The History Of Saudi Arabian Oil Company Management Essay

Saudi Arabian Oil Company is a province owned company that is wholly controlled by the Saudi Arabian authorities. It is regarded as the universe ‘s biggest oil manufacturer with its value being rated as $ 2.2 trillion in 2010. The company besides maintains a top place in the Petroleum Intelligence Weekly ‘s one-year ranking which seeks to analyse the top acting oil companies worldwide. It has continued to keep this top place since the ranking began in 1988 which has resulted into the company being considered as the most influential and powerful oil company in the universe. This paper seeks to analyse the company ‘s concern profile with particular accent to its managerial schemes and how they have positively contributed to its success. The company ‘s strengths and failing will besides be analyzed while concentrating on how they are both the technological and the environmental challenges that the company faces. The paper will follow the developmental history of the company and the challenges that the it is likely to confront in the close hereafter. This paper will besides reexamine how the company behaves under different managerial schemes while concentrating on the deductions of different managerial schemes.

2.0 The Company ‘s History

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The company compellingly stands out as the universe ‘s largest oil manufacturer with its production capacity being rated at ten million barrels of rough oil per twenty-four hours. After the Persian Gulf crisis, the company worked to widen its operations by affecting activities such as selling, refinement, retailing and even distributing of oil. In the mid 1990s, the Saudi Arabian Company was considered as a to the full incorporate planetary oil endeavor. In add-on to its perpendicular integrating, the company pursued joint ventures which culminated into the enlargement of its geographic range into Asia, Europe and North America.

The Saudi Arabian Oil Company is besides responsible for development, oil geographic expedition and production in a piece of land of land which amounts to 16 % of the 2.2 million square kilometres which form portion of the Saudi Arabian Peninsula. In early 1990s, the company ‘s 260 billion barrels constituted the up to 26 % of planetary militias. Apparently the company ‘s petroleum oil operations which constitute of 95 % of the company ‘s entire production are both critical to the Saudi Arabian economic system and the universe energy demands. In the early 1990s statistics besides indicate that the company had natural gas militias which amounted to 180 trillion three-dimensional pess. Its assets consisted of both onshore and offshore oilfields which generated gross through the export of rough oil extracted from them. Harmonizing to — — — — -over half of the Saudi authorities grosss are earned from the Aramco oil company ( Saudi Arabian Oil Company ) . These grosss have helped transform the state from a 3rd universe state to one of the top developed states.

In 1988, Saudi Aramco was incorporated in order to acquire rid of any legal fond regards that exited between the company and the original United States Company which had been registered in Delaware in 31st January 1944. Therefore the company ‘s success history day of the months back to earlier 1930s when the Standard Oil which is now recognized as Chevron applied the energies of Harry St. John B. who was a close ally to Saudi King Ibn Saud to acquire a socal permission to transport out a geological study in Saudi Peninsula chiefly in the eastern parts. In 1933, a grant understanding was signed between the Standard Oil Company and the Saudi authorities and the California Arabian Standard Oil Company formed to run operations on behalf of the Socal. This grant covered the Persian Gulf stretching up to the Western Province of Dahna. In 1939, this grant was widened to cover Saudi Arabia ‘s portion in the impersonal zone. Socal began sing selling jobs with its fast development Bahraini oil production before rough oil was discovered in the Saudi grant. This forced Socal to unify operation with other companies such as the Texas Company which owned selling installations near the beginning of production. Caltex Company emerged from the understanding that was struck. As portion of the trade the Texas Company was given half ownership rights of the Casoc.

The Second World War impeded Casoc ‘s operations with the closing of operations in the Ras Tanura refinery. The postwar old ages were marked by the scramble to spread out production from the Aramco grant and develop stable markets for it. This was marked by Aramco spread outing operations through the aid of the military which allocated both stuffs and provided conveyance. Secure entree to universe markets was secured in two ways. First Aramco attempted to better fight of its rough oil as compared to U.S. and Soviet exports by cutting down costs of transporting oil from the Persian Gulf and besides the clip taken. In 1946, Aramco began, Aramco through the aid of its affiliates began constructing the Trans-Arabian Pipe Line Company which was 1,068 stat mis long and connected Abiqaiq oilfield to the Mediterranean Port of Sidon in Lebanon. Second, Aramco merged operations with Standard Oil Company of New Jersey and Mobil which helped use its markets. These alterations accordingly impacted the company ‘s overall public presentation impeling it to a planetary oil manufacturer.

3.0 The Strengths of Saudi Aramco company

Endowed with the universe ‘s biggest oil militias and the technological expertness it inherited from the former Arabian Oil Company, Saudi Arabia rides on a figure of advantages which includes advanced technological expertness, lo-cost production oil militias, extremely motivated employees and a good established and organized determination devising system which has boosted the company ‘s public presentation. Oil production costs in Saudi Arabia are besides considered to be low compared to that in other oil bring forthing states. This has besides acted as an added advantage in hiking the company ‘s net incomes. This is reflected by that fact that a big part of Saudi Arabian oil Fieldss are free-flowing straight from reservoir force per unit area and do non necessitate the application of pumps to pull out oil from the evidences. Estimated statistics indicate that the Saudi Arabian ‘s all inclusive costs of oil production sums to about $ 3 per barrel and this is viewed as the lowest of all planetary oil manufacturers.

