|
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.
Saudi Arabian Oil Fields Brimming
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."
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.
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:
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).
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.
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.
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.
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."
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."
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)
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.
Related Items:
SUSRIS Energy Topic Area
Future of Global Energy Supply - Saudi Arabia
Saudi Arabia Ready to Boost Crude Oil Output
Saudi Arabia's Oil Reserves, by Dr. Sadad Al-Husseini
U.S.-Saudi Relations and Global Energy Security
International Energy Outlook 2004 Highlights
|
