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EDITOR'S NOTE:
The Saudi-U.S. Relations Information Service would like to
thank Saudi Aramco's Dimensions publication for permission to share this article with our
readers. It was originally published in the Summer 2004 issue of Dimensions.
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Saudi Arabian Oil Fields Brimming
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If global petroleum
markets required it, Saudi Aramco could nearly double its current
world-leading oil production output to 15 million barrels a day and
comfortably sustain that rate for at least 50 years.
In
a nutshell, that's the company's short answer to recent speculation in
some international media that production of the Kingdom’s oil fields might
be poised for an imminent and irreversible fall.
One of the most
vocal recent skeptics is Matthew R. Simmons, chairman of Simmons & Co.
International, a Houston, Texas-based investment bank specializing in energy.
Simmons said he believes, for example, that Saudi Arabia's largest field --
Ghawar, which produces about 5 million barrels a day -- could be quickly
running dry. He also worries aloud that production of other maturing fields in
the Kingdom may have sharply declined from peak output rates. He fears that
what he calls the Saudi miracle of abundant, cheap, easy-to-produce oil may be
nearing its end.
"The entire world
assumes Saudi Arabia can carry everyone's energy needs on its back
cheaply," Simmons said. "If this turns out not to work, there is no Plan
B."
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| Top Saudi Aramco
exploration and production officials responded to these concerns in early 2004
at various public forums in the United States. Their message: As far as Saudi
Arabia's contribution is concerned, we have Plans B, C, D and more to ensure
that production continues undiminished or, if necessary, at increased rates,
and that hundreds of billions of barrels of oil reserves are on hand to help
meet surging world demand many decades into the future. No problem, in other
words, when it comes to Saudi oil. |
CSIS Energy Program director Frank
Verrastro, third from left, with Saudi Aramco representatives at the
CSIS event: from left, Mazen Snobar, Mahmoud Abdul-Baqi, Nansen Saleri,
Yasser Mufti, and David Bosch. (Photo by Unknown/Saudi Aramco/PADIA)
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On Feb. 24, Mahmoud
M. Abdul-Baqi, then Saudi Aramco's vice president of Exploration, and Dr.
Nansen G. Saleri, manager of Reservoir Management, delivered a joint
presentation at the Center for Strategic and International Studies (CSIS), a
prestigious Washington, D.C.-based think tank. The presentation was titled, "Fifty-Year Crude Oil Supply Scenarios: Saudi Aramco's Perspective."
The presentation
was partly in response to a Nov. 14, 2003, report in the Washington Post that
quoted Simmons concerns and partly to show the world that Saudi Aramco has the
proven reserves, the ability and the capability to expand production to much
higher levels and help meet future world demands. Abdul-Baqi and Saleri also
made a joint presentation on Feb. 25 to 60 academic leaders, students, media
representatives and energy consultants at Johns Hopkins University School for
Advanced International Studies' International Energy and Environment
Program. .
Below is a summary
of key stated concerns about Saudi Aramco's production potential and
composite company responses:
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Will Saudi
Arabia's role decline in meeting world energy demand in the near future?
World energy demand
is expected to increase at an annual rate of 1 percent to 2 percent over the
next 15 years, reaching an annual demand of 107 million barrels of oil per day
by 2020, partly as an anticipated consequence of growth in China, India and
other Southeast Asian economies.
Worldwide oil
reserves* at year-end 2002 stood at 1,050 billion barrels, of which 65 percent
(or 686 billion barrels) is in the Middle East, with Saudi Arabia being the
principal player. The Middle East contributes more than 28% of total world
production, has a reserves-to-production life of almost 90 years and is
expected to play a paramount role in the global energy theater.
Saudi Aramco is
committed to maintaining its pre-eminent role as a reliable, cost-effective
and environmentally friendly global oil supplier. If called upon, the company
can sustain daily crude production levels of 10, 12 and 15 million barrels per
day through 2054 and beyond.
"We
have plenty of oil," Abdul-Baqi added. "We have the potential to add more
oil than anyone else. Our track record shows that we delivered for 70 years ..
overcoming any operational, technological, organizational and financial
concerns .. and we're going to continue delivering for another 70 years, at
least .. (and) we can do it at a very reasonable cost, which makes it
extremely feasible."
Abdul-Baqi explained that Saudi
Aramco's finding and development costs are about 50 cents per barrel, far
below the industry average of $4 to $5 per barrel. Full-cycle costs, which
include the cost of finding, developing and producing a barrel of oil, are
less than $3 per barrel of oil equivalent (BOE), compared to average
full-cycle costs of $7 in Brazil, $8 in Russia, $10.50 in the North Sea and
$14.50 in the United States' Gulf of Mexico (according to a Cambridge Energy
Research Associates cost study in late 2002).
