Page 5 - DMEA Week 25

DMEA COMMENTARY DMEA

Persian Gulf, would halt operations for a year, on production where it’s not needed.”
beginning in mid-May. The contract suspension Aramco has already slashed capital expend-
was expected to enter into force after the jackup iture for this year to between $25bn and $30bn
rig completed the well it was drilling at the time. from an initial target of $40bn, and has put 2021
Noble Corporation has the right to market the spending under review.
rig in pursuit of other work opportunities in the The Saudi Arabia-based producer still has
region, it said. high spending commitments. It completed a
Last week, Dubai-based Shelf Drilling said $69.1bn acquisition of 70% of chemicals maker
that operations at its offshore rig High Island IV, Saudi Basic Industries Corp. (SABIC) this week.
contracted to Aramco, would be suspended at While it extended the payments to the seller, the
the client’s request for as long as a year. Saudi sovereign wealth fund, over the next eight
The planned expansion, for which Saudi Ara- years, it still needs to pay $7bn on August 2.
mco last July awarded 34 contracts worth a total It has also committed to giving shareholders
of $18bn, would have boosted the oil production a $75bn dividend this year, although it has said it
capacity of the two fields by 550,000 barrels per could cut the amount allocated to the Saudi gov-
day in order to sustain the country’s 12mn bpd ernment, which owns around 98% of the stock.
production capacity by the early 2020s, accord- Saudi Aramco maintained its pledge to make
ing to the International Energy Agency (IEA). good on its dividend payments, saying last
The project would also boost gas flows by 2.5bn Thursday that it would mobilise cash and debt to
standard cubic feet (70.8mn cubic metres) a fulfil the $18.75bn payouts for the first quarter of
day, sending gas by pipeline from Marjan to an this year, despite taking a hit from the coronavi-
onshore processing plant at Berri for domestic rus pandemic and lower oil prices.
use. “It will be a combination of both,” Aramco
The respective quantities would see the off- CEO Amin Nasser told the press during a call,
shore Marjan field increase output by 300,000 referring to both using the firm’s cash and tap-
bpd of Arabian Medium Crude Oil, while output ping debt markets.
at the offshore Berri field would rise by 250,000 “We would like to use our free cash definitely
bpd of Arabian Light Crude – that would help most of time, but other debt instruments from
to replace production capacity lost from ageing banks or bonds are also available for us as we
oilfields. have a strong balance sheet.”
The pullback marks a rare pause in Aramco’s The shares of Aramco, which listed in Riyadh
efforts to drill wells, discover fields and expand in December, have fallen by 14% since their peak
known deposits to replace the barrels it’s pump- to 32.80 riyals. Its market valuation of almost
ing from the planet’s largest conventional oil $1.75 trillion is still the world’s largest.
reserves. The halts also raise questions about the Oil producers worldwide are slashing spend-
kingdom’s supply of natural gas, much of which ing and putting projects on hold as the plunge in
is found in crude reservoirs. Saudi Arabia needs prices since last year imperils profits. Major sup-
gas to generate electricity and make chemicals. pliers, including the Saudis, are curbing output
Cutting back on field development could be a in response to the pandemic. Although prices for
way “to save money in the current situation,” said benchmark Brent crude have more than doubled
Robin Mills, founder of Dubai-based consulting since late April, demand is returning only slowly
firm Qamar Energy. “There’s no point spending and risks of a second wave of infections persist.™

Week 25 25•June•2020 www. NEWSBASE .com P5