Low construction costs push Saudi to re-tender projects

Saudi Arabia is planning to re-tender major oil projects to take advantage of cheaper construction costs and lower commodity prices following the global financial crisis, its main oil producer has said.

Government-owned Saudi Aramco, the world's largest oil producing company, said it would push ahead with mega projects in its hydrocarbon sector despite the global credit tightness and a sharp drop in crude prices.

The company invited major local contractors this week to explain its investment strategy for the next five years and assure them that its financial position is strong enough to enable it to carry out planned ventures.

Quoted by Saudi newspapers, Saudi Aramco's Projects Management Director Majid Al Mukla told the contractors the company "has the technical and financial capability to implement 144 ventures, including eight mega projects and 80 medium enterprises, in the next five years."

"Saudi Aramco is considering more flexible and innovative strategies to lessen financial risks in managing these projects… these strategies could include new contracts that are more suitable for the new market conditions and financing terms, and less vulnerable to price fluctuations," he said.

"We are now considering re-negotiating some of those projects that have not been awarded yet and I believe you [Saudi contractors] should seize this opportunity offered by Aramco to face global market challenges."

He said Saudi Aramco, which controls nearly a quarter of the world's proven oil wealth, is in the process of "recalculating the costs of its planned projects following a large decline in prices of building materials and construction costs".

"Saudi Aramco's forthcoming projects will largely support the financial balance of local contracting companies that have been qualified by Aramco…

"I can assure you the projects we are planning to carry out over the coming five years are even bigger than those undertaken in the previous period," he said.

Al Mukla gave no details of Saudi Aramco's projects but the company has been locked in an ongoing drive to increase its sustainable crude output capacity, develop its gas resources, and expand its refining and petrochemical sector.

Releasing its 2007 annual report in mid-2008, Saudi Aramco said it has plans to pump in the excess of $50 billion (Dh183bn) in upstream projects in 10 years.

It said the investments would cover both expansion of the production capacity and maintenance of the present capability, which could dwindle in the course of time without regular upgrading and development.

"Saudi Aramco's ambitious capital programme achieved many milestones during 2007 towards the construction of crude oil increments… since 2001 through the scheduled completion of Manifa in 2011, we would have built more than four million bpd of oil production capacity," the company said.

A breakdown showed another major venture, the Khurais oilfield project, would add around 1.2 million bpd of light Arabian crude to the Kingdom's production capacity, which was estimated at 11.3 million bpd at the end of last year.

The Manifa field will add nearly 900,000 bpd while Khursaniyah involves an additional 500,000 bpd and Shaybah in the Empty Desert will pump an extra 250,000 bpd to reach a peak of around 750,000 bpd.

The additional capacity, which exceeds the total oil production of Kuwait and Qatar, will allow Saudi Aramco to achieve its target of reaching 12.5 million bpd by the end of 2009 and sustain that output beyond that date.

Saudi Arabia, the de facto leader of the 12-nation Organisation of Petroleum Exporting Countries, controls nearly 25 per cent of the world's proven oil resources, with its reserves standing at 266 billion barrels at the start of 2008.

It pumped an average 9.2 million bpd last year, more than 10 per cent of the world's total crude supplies. But supplies are expected to dive to nearly eight million bpd this year because of slackening global demand.

Aramco Expansion Projects

Khursaniyah: Oil production facilities neared completion at the end of 2007, with facilities slated to come on-stream in 2008. The plant has the capacity to process and stabilise 500,000 bpd of Arabian light crude. All gathering and distribution pipelines, and communication and industrial support facilities were commissioned in 2007.

Khurais: The Khurais programme, the largest integrated project in company history and the largest industrial project in the world, is on track for facilities completion. The programme will increase production capacity of Arabian light crude by 1.2 million bpd through a new central processing facility, the largest of its kind in Saudi Arabia.

Manifa: The Manifa oil field programme will be developed with onshore and offshore wells using electric submersible pumps to produce 900,000 bpd of Arabian heavy crude oil starting in the third quarter of 2011.

Shaybah: Major installations of the Shaybah crude oil expansion programme include a gas-oil separation plant, and gas compression and injection facilities. When the facilities are complete in December 2008, Shaybah field production capacity of Arabian extra light oil will increase from 500,000 bpd to 750,000 bpd in 2009.

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