State-owned oil company Saudi Aramco has held discussions with Italy’s Saipem, the contractor awarded the $2bn contract for the main processing facilities at its $3bn Khurais expansion project, regarding lowering the costs.

MEED reported in January that Aramco had taken steps to manage cash flow by extending the execution phase of Khurais by another 12 months. Now it is taking another step and if significant cost savings are not apparent after the engineering phase is completed, Aramco could pull the plug on the whole deal, including the two pipeline contracts.

“[Aramco] will decide in June whether to go ahead on the Khurais expansion,” says an oil and gas source based in Saudi Arabia. “Aramco will look to take 75 per cent of any savings with Saipem taking 25 per cent. However, if the savings are not deemed significant enough, the whole project will be terminated.”

Two other pipeline packages are included in the expansion and will be constructed by two local contractors.

The packages and contractors are:

• Mazlij-Abu Jifan pipeline – Saudi KAD Construction
• Seawater pipeline – HAK Group

The latest move is proof that Aramco is looking at ways to better manage its huge portfolio of projects without causing any problems to its day-to-day operations.

If Aramco stick to its original plans, 300,000 barrels a day (b/d) of oil will be added to the field’s current capacity of 1.2 million b/d. Khurais is located adjacent to the Ghawar oil field, one of the world’s largest, in the Eastern Province of the kingdom. The field began operations in 2009 and produces 1.2 million b/d of light Arabian crude, 320 million cubic feet a day (cf/d) of gas and 80,000 b/d of natural gas liquids (NGLs).

The expansion at Khurais, as well as the planned increase of 250,000 b/d at the Shaybah field in the Empty Quarter, will ease production at other oil fields and will not increase the kingdom’s 12.5 million b/d capacity.

Although Saudi Arabia has a production capacity of 12.5 million b/d, it currently produces about 9.6 million b/d. The new incremental additions of capacity at Khurais and Shaybah would not increase overall capacity, but instead replace production from more mature fields.

This may be the reason why Aramco feels it can cancel the scheme without impacting on any of its day to day operations.

“The oil in Khurais is not going anywhere,” says an oil and gas consultant based in Saudi Arabia. “This means that they could save themselves the $3bn budget and still expand the field in the future.”   

MEED reported in early January that Aramco’s $3bn Ras Tanura refinery clean fuels rehabilitation scheme was being postponed for at least 12 months in order to prioritise other schemes.

The oil major is cutting back spending on non-essential schemes, but sources have indicated that spending on key sectors such as gas will not be affected by lower oil prices.

There are several significant gas projects that are still active. These include the $5bn Fadhili gas plant in the Eastern Province, second phase of Aramco’s Master Gas System Expansion project as well as an unconventional gas scheme in the north of the kingdom.

Another project, the Jizan Refinery and attached integrated gasification combined-cycle (IGCC) power plant, has witnessed its budget increase to about $19bn from an initial figure of about $12bn. This additional spending may also have had an impact on other projects deemed non-essential.

Saudi Aramco and Saipem were not available for comment when contacted by MEED.