Saudi Aramco keeps up expansion pace with raft of contracts

Saudi Aramco expands apace with a raft of new contracts, including to Australia’s Worley Parsons and Houston’s McDermott for engineering work.

Saudi Aramco has issued a raft of new contracts for engineering work. Fayez Nureldine / AFP

Aramco, Saudi Arabia’s state oil company, has started the year awarding a raft of new engineering contracts as it keeps up the pace of its oil and gas sector development.

Aramco extended the engineering contract for Australia’s Worley Parsons for a number of onshore projects – green and brownfield – for an additional five years, Worley Parsons said in a statement to Australia’s stock exchange.

McDermott International, which is headquartered in Houston, also said it was tapped for an additional engineering contract for work on one of its offshore platforms, the third such contract it has won in 18 months.

The contracts follow two awarded earlier in the week to Mumbai-based L&T Hydrocarbon Engineering, a subsidiary of Larsen & Toubro, for work on a number of offshore platforms in the Arabian Sea, for which L&T is in partnership with Emas Chiyoda Subsea, a joint venture between Ezra Holdings of Singapore and Chiyoda of Japan.

None of the companies involved disclosed the value of the latest contracts.

Aramco divulges little about its spending on capital projects but like most other national oil companies in neighbouring Arabian Gulf countries, it has kept up its spending levels while other large private-sector oil companies have slashed their spending by billions.

There have been some signs that budgets will be under less pressure in the year ahead but oil industry consultants at Wood Mackenzie estimate that global oil company capital expenditures (capex) for 2016 and 2017 combined will be about US$400 billion lower than in 2014.

Aramco has long-standing plans to increase its sustainable capacity to 12 million barrels a day (bpd) from an estimated 11 million to 11.5 million bpd currently, although its true capacity is a matter of industry conjecture as it doesn’t provide a definitive level. Output reached a record of just above 10.6 million bpd in August and Saudi Arabia has agreed to restrict it to about 10 million bpd for the first six months of the year under the terms of the Opec deal struck at the end of November.

Aramco’s annual capex is also not disclosed, but its former chief executive – and current energy, mines and industry minister – Khalid Al Falih, said in 2014 that the company planned to spend about $40bn a year over the decade, with an increasing emphasis on offshore oil and gasfield development.

Aramco also has a target to increase recovery rates in its reservoirs to 70 per cent, the same as Abu Dhabi’s target recovery rate, by employing a range of advanced technologies. Average recovery rates from oilfields have been 40 per cent historically but some companies have been able to get them to 50 to 60 per cent by using new technologies.

In last year’s Saudi budget, the goal was set to double domestic gas production to 23 billion cubic feet a day over the decade, partly to be reinjected to boost oilfield production but also to raise the share of gas in power generation from 50 per cent to 70 per cent.

While Aramco has been pressing down on costs from its suppliers during the downturn, it also has been pushing for more local investment under its “in-Kingdom Total Value Add Program” (iktva) programme.

Last month, Aramco signed joint ventures with Saudi oil services firms Nabors Industries and Rowan Companies to form what the chief executive, Amin Nasser, called “national champions” in onshore and offshore drilling.

Those joint ventures are expected to invest between $6bn and $7bn and create 5,000 jobs in Saudi Arabia as part of the iktva programme, which targets 70 per cent local contact for contracts and 30 per cent exports for such joint ventures.

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