The company besides has good relationship with the Saudi authorities which has seen its public presentation improve within a limited clip frame. Saudi Aramco is under strong and direct control of the south Arabian authorities and as a consequence it is regarded as a province entity. There, nevertheless exists a clear difference between the functions of the Saudi Aramco and the province authorities. For case the authorities has the authorization to make up one’s mind the state ‘s OPEC policies, domestic crude oil merchandise monetary values, capacity marks and even oil production degrees. Whereas the company itself has the authorization to do determinations affecting its investing undertakings, the company ‘s outgos and other operational issues. This clear limit of duties makes the company ‘s relationship with the authorities more amicable as it curbs political use of the company ‘s activities by giving manner for the company ‘s operational liberty. The factors hiking the singular good relationship between the authorities and the company are the company ‘s good public presentation profile both in the gas and oil production industries. Saudi Aramco Company has besides continued to run into the authorities ‘s marks and demands which has culminated to the province ‘s strong trust in the company ‘s capablenesss and accurate public presentation. The degree of operational liberty in the company is besides reflected by the fact that the company ‘s five-year program call for an blessing from the Supreme Council for Petroleum and Minerals which is the most outstanding organisation involved in determination devising with respects to the state ‘s energy resources and the council has ne’er rejected the any signifier of proposed programs from the company. Any political intercession of the Saudi Arabian authorities to the company ‘s policies is considered a tabu, this clearly shows the common trust that exists between the authorities and the company which clearly outlines the specific functions of the two stakeholders. This has helped command the kind of inefficiencies which could be caused by political intercessions which has helped heighten the company ‘s public presentation.

3.1.1 The Failings of Saudi Aramco Company

One of the major failings of the company is that it produces rancid class oil which has high degrees of S. The company produces five degrees of petroleum oil most of which has the S constituents which is above one per centum. Generally, rancid class oil is sold at low awards compared to those with low S degrees. With the dynamic market alterations which have seen the planetary markets being rigorous on crude oil merchandises specifications, the demand for these rancid classs is bound to cut down in the close hereafter and this will negatively impact on the company ‘s net incomes.

Saudi Armaco ‘s heavy trust on one trade good which is crude oil is besides exposed as one of the company ‘s failing in that if the production of rough oil is adversely affected so the company ‘s operations will come to a arrest. The company lacks variegation in its gross beginnings which makes its gross flows more volatile. As a consequence the company needs to diversify its beginnings in order to keep a stable one-year income. Besides the company ‘s long place of upstream capacity over its downstream capacity can be pointed out as a failing. Harmonizing to statistics carried out in 2004, this difference has resulted into the company holding a big refinement shortage as compared to its international oil companies which are challengers. As a consequence the company has resolved into procuring markets and mercantile establishments for its rough oil and maximising perpendicular integrating to heighten its grosss.

3.1.2 The effects of the environmental markets on the company ‘s strengths and failings

Concentrating on the company ‘s chances, the increasing planetary oil demands and its hesitating Pr ices which are ensuing into unexpected low monetary values snap are giving manner for companies such as Saudi Aramco to develop due to the fact that they own big oil militias. Harmonizing to research carried out by International Energy Agency, the planetary oil demand rate for the following one-fourth century is bound to be high compared with that of the old one-fourth century. The research fundamentally indicates that oil will go on to be the universe ‘s most indispensable beginning of energy sing the fact that it holds the biggest portion of the universe ‘s primary energy supply. This encompassed with the predicted demand growing possess a stable market for Saudi Aramco ‘s petroleum oil.

With the skyrocketing oil monetary values, the company is pulling singular monetary values from its oil merchandises. This has helped Aramco procure more financess for increased investings therefore heightening their engineering and opening more chances for its merchandises. This is reflected in the undertakings that the company has launched in the recent yesteryear such as ship building and improved geographic expedition and refinement methods which have seen the company increase its production of petroleum oil which is reflected in the singular net incomes that the company is doing.

Saudi Arabia ‘s credence to the World Trade Organization in the twelvemonth 2005 besides created an chance for the company more so in its petrochemical concern. This was marked by the understanding that Saudi Arabia struck with the World Trade Organization that its member states should let Saudi Arabia to continue its domestic natural gas monetary values which are low. Saudi Arabia ‘s gas monetary value is $ 0.75/MM BTU which is extremely low compared to other international markets therefore supplying important cost fight for its gas based industries. This has been met by much opposition from the European Union which is of the sentiment that such low monetary values are bound to harm its petrochemical industries while profiting the petrochemical industries in Saudi Arabia. With Saudi Arabia being given entree to the World Trade Organization, the Saudi Aramco company has got an chance to entree moneymaking abroad petrochemical markets such as the China markets which, in the close hereafter, could function as prospective musca volitanss in which the company can diversify its oil-revenue beginnings merged with non-oil trade goods.

