Revelations of Saudi’s oil reserves right step to privatization
Saudi Arabia’s full disclosure of its oil and gas reserves is the first step towards total transparency. It is a big step for determining the total value of its assets.
By the end of the year 2017, its crude oil reserves were estimated to be 268.5 billion barrels. This was confirmed and certified by two reputed international organizations based in the US.
Its total oil reserves are today worth about $16 trillion at a current crude oil price of $60 per barrel. However, it is known that such a volume is not fully recoverable, as only 60 percent is easily producible; but it is still far bigger than the market valuation of five percent assets of Aramco at $2 trillion.
The reserve figure of 268.5 billion barrels equates to about 70 years of oil lifespan at an average annual consumption of about ten million barrels per day for Saudi Arabia.
Crude oil reserve evaluation by independent consultants should encourage all oil producing countries to do the same. The other element in the Saudi Aramco’s announcement is the cost of producing one barrel of crude oil, which is $4 per barrel – the cheapest in the world.
Such low cost makes Aramco the most profitable oil company in the world. It means the net profit is $56 per barrel for every Saudi barrel sold today at the cost of $60.
The simple number of $4 per barrel does not mean much if we consider the fact that the total cost in Saudi Arabia’s annual budget is close to $80 per barrel. Therefore, the simple figure of $4 does not mean much unless it is compared with the shale oil cost of $35 to $50 and with international oil companies’ regular scrutiny, and shareholders’ demands.
The crude oil cost for most of the oil-producing countries in the Arabian Gulf region is superfluous especially when we, for instance, consider our annual budget which demands a minimum of $65 per barrel. The revelations of Saudi’s oil reserves are the right step towards privatization and an eye-opener for other producers to do the same.
By Kamel Al-Harami Independent Oil Analyst