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Future
of Global Oil Supply: Saudi Arabia
A
Conference Hosted at the Center for Strategic and
International Studies on Feb. 24, 2004
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Another measure of Saudi Aramco's
efficiency, the cost per foot of drilling, has been consistently improving
over the years due to technological advances. Although, the cost per well is
increasing, due to the high-tech, complex nature of drilling new wells.
Nonetheless, the return on investment remains very attractive because the
productivity for the more modern wells is much higher than previous wells.
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Saudi Aramco’s current operations
encompass 1.5 million square kilometers, comprising 85 fields, 320 reservoirs
and 25 percent of world oil reserves. Current daily production capability
stands at 10 million barrels of crude oil and 9.6 billion cubic feet of
natural gas. |
Saudi Aramco facilities such as Haradh
Gas Plant process nonassociated natural gas that is produced
independently of oil production. (Photo by Ken Childress/Saudi Aramco/PADIA)
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What is Saudi Aramco's
reserves-management strategy?
Saudi Aramco's current operations
encompass 1.5 million square kilometers, comprising 85 fields, 320 reservoirs
and 25 percent of world oil reserves. Current daily production capability
stands at 10 million barrels of crude oil and 9.6 billion cubic feet of
natural gas. The company’'s strategy calls for an annual reserves replacement
of its crude production through an integrated exploration, delineation and
development program. On the gas side, the current targets call for adding
reserves of 5 trillion cubic feet every year.
Are Saudi Aramco's reserves and
production declining?
Saudi Aramco's oil and gas reserves
conform to industry standards -- Society of Petroleum Engineers (SPE), World
Petroleum Congress (WPC) and American Association of Petroleum Geologists (AAPG).
Reserves attributable to enhanced oil recovery (EOR) processes are excluded,
underscoring the conservative nature of the company's reserves. Yearend 2003
proved oil reserves totaled 260 billion barrels. Incremental probable and
possible reserves (over and above the 260 billion barrels) are estimated to be
103 billion barrels.
| Exploration, delineation and
development efforts have increased Saudi Aramco's oil initially in place* *
from 600 to 700 billion barrels during the past 20 years. 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. USGS 2000 projections
point to additional recoverable oil resources ranging from 29 to 161 billion
barrels to be discovered in Saudi Arabia by 2025. The company projects its oil
initially in place volume to reach 900 billion barrels in the same time frame. |
Eighty-six percent of Saudi Aramco
employees are Saudi, including executive, professional and technical
staff in its world-class oil operations. (Photo by Ken Childress/Saudi
Aramco/PADIA)
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Saudi Arabia's approximate
oil-initially-in-place totals are: oil produced to date, 99 billion barrels
(bb); proved reserves, 260 bb; possible and probable resources, 100 bb; and
contingent resources, 240 bb. "We are very confident these will ultimately
be recovered, utilizing advanced and Enhanced Oil Recovery (EOR) technologies
or processes," Saleri said. "Some of these might ultimately be recovered
using technological breakthroughs that may unfold over the coming decades."
| "We have a lot of acreage to
explore and potential to find a lot more oil and gas," Abdul-Baqi said.
"We believe we are looking at potentially recovering an additional 150
billion barrels beyond the 260 billion barrels (of proved reserves) we have
booked -- an increase of 60 percent." In the last decade, Saudi Aramco
garnered a 52 percent success rate in the 64 oil and gas exploration wells it
drilled, he added. |
Mahmoud Abdul-Baqi makes a point during
the CSIS event. Other participants, from left, are Nansen Saleri,
Frank Verrastro, Matthew Simmons, and Robert Ebel.
(Photo by Unknown/Saudi Aramco/PADIA)
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The Kingdom's average state of
reserves depletion for all its fields is just 28 percent. The oldest field,
Abqaiq, is 73 percent depleted, and the world’s largest field, Ghawar, has
produced 48 percent of its reserves. By contrast, Shaybah, one of the
Kingdom's youngest fields, has 95 percent of its proven reserves remaining.
"Our 28 percent average is
fantastic by anyone's standards in the industry. There is no other major
that even comes close to that. Our typical annual depletion rate (for a field)
is about two percent," Saleri said. He added that Saudi Arabia could easily
pump up its production rate by using nearly 2 million barrels per day of spare
capacity but that such a move is not called for by current market conditions.
Saleri noted that two giant Saudi
fields that produced very little in the past -- Manifa and Khurais -- have
combined reserves of 41 billion barrels but are currently moth-balled because
of inadequate demand. Only 23 Saudi Aramco oil fields are currently active out
of a reservoir portfolio of 80 fields, he said.
| Is Saudi Aramco increasing its
water cut in producing crude oil?
