SAUDI Aramco has played a stabilising force in world oil markets over the past 12 months, cutting output this year to help put a floor under falling oil prices after last year ramping up production to its highest level in years in a bid to ease soaring oil prices. Despite those disruptive factors, the company says it managed to carry out an oil exploration programme last year that replaced every barrel it produced – again. Sceptics note that Saudi oil reserve numbers have stayed static around 260 billion barrels for over a decade, despite several billion barrels of annual crude production. But Saudi engineers stand firmly behind their ability to replace every barrel they produce through exploration.While aiming for more continuity this year, Aramco will need to deal with changes in the company, including the election of a new chief executive, Khaled Al-Falih, and a shift to finding and exploiting more of the kingdom’s vast natural gas reserves.

Aramco’s Annual Review 2008 revealed more than previous reports, offering more information on technical advances, project timetables and the group’s future plans. Full disclosure of operational and financial activities is still a long way off – Saudi Arabia’s rulers still consider the kingdom’s oil industry to be a feature of national security – but Aramco’s information provision is better than most of the region’s other oil giants.

Analysts point out that the new reserves booked by Aramco last year came from drilling deeper in old structures. Of the five new oil fields discovered in 2008, all were in the country’s prolific northeast, most were targeting deep reservoirs in known but non-producing fields, and none appeared to be giants, although Aramco did not provide individual reserve numbers. The state firm struck six new reservoirs in known fields, including the Niban structure, Rimthan, Manifa, Khursaniyah and the offshore Jurayd. It did make one new discovery at the Niyashin-1 well, which initially flowed at 2,000 barrels per day (bpd), at depths of 3,660 metres.

Aramco thinks there is a lot more oil to be found in the country’s eastern province and has dedicated much effort in recent years to proving up the deposits there. Indeed, there are many known Saudi fields and reservoirs that are not in production: only 23 of the 104 recorded oil and gas fields, covering 354 different reservoirs, are currently producing, according to Aramco’s 2008 review. Although proven oil reserves have stood around 260 billion barrel for over a decade, Aramco says that the kingdom’s total resource base is 742 billion barrel.

While the group continues to spend heavily on exploration, it is also investing heavily in improving oil recovery rates. Over the past five years, Aramco has added 35 billion barrel of oil-in-place as it works toward a target total oil resource of 900 billion barrel. The goal is to raise recovery rates from the country’s major producing fields from 50 per cent of oil-in-place now to as much as 70 per cent, the company says.

The company also broadened its exploration scope in 2008, shooting 2-D seismic off Saudi Arabia’s western coast in the Red Sea, with geologists optimistic about the area’s prospectivity.

Aramco also noted its success in reservoir management at its producing fields last year. It brought the water cut down from 28 per cent to 27 per cent at the 60-year-old workhorse Ghawar oil field, which has produced around 5 million bpd (mbpd) for over a decade. Nine years ago, the water cut at the field was 36 per cent.

The state-owned firm is attempting to make these improvements to reservoir management against a background of big fluctuations in production, as the kingdom, essentially Opec’s swing producer, first increased crude production to above 9.5 mbpd to try to tame surging oil prices, and then cut production to below 8 mbpd to try to halt the tumbling oil price. Saudi Arabia’s oil production averaged 8.9 mbpd in 2008, up from 8.5 mbpd in 2007.

Aramco also worked to bolster its project management reputation, which had been called into question in the past few years during a $70 billion upstream investment programme, which ends this year.

In an internal report in March 2008, Aramco committed to spend some $65 billion on its capital development programme from 2009 to 2013. Industry sources suggest Aramco this year has trimmed costs in the firm’s current 2010-14 investment programme, mainly by anticipating lower construction costs on its megaprojects.

Aramco’s reputation for hitting deadlines was slightly tarnished with a string of late start-ups, including the 500,000 bpd Khursaniyah project, which began operations eight months late, in addition to the 100,000 bpd Nuayyim field and the 250,000 bpd Shaybah increment, which both missed their original end-2008 deadline.

khurais ... coming on stream ahead of schedule

Aramco says it has righted the ship with the 1.2 mbpd Khurais development, the largest project ever undertaken by the group, which started producing at the end of June, although not at full capacity. Once Khursaniyah, Nuayyim, Shaybah and Khurais are all producing oil, Aramco’s production capacity should reach the long-promised 12 mbpd mark.

With the new oil increments in place and world crude demand set to fall this year, Aramco is increasingly turning its attention to the production and discovery of natural gas, which the kingdom requires for its projected industrial growth.
Aramco added 9.2 trillion cubic feet (tcf) of new gas reserves in 2008, almost double the amount added in 2007 and outpacing even the volumes booked in 2006, when Aramco discovered the large 9 tcf Karan field. The successful exploration programme helped boost the group’s total recoverable gas resources to 263 tcf. Taking account of the 3 tcf of gas Saudi Arabia produced in 2008 – with average output of 8.3 billion cubic feet per day (bcfd) – Aramco added almost 13 tcf. In 2007, Riyadh vowed to add 100 tcf of gas over 10 years.

The company’s need to find and develop more gas has been heightened by the failure of most of the international gas exploration joint ventures in the vast Rub Al-Khali desert. Three of the four international joint ventures exploring in the region – led by Royal Dutch Shell, Sinopec and Eni-Repsol YPF – have not made any commercial discoveries after five years of work. Early last year, Total exited the consortium with Shell. The fourth joint venture, with Russia’s Lukoil, has said it made two commercial strikes in the Saudi desert, but neither have been fully delineated.

However, Aramco has found new offshore gas fields at Rabib, in the pre-Khuff, and at Arabiyah. At existing fields, Aramco discovered gas offshore at the Khuff B reservoir at Hasbah as well as field extensions in the southern part of the Midrikah and Nujayman fields.

Fast-track development programs for non associated gas fields Arabiyah and Hasbah are already being considered by the firm. The programme for Arabiyah and Hasbah, which could contain 3 tcf-4 tcf gas, will bring on 1.8 bcfd gas by 2014-15. And the offshore Karan field should come on stream in 2013. In a bid to cut costs, Aramco asked contractors to rebid on Karan and earlier this year awarded two core onshore packages worth around $2 billion, 15 per cent less than earlier cost estimates.

“The kingdom’s demand for sales gas is expected to continue growing at 5 per cent per year as the country’s domestic and industrial bases expand,” Aramco says.