Saudi Aramco Is Raising Capacity to 12.3-13.5M B/D.

With Riyadh worried that the share of conventional oil in energy markets might fall rapidly if crude oil prices remain too high above OPEC's $25/b target average through 2007, Saudi Aramco is speeding up work on expanding its production capacity to between 12.3-13.5m b/d within the next three years. It is preparing invitations to bid for a project management contract (PMC) for development of the giant Abu Hadriyah oilfield, which has the potential to produce 500,000 b/d of light/sweet crude oil. This project could cost up to $1.5 bn. US companies seeking prequalification for the PMC include Fluor Daniel, Parsons Corp., Jacobs Engineering and Foster Wheeler.

Saudi Aramco's current production capacity has reached 11.3m b/d, with the recent coming on stream of 800,000 b/d from the Qatif and Abu Saafah oilfields. This new crude oil is light and sweet, of which the world is acutely short. Abu Hadriyah, in the Eastern Province near the Persian Gulf coast, could be expanded later to 750,000 b/d. Last month, Saudi Oil Minister Ali Naimi said among new light/sweet crude production stream that can be developed quickly are a 200,000-500,000 b/d expansion of the Shaybah field in Rub' Al-Khali on the border with Abu Dhabi, another 500,000 b/d of light grade from the Khursaniyah and Fadhli fields, and 1.2m b/d of heavy crude oil from the Khurais field.

In recent months Saudi Aramco has purchased new rigs and signalled to suppliers that it intends to increase its drilling fleet by more than 70%, implying a buildup of historical proportions. Its aim is to have a fleet of 60 rigs. There are now 31 rigs operating in Saudi Arabia, 18 on oil and 13 on natural gas. Although some of the new rigs could be used for gas, most will be for oil. After operating fewer than 10 rigs for much of the 1980s, Saudi Arabia has averaged around 25-30 active rigs for most of the past decade. National Oilwell, which designs and builds drilling rigs, recently sold a number of them to both Saudi Aramco and Kuwait Oil Co. (KOC), with the latter to add eight rigs in the coming months. The rigs procured by Saudi Aramco are among the more sophisticated and designed to drill to deeper than conventional equipment as the wells become more complex. Saudi Aramco has ordered 10 rigs from Nabors Industries Ltd. (NBR), with four ordered in August and six more recently.

Oil Minister Naimi has said Saudi Aramco would invest at least $2.5 bn a year to raise its spare capacity light/sweet grades. Saudi Aramco has been producing about 9.5m b/d since May. Some of its 11.3m b/d capacity supplies heavy/sour grades which are not popular among most refiners on both sides of Suez. Saudi Aramco's older fields require more drilling just to prevent output levels from falling.