Saudi Arabia restructures world’s biggest energy company

Friday 08/05/2015
Saudi Aramco plant

LONDON - As part of larger restruc­turing plans, the Saudi Arabian Oil Company (Aramco) will no longer be under the umbrella of the kingdom’s Ministry of Petro­leum.

Arabic language news channel, Al Arabiya, citing unnamed sourc­es reported that Aramco would be separated from the ministry. In a related development the company announced a ten-member Supreme Council of the Saudi Arabian Oil Company, headed by Deputy Crown Prince Mohammed bin Salman bin Abdul-Aziz, would be overseeing the affairs of the world’s biggest en­ergy company.

“I see it as a positive development because change wasn’t brought to Saudi Aramco for some time,” said John Sfakianakis, Middle East direc­tor at Ashmore Group.

Sfakianakis told The Arab Weekly that the restructuring of Aramco is “well-placed and timed” and that changes in terms of personalities and eventually structure and report­ing lines will yield positive results. Moreover, Mohammad Al Sabban, a former adviser to the incumbent oil minister, Ali al-Naimi, told Reuters that the restructuring would make Aramco stronger by bringing “more flexibility to the company to take decisions on a commercial basis and keep full financial control”.

However, a source of much speculation among analysts in the kingdom and abroad is what this restructuring means for the Saudi Ministry of Petroleum, which in the past took its directives from the re­cently dissolved Supreme Council for Petroleum and Mineral Affairs, which was led by the king.

“The Ministry of Petroleum could continue to do what other minis­tries of petroleum do, which is to decide on oil policy,” Sfakianakis told The Arab Weekly. “Just because they were overseeing Saudi Aramco doesn’t mean that it has to contin­ue to be the case. They could very well continue with policy-making, which they used to do and will con­tinue to, without necessarily man­aging the day-to-day affairs of Saudi Aramco.

“Aramco could very well concen­trate on managing its affairs and looking at production of oil, hydro­carbons, gas and really concentrat­ing on its own house,” he added.

But a former OPEC executive, who spoke to The Arab Weekly on the condition of anonymity, says the Ministry of Petroleum could also diversify its activities, with a focus on alternative energy sources, from solar, nuclear and even hydro­electric power derived from water, making it an all-purpose energy ministry.

Saudi Arabia has been actively trying to diversify its economy and lessen its dependency on oil-based revenues and, because of the ris­ing domestic consumption of crude oil used for generating electricity, the government has ventured into exploring alternative sources of power.

Earlier this year, the kingdom an­nounced it was delaying its clean-energy programme, which included $109 billion in solar power, by eight years. The clean energy project’s goal is to provide one-third of the country’s electricity needs from so­lar panels, with the goal of saving more oil for exporting purposes.

In the same week that saw ma­jor reshuffling within government ranks, Aramco Senior Vice-Presi­dent Amin Nasser was promoted to interim president and chief execu­tive officer (CEO) of the company, while former Aramco CEO Khalid al- Falih was named health minister. He will also act as Aramco’s chairman.

This sparked conjecture regard­ing Naimi, 79 and oil minister since 1995, who has publicly stated that he would like to retire in the near future. Ehsan Ul-Haq, oil analyst at KBC Energy Economics, told Reu­ters it was highly likely that Prince Abdulaziz bin Salman, a son of King Salman, could be appointed to re­place Naimi.

The king promoted Abdulaziz, long a member of Saudi Arabia’s OPEC delegation, to deputy oil min­ister from assistant oil minister ear­lier this year.

Saudi Aramco has crude reserves of 265 billion barrels, more than 15% of all global oil deposits. It pro­duces more than 10 million barrels per day, three times as much as the world’s largest listed oil company, ExxonMobil, while its reserves are more than 10 times larger.

If Aramco were to go public, it would probably become the first company to be valued at more than $1 trillion.