Saudi Aramco adapts to oil price downturn

02 December 2015

The remit of the world’s biggest crude producer has grown beyond hydrocarbons

Saudi Aramco is the state-owned oil company of Saudi Arabia. It is a giant of the energy world that employs more than 61,000 workers in 77 countries, and is headquartered in Dhahran in the oil-rich Eastern Province.

Its remit is to be a stable supplier of hydrocarbon resources, moving deeper into the value chain to produce petrochemical products, build export refineries and advance the development of cleaner fuels. None of this will divert the world’s most valuable integrated company away from its core oil and gas business, where it remains the world’s biggest crude producer this year, with about 10.4 million barrels a day (b/d) in production.

The company is adapting to the downturn in oil prices. Its board has endorsed a strategic framework that will see it stay the course to pursue its 2020 strategic intent of transforming into the world’s leading integrated energy and chemicals company, allowing for “short-term, tactical adjustments” along the way.

Structural changes

Aramco has been subject to an organisational change this year, with its formal separation in May from the Ministry of Petroleum & Mineral Resources. Under King Salman bin Abdulaziz’s restructuring, the oil firm will report to a new Supreme Council for Saudi Aramco that will be charged with overseeing the organisation. Chaired by the powerful Deputy Crown Prince Mohammed bin Salman, it takes over the role the oil ministry previously undertook.

The body held its first meeting in Jeddah in mid-September 2015, confirming then interim CEO Amin Nasser as the permanent president and CEO. He replaced Khalid al-Falih, who was named health minister earlier in the year.

This seismic change in the governance of the kingdom’s petroleum industry prepares the ground for the retirement of Ali al-Naimi, the kingdom’s oil minister.

Sustaining capacity

Aramco will maintain its project focus on sustaining production capacity of 12.5 million b/d. Its main oil field project will add 300,000 b/d to the 1.2 million-b/d Khurais field adjacent to the Ghawar oil field. The Khurais expansion, as well as the planned increase of 250,000 b/d at the Shaybah field in the Empty Quarter, will relieve pressure on other fields. In the future, unconventional gas will make a significant contribution to Aramco’s plans to increase gas production.

Key Saudi Aramco projects
ProjectBudget ($m)StatusAward yearDue
Jizan refinery IGCC power plant8,500Execution20142018
Yanbu refinery expansion7,000Study20172021
Arabiyah-Hasbah development: Hasbah sour gas field expansion3,200Main contract bid20162019
Fadhili gas plant: gas central processing facility – package 12,500Main contract bid20152019
Ras Tanura refinery Clean Fuels Project: package 12,000Main contract PQ20162019
Khurais increment programme: central processing facilities2,000Execution20142020
Fadhili gas plant: sulphur recovery unit – package 32,000Main contract bid20152019
Fadhili gas plant: offsites and utilities – package 22,000Main contract bid20152019
Shale gas development: system C2,000Study20162019
Ajyal residential development: 2,400 villas1,800Execution20152020
IGCC=Integrated gasification combined-cycle; PQ=Prequalification. Source: MEED Projects

In the early 2000s, Aramco had no petrochemicals presence, but it has since diversified downstream. This will continue apace, with megaprojects such as PetroRabigh and the $20bn Sadara Chemical joint venture in Jubail aimed at substantially increasing the kingdom’s heavy industrial sectors. The idea behind the investments is to use Saudi Arabia’s already sizeable refinery resources.

Mission creep

The state oil company’s ‘mission creep’ has seen it take on more responsibilities, a reflection that Aramco is viewed as the most capable state entity in the kingdom.

In the future, unconventional gas will make a significant contribution to plans to increase gas production

This year it announced plans to form a project management company that will target the SR600bn ($160bn) of government infrastructure projects planned for Saudi Arabia over the next decade. It will form the company in partnership with up to five international project management firms, and then sell its services to other government bodies in Saudi Arabia that are developing infrastructure.

The announcement in July that Aramco will oversee the building of 11 football stadiums across Saudi Arabia highlights the growing remit of the company beyond its core business areas. There now appear to be few areas of the economy where Aramco will not extend its reach.

The organisation is likely to make further outreaches to commercial lenders in the next year, having depleted its capital reserves through an extensive portfolio of project activities in the past decade. In early 2016, Aramco sought out banks for a $10bn revolving credit facility. Given its need to continue pumping and bringing on new fields in order to meet the Opec target of keeping global markets well supplied, new capital injections will be needed.


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