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Saudi Arabia 'plans massive oil rig boost'

New York, March 29, 2011

Top oil exporter Saudi Arabia has unexpectedly called on oilfield service firms to expand its oil rig count by nearly 30 percent to boost output capacity, Simmons & Co analyst Bill Herbert said on Monday.   

Saudi state-run oil giant Aramco met with leading oil service companies including Halliburton over the weekend, unveiling plans to boost the country's rig count this year and next to 118, from around 92 now, Herbert wrote in a research note.

'Saudi Arabia has been expected to tread water on its production capacity, so this is unexpected,' Herbert said from Houston in a phone interview.   

'The risk premium in the Middle East has risen. Also, with Libyan production falling, Saudi Arabia may feel it has to be ready for higher production capacity.'    

More than any other country, Saudi Arabia defines its international role by the ability to rapidly increase oil production to meet growing demand or cover disruptions elsewhere, such as the recent collapse in shipments from war-torn Libya. The Kingdom has responded by pumping 500,000 to 750,000 barrels a day more in recent weeks, analysts said.

'This is Saudi Arabia's raison d'etre. It must ensure that spare capacity is sufficient or else its importance in the world will be diminished,' said oil analyst Peter Beutel of Cameron Hanover in Connecticut.

What isn't clear yet is whether the Kingdom seeks to increase spare production capacity beyond an estimated 3 million barrels per day -- the level that Aramco is said to possess.   

Analysts said a recent Saudi output boost to around 9 million barrels a day may have made Aramco apprehensive about its ability to prime the pumps further if the world calls for much greater volumes.   

'At the start of the year they were producing around 8.5 mbpd of oil and were sitting on around 3.5 mbpd of spare capacity. They've had to increase production by between 500,000 and 750,000 bpd after Libya went out of the market so their spare capacity is already way down,' said Roger Read, managing director at Morgan Keegan in Houston.   

A New York-based oil analyst, who tracks Saudi production and requested anonymity, said: 'You could see this in one of two ways. Either they realize that 3 million barrels of spare capacity isn't enough, or they realize their capacity isn't actually that high.'    

Saudi Arabia hasn't publicly discussed plans to expand its overall crude capacity since completing a $100 billion project to raise it by 3 million bpd to a 'sustainable' 12 million bpd last year.

Saudi Arabia wants the rig count to rise quickly in the second half of 2011 and the first half of next year, and is 'dusting off' a slow-going, $16 billion, 900,000-bpd oil project known as Manifa, Herbert said.

The plans are 'manifestly positive' for oil service companies, he added. Their shares soared on Monday.

Halliburton said late on Monday that it would accelerate activity at Manifa, a project to tap massive offshore heavy crude reserves, following recent discussions with Saudi Arabia.

In 2008, the company was awarded a contract to provide drilling and associated work at 93 Manifa wells off northeast Saudi Arabia.   

Schlumberger chief executive Andrew Gould privately told analysts on Monday he was encouraged by Saudi Arabia's commitment to expand spare capacity regardless of any pullback in oil prices, an analyst at the Howard Weil oil conference in New Orleans told Reuters.  - Reuters




Tags: Saudi | Opec | production | Output | Oil Rig |

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