Politics

Saudi Aramco Feeling The Pinch Of Lower Oil Prices: WSJ

Saudi Aramco, Saudi Arabia’s national oil company and the richest oil firm in the world, is starting to feel the pinch of much lower oil prices. According to the Wall Street Journal, the firm, once known as a free-spender, is now cutting back in expenses and pushing contractors for better deals. The sources also note that the world’s largest oil producer is also planning cuts of up to 25% in future spending on production and exploration, as most other oil companies are being forced to do today.

Saudi Aramco

Statement from Aramco CEO

“Like everyone else, we’re using the downturn as an opportunity to sharpen our fiscal discipline,” Aramco CEO Khalid Al Falih commented during the World Economic Forum in Davos earlier this year. “We’re cutting on a few things that we could cut, but we’re as committed as ever to our long-term strategy.”

More on Saudi Aramco

These cost-cutting measures are unusual for Aramco, which until a few months ago was spending big on pumping more oil and and had begun its first efforts at deep-sea production. But that was when crude was trading over $100 a barrel until mid-2014. The price oil is down by 50% since June, trading around $60 a barrel on Friday.

The ongoing retrenchment for Saudi Aramco is on a relatively small scale, and exess say there is no danger to the current output in big fields in Saudi Arabia, Kuwait or the UAE. Industry experts note the cuts are not as severe as those after the mid-1980s price crash, when Aramco and others oil firms laid off thousands and massively slashed production.

Analysts also point out that government companies like Aramco and others in the Gulf area are de facto monopolies, which means they don’t have to produce public accounting for their businesses. This, of course, makes is hard to figure out what they are actually spending or cutting or whether they are making or losing money.

According to a well-placed Saudi official, Aramco was advised by the Saudi government to reduce costs back in September. Saudi Aramco is apparently trying to maintain a balancing act this time, undertaking some projects at lower costs, while holding off on other projects until the direction of the oil market is clearer, the official noted.

Industry sources say the scuttlebutt is that Aramco execs are looking at reducing production and exploration spending to $30 billion a year from the current $40 billion assuming crude prices stay low.