Saudis signal no surrender in oil price war

Khalid Al-Falih, chief executive officer of Saudi Arabian Oil Co.
Khalid Al-Falih, chief executive officer of Saudi Arabian Oil Co.PHOTO: BLOOMBERG

KUWAIT (BLOOMBERG) - The world's biggest oil producer is spending as much now as it did before the crash in crude prices, signaling no surrender in Saudi Arabia's battle with rivals.

Saudi Arabian Oil is maintaining investment in oil and natural gas projects and has formulated a new strategy in response to cheaper crude as it studies options to sell shares in its parent company and downstream refining and chemical operations, its chairman Khalid Al-Falih said at a conference in Riyadh.

The state-run producer, known as Saudi Aramco, can sustain low oil prices for "a long, long time," he told reporters. 

"Saudi Arabia is well-documented to be the clear lowest- cost producer - we have scale, capabilities, and technology to help us maintain our low cost as we go forward," he said on Monday (Jan 25). "I've continued to encourage fiscal discipline in my role as chairman of Aramco. In our investments capacity, oil and gas has not slowed down."

Aramco, which supplies all of Saudi Arabia's crude oil, pumped more than 10 million barrels a day in each of the last 10 months as it sought to assert its role as as the world's lowest-cost producer. The company's output was 10.25 million barrels a day in December, adding to a global supply glut that pushed benchmark Brent crude prices down 35 per cent last year and a further 14 per cent this month.

Aramco is studying a possible share sale as the country looks into privatizing companies in all industries amid financial pressure caused by tumbling crude.

The company is considering two tracks for an IPO, a sign of confidence in the kingdom's enterprises, Mr Al-Falih said. One is to bring together "a significant downstream portfolio of Saudi Aramco involving refining, chemical and marketing businesses and offer these in a big bundle that is going to be a significant addition to the local Tadawul stock market," he said.

"Another option, which would be the first time in the history of Saudi Arabia, is to actually offer an appropriate percentage of the company at the top, which is everything we do," Mr Al-Falih said.

"There are of course commercial, legal and sovereignty issues that have to be studied, not only within the company and its boardroom but also with the decision makers of Saudi Arabia."

The company won't offer shares in its crude reserves, which belong to the state, he said on Sunday in an interview on Al Arabiya television. Saudi Arabia holds 267 billion barrels of proven crude reserves, the world's second-largest after those of Venezuela, according to data from BP.

Aramco sees demand for crude growing, Mr Al-Falih said. The company isn't responsible for current low crude prices and is hoping for a "moderation" in price levels, he said.

Brent has fallen from its recent peak of US$115.06 a barrel in 2014. The contract for March settlement lost as much as 2.4 per cent on Tuesday to US$29.76 a barrel on the London-based ICE Futures Europe exchange and was at US$29.77 at 1.22 pm Hong Kong time. Oil at US$110 was unsustainable, Mr Al-Falih said.

"Demand will grow as it already started in 2015, and there will be a period not far into the future where demand catches up with supply and inventories are worked out of the system, and we will be back at where we were before," he said.

Until that happens, Mr Al-Falih said, "Saudi Arabia can sustain low oil prices for a long, long time".