Incremental change: maintaining low production costs and high recovery rates will benefit Aramco as it paces ahead with new oil projects.(OIL)

Saudi Aramco has several weapons in its arsenal which it employs to retain its over-riding position as the world's largest oil company and OPEC's unchallenged leader.

In the past two years, it has been able to maintain plateau production levels of about 9.5 million barrels a day (b/d) and spare capacity of 1.5 million bid to respond to any global oil market supply outages. Increasingly, however, it has focused on maintaining low production costs and maximising high recovery rates.

"[Oil production in] Saudi Arabia is quite a contrast compared with Iran and Venezuela [the two other OPEC majors]," says Khalid al-Falih, Aramco's senior vice-president of industrial relations. "We are using a systematic method of strategic investments throughout the value chain."

Aramco's biggest advantage lies in the upstream sector. Despite facing an annual production decline of 8 per cent and prolific output levels over the past 35 years, production costs are still one of the lowest in the world. "The indirect cost of production is well below $1 a barrel and with support services it is not more than $2 [a barrel]," he says. This is compared with a global average of $7.35 a barrel--including the costs of finding and direct lifting--according to US-based Gibson Consulting.

Healthy recoveries

Benefits also accrue to Aramco from the high recovery rate of its existing oil fields. "The average rate is 50 per cent for Saudi fields. But there are some exceptions. It is well above 50 per cent in Abqaiq and at Ghawar we are looking at a further increase. It will be more in the north than in the south." Doubts have been raised in the recent past about the future production capacity of Ghawar, which as the world's largest onshore field has been maintaining a steady output of more than 5 million b/d for the past two decades.

The global average rate of hydrocarbon recoveries is estimated to be 30-50 per cent, depending on the location and the reservoir model.