Saudi Aramco: Four factors for a sustainable drilling business

By Joanne Liou, Associate Editor

Despite the modest growth in demand and drop in oil prices today, the long-term outlook for industry is healthy. “Our industry will need to add around 40 million bbl per day for new capacity in the next 50 years,” Dawood M. Al-Dawood, Vice President, Drilling & Workover for Saudi Aramco, said. To successfully meet future energy demands, Mr Al-Dawood presented four factors to create a sustainable drilling business where collaboration is key: cost escalation and containment, talent attraction and retention, technology advancement, and local manufacturing. Industry leaders agree – collaboration has led to current successes, and collaboration will be crucial to future success. “The various drilling industry players can forge a new collaborative effort for real results,” Mr Al-Dawood said at the 2014 IADC Critical Issues Middle East Conference in Dubai on 9 December. “Every player is a link and a chain. We know that neither drillers, nor rig builders, service companies or other service providers and vendors can thrive in isolation from others.”

1. Cost escalation and containment

In the past decade, Arabian Gulf rig contract costs have risen 120% onshore and nearly 200% offshore, according to Mr Al-Dawood. The cost of services and materials has driven up budgets around the world. Failure to work together to address escalation in costs could lead to cancellation of projects, he warned. There is an opportunity for regulatory and standardization agencies to work with players across the industry to eliminate unnecessary increases in costs. “We can make changes to optimize costs for the benefit of the entire oil and gas industry, and the world’s consumers at large while maintaining the same scope and the highest standards for safety and environment.”

2. Talent attraction and retention

Industry is facing a major generational shift. Approximately 60% of Saudi Aramco’s workforce, for example, will be under the age of 30 in the next five years, Mr Al-Dawood stated. “This profound transition places extreme stress on continuity of operations in terms of transfer of skills, from the experienced to the less experienced.” Furthermore, the personal priorities of the younger generation are being topped by work-life balance and job-challenge consideration rather that financially, driven priorities of previous generations. “It is incumbent upon all of us to provide the most challenging projects and, last but not least, most agreeable work environments that will continue to attract and retain top talent.”

3. Technology advancement

Technology is at center to deliver more wells efficiently and economically. Saudi Aramco aims to develop technology along the value chain and has partnered with national and international businesses and universities to create research clusters. “The best global companies in the upstream business now are performing R&D and fostering collaboration right in Saudi Aramco’s backyard. We are energized by the achievements and developments. We’ve also recently established upstream satellite research centers in East Asia, Europe and North America,” Mr Al-Dawood explained. “On the technology front, there is reason to be bullish about the entire Gulf region. The opportunities are compelling; we can even foresee the Arabian Peninsula as the future hub of the global upstream industry.”

4. Local manufacturing

Local content is a win-win situation for all players across industry. “All of the players enjoy lower costs, and supply chains are optimized,” Mr Al-Dawood said. In Saudi Aramco’s upstream operations, “we have a mandate to achieve 58% localization by year 2017 and 70% localization by 2020. We’ve identified priorities and promoted establishments and qualifications of new high-tech manufacturing plants in the Kingdom, introducing drilling chemicals, drill bits, pipes and wellheads for the first time.” For drilling tubulars, Saudi Aramco worked with local manufacturers to gain international certification. In 2010, less than $100 million of local spending went to tubulars. “Today, we have arrived at 40% local spending with more than $1.4 billion spent in the Kingdom. We are currently in the final stages of certifying the local plants to cover the remaining gas well requirements by next year, which will help us achieve the 70% target by 2020.”

Although industry faces operational and market challenges, Mr Al-Dawood called for leaders to collaborate and take action. “Collaboration, at this time, is a must, not an option. Together we can promote innovative thinking, optimized costs, develop a sustainable pool of trained workforce, ascend to new heights and technology and local manufacturing. I strongly believe that the drilling (industry’s) best days have yet to come.”