Will Aramco head to South Africa next to explore oil & gas?
Southern Africa has just become the hottest destination for hydrocarbon exploration in the world, according to 702.co.za quoting Stephen Larkin, CEO, Africa New Energies.
“A ‘giant discovery’ is defined as more than 500 million barrels of oil equivalent… This is, by a country mile, the largest that has been found. For every barrel of oil geologists find, petroleum engineers find another seven,” Larkin added of the country oil&gas findings
French oil firm Total recently made public its discovery of a large (500 million to over a billion barrels of oil equivalent) “gas condensate”, according to 702.co.za.
The gas condensate trades at a premium of between $5 and $10 to the oil price.
Why is all that important? It’s because Aramco has just announced it will compete in oil and gas explorations around the world with the likes of Exxon Mobil and Royal Dutch Shell.
Efforts already underway
Aramco has already invested in overseas refineries and petrochemicals plants such as the Motiva facility in Texas, the largest US refinery, CNBC reports.
The country has nonetheless not meaningfully ventured overseas to extract resources, favouring domestic exploration instead.
Khalid al Falih, Saudi energy minister and chairman of state oil company Saudi Aramco said he expects oil and gas to generate 40% to 50% of the kingdom’s revenue in the future, from 90% today.
Saudi is diversifying its economy away from oil under Saudi Vision 2030, but this latest decision seems to run contrary to that.
“Saudi Arabia plans to develop an international energy exploration and production business for the first time, doubling down on oil and gas despite the kingdom’s ambitions to curb its reliance on hydrocarbons,” said the Financial Times (FT), following an interview with al Falih.
He told FT that overseas expansion would be a critical part of the company’s future.
“We are no longer going to be inward-looking and focused only on monetising the kingdom’s resources,” Falih said. “Going forward the world is going to be Saudi Aramco’s playground.”
Going head to head with international energy explorers
Falih told FT it was “correct” to say the company now has ambitions to become an international energy player like Royal Dutch Shell or ExxonMobil, pumping oil as well as gas overseas.
“We can stand shoulder to shoulder with anyone and outdo them,” al Falih said.
Al Falih said that efforts would initially be focused on creating a “global gas” business, in line with world’s energy majors increasingly investing in gas, as the growth of demand is outpacing oil.
“Saudi Arabia has eyed investments in Russia’s liquefied natural gas sector and is in talks about taking a stake in export facilities in the US. But Falih also mentioned Australia as a possible investment destination,” FT said.
Tie up to IPO
Al Falih explained that the exploration expansion plans reflected a need to please potential outside shareholders. “If I have investors from New York or London or Tokyo that are investing in Saudi Aramco, they want Saudi Aramco to be competing with the world’s best international oil companies,” he said.
The raising of value for Aramco was also reflected in its effort to strengthen its downstream arm through a buyout of the PIF’s 70% stake in Saudi petrochemicals maker SABIC.
Oil market performance
According to MarketWatch, U.S. benchmark March West Texas Intermediate (WTI) crude oil added 69 cents, or 1.3%, to settle at $53.1 a barrel on the New York Mercantile Exchange, Tuesday. April Brent crude gained 91 cents, or 1.5%, to end at $62.42 a barrel on ICE Futures Europe.
The monthly U.S. Energy Information Administration report released Tuesday revealed higher U.S. crude production forecasts for 2019 and 2020, which may drop prices as supply grows.
“U.S. production is on pace to average 13 million barrels per day in 2020, which puts the nation on track to set a new production record for a third consecutive year,” said EIA Administrator Linda Capuano, in a statement.
Efforts to raise oil values are led Saudi and Russia, especially as Saudi balances its budget with levels closer to $80m, according to FT.