Saudi Aramco To Cut Drilling Costs, Hold Rig Count Steady

State oil giant Saudi Aramco has asked oilfield service companies for discounts due to tumbling crude prices and is expected to keep its overall rig count steady this year, industry sources said on Tuesday.

Aramco deployed 210 oil and gas rigs in 2014, marking an exceptionally busy year.

But global oil prices have fallen steeply since June last year, losing 60 per cent of their value on oversupply and weakening demand. The collapse of crude prices has prompted some oil service companies to cut spending.

“(Aramco) are asking for 20 per cent (discounts); some complied, others negotiated, (it’s) part of a plan to reduce cost,” an industry source, who like others declined to be identified, told Reuters.

“Saudi Aramco is optimising costs to maintain the current production,” another industry source said. “Will service companies be able to offer more discounts? If oil prices remain low, this could result in releasing some rigs.”

Saudi Aramco declined to comment on this report.

Industry sources in Saudi Arabia said it remains unclear how Aramco’s drilling plans for this year would look but that there was more focus on drilling for gas as domestic demand is rising.

One source said he had already seen a few rigs moving to gas. “Gas demand in the kingdom has not changed, consumption is high and getting higher,” said another source.

A third source said: “There will be more rigs on the gas side based on gas requirements and internal demand … Most of the oil rigs will be kept to maintain potential (oil capacity).”

Aramco will continue looking for unconventional gas in 2015 including exploration for tight and shale gas, the source said.

“Aramco has two million barrels of spare capacity so a reduction in oil drilling rigs does not mean a near-term reduction in oil production,” said Sadad al-Husseini, a former senior executive at Saudi Aramco and now an energy consultant.