A year is a long time in the oil and gas industry and that has been especially true for the Kingdom of Saudi Arabia (KSA), caught in a maelstrom of geo-political, economic and market factors.
In August 2014, Saudi Aramco announced US$40 billion a year of spending for the next 10 years on capital programmes.
The year ended with the Saudi government projecting a US$40 billion budget deficit in 2015 and then came last month’s announcement of US$27 billion of bond issues by the end of this year to bolster the national finances even after a string of project cancellations and postponements.
Over this period, the country has been locked in a struggle to regain market supremacy over US shale production while dealing with the West’s improving relations with Iran, its regional challenger, a royal succession and a spate of terrorism attacks.
These events notwithstanding, the country’s oil and gas industry remains a significant growth prospect and a major focus for companies seeking to rebalance their activities from higher production cost regions, including the UKCS.
Last month, when Baker Hughes reported the global rig count for July 2015 stood at 2,167 from the 3,608 figure for July 2014, Saudi Aramco challenged its supply chain to increase the rig count in the country by 30% from the current 120 rigs in operation.
This demonstrates the NOC’s determination to at least hold its 12 million barrels per day production capacity for many years to come and that it has no intention to lose market share to US shale or Iranian crude.
The long term view looks positive with eight new discoveries in 2014 – the largest annual number in the country’s history – bringing the total discovered fields in country to 129. It remains to be seen what these will mean in augmenting the existing oil reserves of 261 billion barrels and 295 trillion cubic feet of gas reserves.
For deepwater specialists the Red Sea remains the ultimate prize but the low oil price has already seen short term ambitions in this area curtailed.
There can be no such loss of momentum in resolving the Kingdom’s gas supply challenges. The Wasit, Midyan and Fadhili gas plant projects will add 5 billion standard cubic feet per day supply of gas and there are plans to roll out an unconventional gas programme, focused on the greater Ghawar area.
Major development programmes for onshore oilfields will be focused on the Shaybah field in the South where production will be increased by 250,000 bpd and Dammam where the field which kicked off the country’s oil bonaza in 1938, mothballed in the 1980s, will be redeveloped.
KSA is also continuing to build on its recently won status as downstream superpower with major refinery and petrochemical projects. Aramco’s downstream projects have spawned long term joint venture partnerships with Total, Sinopec and Dow.
KSA remains the technology hot spot in regional terms with a strong commitment to its own research and development activities, including its SmartWater low saline EOR technology. This is demonstrated by its international research and technology centres and offices in Houston, Detroit, Boston, Delft and Aberdeen.
This has established Aramco as the Middle East portal for advanced technology and knowledge companies seeking to penetrate the region.
The rapidly growing and young population in KSA ensures that political stability is a primary consideration and this is reflected in one of the toughest in-country value frameworks in the region.
Local investment, technology transfer and indigenous employment are all highly scrutinised in licensing applications via the Saudi Arabian General Investment Authority (SAGIA).
However, the timescales needed to obtain SAGIA approvals have been subject to a positive sea change of late with fast-tracked decisions coming through in less than one week for relevant applications.
In conclusion, Saudi Arabia continues to offer a wide spectrum of opportunities for oil and gas businesses, especially over the next 12 months in this low oil price environment. While it is by no means an easy market to crack, with the correct strategic approach, sufficiently resourced, it is a market that can yield significant returns over the medium to long term.
Hugh Fraser is managing parnter, Andrews Kurth (Middle East)