The Strategist

Consequences of Saudi Aramco's Restructuration

05/20/2015 - 16:12

Restructuring of the national oil company of Saudi Arabia, Saudi Aramco, may be a step that can shake the dynamics of the global oil and gas industry.

The problem is that the company is often used for political purposes, while competitiveness may eventually decline.

In 2014, a former top manager of Aramco said that to replace the reserves, new deposits, the volume of which should be about 35 billion barrels, must be discovered every 10 years,.

The company now produces 9.5 million barrels per day. The main reason for restructuring Aramco was the need to become a company with a clear commercial aim, which is to maximize profits and compete with the major oil companies globally.

Separating from the Ministry of Oil can reduce political interference and provide more opportunities for the company's own commercial decisions. In addition, the restructuring means a generational change and creates a new vision of how the Government will develop its future energy and economic strategy.

Aramco’s restructuring can change the global oil and gas market. The Company may become even more aggressive in terms of exploration expenditure.

In 2014, the company reported that higher costs of exploration will allow maintaining adequate production reserves and this will help stabilize the global oil market, in case of anything happens.

Indeed, Aramco could significantly increase their flexibility. And if the company is able to increase production, it could exacerbate the excess oil and lead to further price reductions.

Earlier, Aramco began to implement the investment plan of $ 10 billion, and the emphasis is on the development of internal reserves of shale gas. The company most likely will make it more actively in the coming years, using the lessons of the US oil shale industry. It also allows using more natural gas for power generation, freeing more oil for export.

At Saudi Aramco also has ambitious plans for oil refining. The company currently ranks sixth among the largest recyclers in the world. As a result of the restructuring, the business can also be divided, what would add financial stability and allow better control of the commodity business.

Service providers and international partners of the company can get the greatest benefit from this Saudi Aramco’s restructuring, as the increase in spending on exploration and production activities indicate growth of business of other players.

Companies such as Sembcorp Marine Limited, Keppel Corporation Limited and others should get direct profit from the change.


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