The company's current water cut (the
ratio of water produced from a well compared to the volume of total liquids)
is about 28 percent, compared to 80 percent in Russia, which is also an
industry average. The water cut in Ghawar, which, at 5 million barrels per day
is the world's largest producer, has actually declined from 35 percent to 33
percent because of advances in technology and continual improvements in field
management practices.
"In fact, during 2003, we reduced
the company-aggregate water-cut levels for the fourth year in a row," Saleri
added. "This is a consequence of not only new technologies such as
horizontal drilling, but also of carefully crafted reservoir management
strategies."
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The main entrance to Saudi
Aramco's Research and Development Center in Dhahran creates a
beautiful silhouette as the sun sets. (Photo by Unknown/Saudi Aramco/PADIA)
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The water-injection plan commonly
employed by Saudi Aramco, called "peripheral water injection," represents
a conservative approach, compared to "pattern water injection" commonly
practiced elsewhere. In peripheral injection, water is injected along a
field's periphery into the water zone, and the oil is thereby pushed inward,
as opposed to the more aggressive pattern flooding techniques in which water
is injected throughout the reservoir. Peripheral injection displaces oil more
gently, maximizing ultimate recovery. Saudi Aramco can afford to practice the
more conservative peripheral injection because of its large oil reserves base
and the flexibility afforded by a large number of development opportunities.
Are the company's reservoir
development and management practices sustainable?
The wise stewardship of Saudi
Arabia's hydrocarbon reserves is Saudi Aramco's paramount objective. The
company develops and manages its rich portfolio of hydrocarbon reserves,
employing state-of-the-art technological resources, best-in-class reservoir
management practices and a world-class professional workforce. The emphasis is
on long-term production sustainability and maximum recovery.
 "This
is not the end of the age of oil, as some pessimists have been
saying. There is plenty of oil left to be found and produced,
and petroleum will remain the dominant energy source for years to
come. I assure you that Saudi Arabia's reserves are real and
that we have the potential to produce at much higher rates in line
with the growing demand for many years." -- HE Ali I. Al-Naimi,
minister of petroleum and mineral resources |
"If you produce things slowly, you
expand the life cycle, and when you expand the life cycle you get the benefits
of new technologies -- much better diagnostics, much better ways of managing
the reservoirs, much better ways of navigating against any uncertainties, any
surprises," Saleri said. "And that has a significant, direct business
impact."
Sophisticated diagnostic capabilities
(empowered by numerically intensive computational models) and comprehensive
reservoir surveillance programs are two key enablers assuring high-accuracy
field production forecasts, superior operational efficiency and optimal
reservoir development strategies.
Significant upward potential for
reserves additions exists. Oil-focused exploration and delineation efforts,
application of EOR processes and continual emphasis on existing and future
technologies -- custom-fit to the company's reservoir portfolio will
certainly engender a major expansion in Saudi Aramco's reserves base in the
decades ahead, commensurate with global market conditions and requirements.
Saleri said that ultimately Saudi
Aramco expects to recover as much as 75 percent of the oil in its fields
(through novel extraction techniques).
Abdul-Baqi said that Saudi Aramco's
Exploration and Petroleum Engineering Center (EXPEC) is one of the oil
industry's largest such facilities and is supported by a computer system
that processes and stores about four times as much data as the National
Aeronatics and Space Administration (NASA). "It is very well justified,"
he said, "because we are dealing with the largest reservoirs on earth .. Our
reservoir management practices -- I will not be shy about that are the best in
the industry."
 "Our
estimate of future oil reserves is in the range of 340 billion
barrels. Based on our current production rate, that translates
into a resource-to-production ratio of more than 110 years, meaning we
have the ability to raise our production capacity to much higher
levels if required." -- Abdallah S. Jum'ah, Saudi Aramco
president and CEO |
Why did Saudi Aramco report large
reserves increases in the late 1980s?
The reserves revisions were long
overdue because of the extremely conservative nature of the company's
reserves calculations. The company realized that with solid new evidence
coming in based on actual field performance and advanced diagnostics, it had
to revise its reserves upward. For example, Abqaiq, Saudi Aramco's most
mature field, has been in production for 60 years and continues to produce
400,000 barrels per day -- and it will probably be producing about 200,000
barrels a day many years down the road.
If original proved reserves figures
had been maintained, Abqaiq production would have finished a decade ago; at
the end of 2003, 2 billion barrels more than the reserves originally estimated
in 1970 have already been produced from Abqaiq. Another big field, Safaniya,
has already produced 1 billion barrels more than its 1970 original reserves
estimate. So, there is a lot more oil to recover than originally thought.
