Kingdom interprets any publicly voiced US doubts on its reliability as an assault

Samira Kawar
Special to the Daily Star

LONDON: Saudi Arabia’s giant government-owned oil company, Saudi Aramco, has been riled by claims in the US that it faces an early decline of its oil production capacity. It has responded with a rebuttal that amounts to the most detailed ever public presentation on the country’s nationalized upstream oil sector.
In a post-Sept. 11, 2001 atmosphere that has strained US-Saudi relations, the kingdom interprets any publicly voiced US doubts of Saudi Arabia’s reliability as an assault on the very foundations of a relationship that is already under strain. It is therefore not surprising that Aramco moved swiftly to counter negative publicity arising from an assault on the key issue that makes Saudi Arabia indispensable to the West ­ its reliability as the world’s biggest supplier and swing producer of oil.
The claims casting doubt on the kingdom’s ability to sustain output capacity at current levels ­ and hence to retain its role as the world’s largest producer and exporter of oil ­ are being made by energy investment banker Matthew Simmons. He presented his ideas, which will be published in a forthcoming book, at the Center for Strategic and International Studies (CSIS, a Washington think tank) last week. And the New York Times ran an article expressing similar ideas, giving them further publicity and prominence.
Aware of the views Simmons was unleashing, Saudi Aramco’s acted in an unprecedented manner. It brought out two of its upstream big guns ­ Exploration Vice-President Mahmoud Abdel-Baqi and reservoir management manager Nansen Saleri ­ to share the stage with Simmons at last week’s CSIS presentation. The details they revealed about Saudi Arabia’s oil fields, and Saudi Aramco’s method of managing them, had never before been made public. The company has no private shareholders and does not issue annual reports or results similar to those issued by the oil majors.
Simmons says that oil companies in general ­ not just Saudi Aramco ­ have relied too heavily on emerging technologies to maintain production, only to discover that the technologies may actually accelerate a production peak and a steady decline thereafter. He suspects that Saudi Aramco is in a similar position. Basing his data on 200 papers presented to the Society of Petroleum Engineers over the past 40 years, Simmons argues that the increased need for water injection to maintain pressure in Saudi wells, along with sharp declines at other giant fields elsewhere in the Middle East and the world, indicates that the peak in Saudi production may have already passed.
Abdel-Baqi and Saleri insist that Saudi Arabia’s reserves ­ the biggest in the world ­ can produce at current rates for over 50 years. Only a small amount of exploration success is necessary to produce that long at much higher rates, they say.
Aramco’s 10 million barrel per day (bpd) production capacity could easily increase to sustainable rates of 12 million or 15 million bpd if world markets demanded the additional oil, they say. And Aramco’s current 10 million bpd capacity can be sustained for 50 years by relying on just 15 billion barrels of its probable and possible reserves, which are estimated at 103 billion barrels. Those incremental probable and possible reserves are in addition to the kingdom’s already proven reserves, which stood at 260 billion barrels by the end of last year, comprising 25 percent of global conventional oil reserves. Some 130 billion barrels, corresponding to half the kingdom’s proven reserves, are developed and are mostly in production, says Aramco. Its business plan calls for replacing 15 billion barrels of reserves from 2005 to 2009, at the rate of around 3 billion barrels a year.
The company’s proven reserves will be increased by future exploration, delineation and development efforts, says Aramco. Vast unexplored acreage exists in the Rub’ al-Khali desert region, the northern basin (along the border with Iraq), and the offshore Red Sea basin, says Aramco, and it expects the volume of its oil initially in place to reach 900 billion barrels by 2025 from the present level of 700 billion barrels.
Saleri says Aramco uses the latest diagnostic techniques to fully understand each reservoir’s architecture and adjusts production drilling to keep output constant and depletion rates at a minimum. This is how Aramco can avoid the rapid production build-up and rapid decline seen at the Yibal field in Oman, Saleri says.
Aramco says its conservative approach to reservoir estimates and the fact that it depletes its reserves far more slowly than major oil companies shows it will easily meet the future call on its oil. Western oil companies push their fields harder to extract as much oil as quickly as possible, while Aramco aims to maintain is current output and spare capacity for decades, says Abdel-Baqi. “The company has a policy of maintaining a healthy cushion between its production and its maximum sustainable capacity. The cushion has served us extremely well and will continue to serve us extremely well in the future,” he said.
Tackling concerns that Saudi oil production capacity is reaching a peak, Abdel-Baqi said that two of its giant fields, Manifa and Khurais, containing 40.8 billion barrels of oil, are currently shut in. Aramco does not consider these reserves as “developed,” emphasizing the potential of its existing known reserve base. Both these fields have more than 98 percent of their reserves remaining, he says.
Aramco has more than 72 percent of its total reserves remaining after producing for more than 70 years, according to company data. Using the most advanced drilling, monitoring and enhancement techniques, Aramco expects to be able to meet projections of growth in demand for its oil. Depletion rates of no more than 4.1 percent a year of proved reserves compare with 4.2 percent a year at Alaska’s Prudhoe Bay and 9.6 percent a year at the North Sea’s Brent complex. Aramco says it newest field development, Shaybah, will produce at its 500,000 bpd capacity for at least 50 years, with a depletion rate of only 1 percent a year. Aramco’s total reserves depletion was 28 percent at the end of last year.
Aramco’s operating area comes to 1.5 million square kilometers, which include 85 fields and 320 reservoirs. It has nine seismic crews and 48 rigs. Its gas production is 9.6 billion cubic feet per day, and its gas reserves are growing at a rate of 5 trillion cubic feet per year.

Samira Kawar is Middle East editor at Argus Media in London