Co focus on producing oil at lowest cost – Breakup of Saudi Aramco

This news has been read 5288 times!

Kamal Al Harami
Kamal Al Harami

Last week, Saudi Aramco announced that it is studying several proposals from international firms to determine the best way to privatize Aramco and sell part of it. Aramco is the largest oil producing and exporting company in the world with a current production of 10.3 million barrels and export rate of 7.3 million barrels everyday. It owns and operates ten domestic refineries of which five are joint ventures with other international companies such as ExxonMobil, Shell, Summitomo, Total and Sinopec. It also owns four overseas refineries in China, Korea, Japan and United States of America as joint ventures with local companies.

In addition, Aramco operates petrochemical companies inside and outside Saudi Arabia as well as the biggest joint venture worth $20 billion with Dow. It also runs Aramco hospital and training and development centers, and assists the government in building football stadiums and other infrastructural projects. Due to such vast number of daily activities and responsibilities, the senior staff of the company is distracted from focusing on the one core aspect of the business and leaving other activities of lower priority to a more specialized organization.

Therefore, Aramco has to move forward by getting rid of its heavy load of various activities and concentrate only on one business activity – looking after the ‘jewel in the crown’ which is the crude oil. This involves the upstream business of crude oil from the exploration to the production up to the surface at the cheapest cost in order to become the number one low-cost oil producer in the world. In other words, Aramco should be the price setter and should be responsible for producing crude oil at the lowest cost level.

Therefore, it should never privatize its crude oil business and instead assign the other activities linked to hydrocarbon generation from oil such as refining, lube oil and others to either domestic or international private sectors. It can easily sell part of its 10 refining activities and around 10 percent in its grip to ensure smooth transaction from the beginning. It can sell all of its lube oil units along with the plants. It can also do the same with the petrochemical sector, which already has joint operations with other international companies locally and overseas.

The best opportunity for Aramco is to sell its 50 percent share with Dow in ‘Al-Sadara’, the biggest petrochemical complex in the world worth $20 billion. It is time for Aramco to pull out of it entirely since it does not represent its core business activity. It is also an opportune time to sell to Saudi Sabic Petrochemicals, as it is a good fit for both companies. The oil company does not need to run any medical hospital or training and research centers. Such activities can be handled and run by private Saudi centers with foreign partners if needed.

Aramco simply has to focus on discovering new oil fields, producing at the lowest cost, and maintaining its growth to become the biggest international crude oil producer at the minimum cost if possible. It is a great opportunity for Aramco to move forward with one objective in mind – creating great chances for private sector to improve, compete with other international companies and provide excellent job opportunities for everyone, so that Aramco can focus on developing crude oil at the lowest cost.

❑ ❑ ❑

Email: [email protected]

By Kamel Al-Harami Independent Oil Analyst

This news has been read 5288 times!

Related Articles

Back to top button

Advt Blocker Detected

Kindly disable the Ad blocker

Verified by MonsterInsights