly high.

The region’s major producers will be keen not to repeat the mistakes made in 2009 when it cut rig counts drastically before having to then pay large fees to remobilise when production rose in 2011. According to Saudi Aramco data, the kingdom produced about 7.9 million b/d in 2009-10, but this rose to more than 9 million b/d in 2011.