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Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

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Are The Saudis About To Reveal The Best Kept Secret In Oil?

Saudis chilling

One of the oil world’s longest and best kept secrets may finally be revealed. Saudi Arabia is preparing to unveil how much oil it holds, a closely guarded state secret that has been kept quiet for decades.

The decision to bring such important data to light comes as Saudi Aramco is preparing to partially privatize its assets, an IPO that could bring in some $100 billion. The IPO will be a monumental event, one that the Wall Street Journal says could offer Wall Street some of the largest fees in history.

Saudi Arabia often trades off with Russia – and more recently, with the U.S. – as the world’s largest oil producer. But while it produces at similar levels as Russia and the U.S., it is long been a vastly more influential player in the oil world. That is because of two reasons – the size of its reserves, and the ability to use latent spare capacity to quickly adjust supply, affording it an outsized influence on crude oil prices.

But while everyone believes Saudi Arabia has some of the largest oil reserves in the world, perhaps rivaled only by Venezuela, there has been a lot of uncertainty and skepticism over exactly how much sits beneath the Saudi desert. The world’s largest oil field, Ghawar, has been producing since the 1950s, raising speculation about the longevity of the supergiant oilfield. It alone is thought to hold around 75 billion barrels, and it churns out more than 5 million barrels every single day. Surely, it cannot continue like this indefinitely, but the Kingdom has not revised its official reserves for years, which have stood at 260 billion barrels since the 1980s. It is hard to overstate how valuable this information is, and how fiercely Saudi leadership protected it.

However, the collapse of oil prices since 2014 has pushed the Saudi budget deep into the red. The Deputy Crown Prince Mohammed bin Salman is undergoing an historic transformation of the Saudi economy, a multi-decade plan to diversify the country’s economic base and create new sources of revenue. At the heart of the plan is spinning off roughly 5 percent of Saudi Aramco, the most valuable oil company in the world. Saudi officials believe that the company is worth between $2 and $3 trillion. Related: Can Trump Derail The EV Revolution?

But in order to settled on a valuation and launch an IPO of some of Aramco’s assets, investors need to get a look beneath the hood. That is why Saudi Arabia is now prepared to unveil not just its financials, but also the long sought after data surrounding its oil reserves. “Everything that Saudi Aramco has, that will be shared, that will be verified by independent third parties,” Khalid al-Falih, Saudi Arabia’s energy minister, told the Financial Times in an interview. That would include, “reserves … costs [and] profitability indicators.” He went to lengths to emphasize Saudi Arabia’s seriousness about the IPO, in an effort to dampen skepticism. “This is going to be the most transparent national oil company listing of all time,” he said.

There is a great deal of suspicion regarding Saudi Arabia’s insistence that its reserves still stand at 260 billion barrels. After all, how could such a figure stay constant when it is producing 9 to 10 million barrels every day, which adds up to a few billion barrels each year? Aramco would have to add billions of barrels of newly discovered reserves on an annual basis in order to prevent its reserve base from declining. It is doubtful that it has done that consistently since the 1980s. But nobody knows except the Saudis. Related: The Catastrophic Consequences Of Peak Oil Demand

As the FT notes, this figure will have massive ramifications for both Saudi Arabia and the global oil market. Right now, everyone is operating under the assumption that Saudi Arabia can continue to pump at its current pace for another seven decades. Long-term oil forecasts are predicated, in part, on Aramco’s ability to do that. More important for Saudi Arabia itself, its credit rating as well as the fortunes of its economy over the coming decades is also predicated on that assumption. A sharply lower reserve estimate could send oil futures up if fears over supply surface, and it might also affect Saudi Arabia’s credit rating.

Aramco is preparing to launch the IPO in 2018, which means that it will need to publish data on its oil reserves before then. The oil world’s biggest secret could soon be publicly released.

By Nick Cunningham of Oilprice.com

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Leave a comment
  • Rickybobby on November 16 2016 said:
    I just love this goofy picture of these moronic, primitive criminals that oilprice.com uses for it's Saudi Arabia stories
  • Bill Simpson on November 17 2016 said:
    It comes out below expectations, and look out. Oil will go up in seconds.
  • GP on November 17 2016 said:
    Well, good article and yes skeptical is the way the play this. Yes, Ghawar produces half the oil and the reserve base of this field is critical. But one way to produce oil and not lower the reserves base (sounds ridiculous) - is to adjust the key numbers used to calculate reserves, over time. Valid or not, it works really well. 3 billion of new reserves each year is impossible for any place that has been exploring almost a century. The worlds explorers in total have a tough time achieving this.

    Anyone investing based on reserves alone should wake up, these can and will be tweaked to no end, and the auditors will rarely be in a position to challege.............
  • Abdullah Aldeweesh on November 17 2016 said:
    Skeptics on Saudi oil reserves and production nothing new. Always been proved wrong.

    I am wondering what ever happened to all the people predicting at the turn of century Saudi oil production peaking in 2008, only to produce in 2016 15% more than 2008 production.
  • Rick on November 17 2016 said:
    Saudi Arabia has less than 45 BBO remaining and Ghawar has less than 15 BBO. This comes from the data base of the World's Giant Oil Fields at the Amercian Association of Petroleum Geologists done by the late Mike Horn, and is the total of the 59 oil and gas fields that hold any significant oil. So far this year they have pulled 45 million barrels from inventory so they are not even producing what they say they do. On top of that the Neutral Zone has been reduced by about 500 thousand barrels per day for the past 18 months so there is another 250,000 B.of O.P.D not available as their share with Kuwait.
    On the above basis they will not exporting anything by 2025
  • Fahad on November 19 2016 said:
    Shame on you Ricky Bobby to write that.
  • ishi on November 21 2016 said:
    Oh I am sure one of the big sisters knows...chevron/texaco perhaps...?
  • Highlowsel on November 22 2016 said:
    Hmmm...,,

    "..right now, everyone is operating under the assumption that Saudi Arabia can continue to pump at its current pace for another seven decades."

    And then what? That's 70 years from now, at best. I know we as a species are remarkably near-sighted about these sorts of things but.....then what? Once the sponge has been squeezed dry what will our civilization do about replacing such a linch-pin commodity, eh? I'm old enough to realize I should care less, since I won't be alive (most likely) when the wells all run dry. But still it bothers me enough to say....okay....then what? Any forward thinkers thinking about things like this? I sure hope so.

    G/L to the future cause the past and present is sure putting you in a corner at this rate.

    Highlow
    American Net'Zen
  • Eduardo Viana on November 24 2016 said:
    Saudi Arabia, more than any other to be excited about the cut deal, its clear that they will reach the deal on 30 Nov. the Trump win was the confirmation!

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