CGES: Manifa Is an Expensive Development
“But right after fixed-price contracts were awarded, the global economic crises turned everything upside down,” said Kahlid Al-Falih, president and chief executive officer of Saudi Aramco said in his speech during The World Petroleum Congress, which was held in Doha, Qatar.
Crude prices slumped to below $35, demand projections fell, and yet project costs did not proportionally decrease, clouding the outlook for the investment. Al-Falih said that at that point Saudi Aramco was sitting on some four million barrels per day of spare capacity- even without Manifa- and many suggested that Saudi Aramco should terminate its contracts and build late, once demand rebounded.
But at that time, more contractors were already suffering due to the recession, and had Saudi Aramco canceled the program, they would have had to lay off substantial number of personnel.
“Aside from undermining the bonds of partnership we enjoy with our contractors, the loss of capacity and capability among some of our most valued service providers would clearly have negative ramifications for our future projects,” Al-Falih added.
So, instead of simply scratching Manifa, which might have made sense when viewed only in the short-term, Saudi Aramco undertook a thorough joint review of the program with its contractors. That resulted in an intelligent and economic redesign of the project and its schedule, such as continuing work on surface facilities but stretching out the drilling campaign.
“We thus extended selected segments of the program by two years and saved more than two billion dollars in the process. It was difficult but stayed with Manifa project despite the economic winds blowing around us, and the project is on schedule.”
Strategic Decision
According to CGES, despite the explicit and implicit costs of the development of the Manifa offshore field, the Kingdom seems willing to continue shouldering the burden of maintaining a large amount of spare output capacity. This is because it enables Saudi Arabia to influence the price of oil.
“By withholding supplies when oil prices are weak and supplying the market with additional oil when oil prices are too high, thereby acting like a central bank to the oil industry, as indeed has been stated on occasion by the Saudi authorities themselves,” CGES claimed.
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