As a matter of fact, the company
carefully reviews its reserves every year. Revisions are made as needed, based
on a thorough technical analysis field by field, reservoir by reservoir. A
critical factor in this assessment is the actual field performance which, as
has been the case in many of the fields such as Abqaiq, Ghawar and Safaniya,
necessitates upward changes. "This is a prudent business practice," Saleri
said.
Can Saudi Aramco finance the
projects to achieve higher rates of production in the coming years?
| Abdul-Baqi said:
"We are a
self-financing company. We sell our crude, for revenue, deduct our operating
costs. Then pay the government taxes and royalties. The money
remaining is used to finance our capital projects, and what is left is
distributed as dividends to the shareholders, and we have been doing this
since the company started in 1933. This system has not changed and has served
us well to finance all of the huge projects that we have done and the 10
million barrels a day of maximum sustained capacity. We don't normally go to
banks and borrow, although we could do that. We just don't need to." |
An oil tanker takes on crude at Saudi
Aramco's Rabigh port on the Kingdom's western Red Sea coast. (Photo by
Ken Childress/Saudi Aramco/PADIA)
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From analysts and the media:
The Wall Street Journal Online (Feb.
24, 2004) -- "Many analysts attending the (CSIS) meeting said they don't
dispute Saudi Arabia's ability to sustain its output levels. Saudi Aramco
can also ramp up its output," said Roger Diwan, an analyst at PFC Energy in
Washington, D.C.
Financial Times (Feb.
27, 2004) -- Speaking at the John Hopkins University's School of Advanced
International Studies, Mr. Saleri said, "Mr. Simmons is a banker and he is
trying to come across as a scientist. I can read 200 papers on neurology, but
you wouldn't want me to operate on your relatives." (Saleri was referring
to Simmons basing his viewpoint partly on an assessment of 200 Society of
Petroleum Engineers technical papers.)
 Professor
Wil Kohl hosted Saudi Aramco officials recently at Johns Hopkins
University School of Advanced and International Studies Energy and
Environment Program. To the right, a 3D representation of a
Saudi Aramco oil reservoir. (Photo: Saudi Aramco/PADIA) |
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J. J. Traynor, an analyst at Deutsche
Bank, agrees that Saudi Arabia should disclose more data about its reserves.
But he disagreed with Mr. Simmons conclusion. "It is way too simplistic to
transpose what are unquestionably decline rate problems in OECD (Organization
for Economic Cooperation and Development) reservoirs into geology in Saudi
Arabia," he said in a report.
Deutsche Bank
(Feb. 25, 2004) -- "Better disclosure from Aramco would be
comforting, given its sheer weight in the global oil market, but overall, we
see little evidence for an impending production problem there."
Notes
* Reserves are
defined as those quantities of petroleum which are anticipated to be
commercially recovered from known accumulations from a given date forward.
Reference should be made to the full SPE/ WPC Petroleum Reserves Definitions
for the complete definitions and guidelines. Estimated recoverable quantities
from known accumulations that do not fulfill the requirement of commerciality
should be classified as Contingent Resources, as defined below. The definition
of commerciality for an accumulation will vary according to local conditions
and circumstances and is left to the discretion of the country or company
concerned. However, reserves must still be categorized according to the
specific criteria of the SPE/ WPC definitions and therefore proved reserves
will be limited to those quantities that are commercial under current economic
conditions, while probable and possible reserves may be based on future
economic conditions. In general, quantities should not be classified as
reserves unless there is an expectation that the accumulation will be
developed and placed on
production within a reasonable timeframe. In certain circumstances, reserves
may be assigned even though development may not occur for some time. An
example of this would be where fields are dedicated to a long-term supply
contract and will only be developed as and when they are required to satisfy
that contract.
* * World
Petroleum Congress definition: Total Petroleum-initially-in-place is those
quantities of petroleum that are estimated to exist originally in naturally
occurring accumulations. Total Petroleum-initially-in-place is, therefore,
those quantities of petroleum that are estimated, on a given date, to be
contained in known accumulations, plus those quantities already produced there
from, plus those estimated quantities in accumulations yet to be
discovered. Total Petroleum-initially-in-place may be subdivided into
Discovered Petroleum-initially-in-place and Undiscovered
Petroleum-initially-in-place, with Discovered Petroleum-initially-in-place
being limited to known accumulations. It is recognized that all
Petroleum-initially-in-place quantities may constitute potentially recoverable
resources since the estimation of the proportion that may be recoverable can
be subject to significant uncertainty and will change with variations in
commercial circumstances and technological developments. A portion of those
quantities classified as Unrecoverable may become recoverable resources in the
future as commercial circumstances change or technological developments occur.
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