Saudi Aramco Shelves Plans for $1.2B Dammam Oil Project

DUBAI (Dow Jones Newswires), November 24, 2008

Saudi Arabian Oil Co., the world's largest oil company by production, shelved plans to upgrade its aging onshore Dammam oil field at a cost of $1.2 billion amid falling oil prices, people familiar with the plans said.

In a statement emailed on Nov. 22, Saudi Aramco informed companies interested in developing the field that the "requisition has been canceled," the people told Zawya Dow Jones.

Aramco didn't provide any additional details in the statement.

Under the original plan, the state-owned oil company had planned to upgrade the Dammam field, first tapped in 1938, to produce 100,000 barrels a day of crude at an estimated cost of $1.2 billion. In October, Aramco had launched the initial phase of the project tender.

Oil prices that closed in New York below $50 a barrel on Friday may force the Middle East's national oil companies to cutback plans to upgrade aging fields and pump more crude.

Last week, an Aramco official said at a conference in Dubai that Saudi Arabia, the world's largest oil exporter, was reviewing its oil expansion projects and may delay some plans to boost output amid falling crude prices.

Oil companies are revisiting their plans and delaying project tenders to take advantage of falling prices for equipment and raw materials such as steel to reduce overall cost as the world financial crisis is slowing global demand, in turn subduing prices.

At the same time, multi-billion-dollar developments to drill for oil and gas to stem natural depletion and boost output are being threatened by a slump in oil revenues for producers as crude prices have fallen about 66% since July.

On Friday, light, sweet crude for January delivery settled at $49.93 a barrel on the New York Mercantile Exchange, nearly $100 below a record high of more than $147 a barrel in July.

Oil producers are also reviewing their investment plans amid signs that world oil demand growth is slowing, with the Paris-based International Energy Agency forecasting demand to grow by just 0.1% in 2008 versus a previous growth projection of 0.5% and below the 1.1% growth in 2007.

Aramco earlier this month said it had delayed the tender process for two export refineries to be built at Jubail on the Persian Gulf and at Yanbu on the Red Sea in joint venture with Total S.A. and ConocoPhillips respectively.

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