Although at that place seems to be no at hand menace in the company ‘s running and public presentation at the minute, the increasing demand of its gas supplies is bound to ensue in the possible gas deficit supply in the state in the close hereafter if non good managed. The recent high economic growing rate recorded has resulted into domestic rising prices and has wholly misaligned demand this is reflected by the fact that a figure of petrochemical undertakings covering with natural gas are impacting the already stable balance of the state ‘s gas supply. Statisticss indicate that export of liquefied crude oil gas signifier the Saudi Aramco company is bound to halt in the following few old ages sing the fact that Liquefied Petroleum Gas will be applied as a replacement for natural gas in Saudi Arabia. This clearly reflects the fact that the hazard of possible gas supply bound is now looming as Saudi Aramco is now the lone company in charge of excavation and supplying adequate sums of natural gas for the state and as a consequence the company is under force per unit area to increase the already bing gas supply.

4.0 Schemes undertaken by Saudi Aramco to control its Failings

Saudi Aramco has come up with schemes to take advantage of the already bing chances and control their failings as good. In the 1900s, the company ‘s schemes chiefly focused on the mode in which to maximise net incomes and kerb costs in their already bing undertakings. However, in the last three old ages the company has advanced towards developing extended capacity enlargements which are to be to enable the company keep its pro tantrums and market demands while seeking to maintain at par with the dynamic market alteration s and competition from challengers. Some of the schemes adopted by the company include regenerating geographic expedition, enlargement of oil production capacities starategies,

4.1Revitalizing Exploration Strategy

Over the last few old ages, the Saudi Aramco company has recorded improved processing techniques in its geographic expedition activities. This betterment has been boosted by the regenerating geographic expedition scheme which has been adapted. This scheme is aimed at solidifying the company ‘s strengths with chances that tend to come on the manner as markets become more dynamic. The scheme engages tactics to detect the more low cost oil and gas militias which merely necessitate for sensible sum of investing. In the recent past the company has merely applied a little figure of rigs in its geographic expedition procedures but now the company is quickly increasing the figure of rigs it is using in its operations. Statisticss carried out in 2010 show that the company is prioritising gas field findings in its attempts to spread out domestic gas supplies capacity.

The company has exhibited a singular accomplishment in 2006 with the find of offshore Karan gas field which is hydro carbonaceous with first-class quality reservoirs and its production prognosis to lift up to one billion three-dimensional pess per twenty-four hours. The company has as a consequence established an intensive geographic expedition plan which is bound to detect a similar elephantine field in the close hereafter. However some factors which are beyond the company ‘s control such as the increasing domestic gas demand and the national limitations imposed by the Saudi Arabian authorities on exportation of natural gas are bound to stamp down the company ‘s natural gas exports in the hereafter despite its attempts ton expand. In order to spread out its gas geographic expedition processes, the company has besides outsourced some of its undertakings to foreign companies such as Four Consortia. This scheme is known as the Saudi Gas Initiative and outsourcing companies such as Shell, Total, Eni and Repsol are now researching natural gas militias with the Saudi Aramco company holding 20 percent joint venture in each pool and in instance a feasible natural gas field is discovered, the company is entitled to buy the gas produces at domestic monetary values and utilize its ain webs to administer it.

Harmonizing to — — — — -a Saudi Aramco company functionary, the company ‘s geographic expedition activities are bound to switch back to oil militias geographic expedition as such a displacement is motivated by peak oil thesis. This is due to the fact that stakeholders are raising inquiries as to the state ‘s ability to go on increasing production capacity as the state with the largest oil Fieldss peaks as it is presented in globally: ‘Saudi Arabian Oil Miracle ‘ . In an effort to keep its high profile and repute the company is unwraping a elaborate field by field informations which is aimed at oppugning the cogency of the production extremum intuitions while it has besides embarked on intensive geographic expedition activities which provide the most appropriate and effectual manner of turn outing the company ‘s resource potency.

4.2 Expanding Oil Production Capacity Strategies

The company is besides seting schemes in topographic point in an effort to increase its production capacities and unafraid excess capacities. This scheme is aimed at reenforcing its strengths at the through taking advantage of chances as thy semen. The company ‘s civilization of keeping equal trim capacities has been a primary beginning of the company ‘s matchless influence over other internal oil companies in the international markets. This scheme has facilitated the company ‘s maximization of oil grosss for rather a figure of old ages now. This has besides been boosted by strong planetary oil demand which has continued to be steady hence supplying an chance for the company to prosecute more cardinal upstream undertakings. Although when sing the recent cost rising prices experienced in the upstream undertakings initiated by the company, a clear menace to excluding the company from achieving its policies is seen. Senior Saudi Aramco company executives are of contrary to this sentiment as they assert that such cost rising pricess are non and can non be in a place to discourage their enlargement schemes as the company has supreme cost fight. He table below analyzes Saudi Aramco ‘s capacity undertakings fro the twelvemonth 2006-2011.

Saudi Aramco ‘s Capacity Addition Undertakings

Field

Addition ( ‘000b/d )

Class

On-steam

Khursaniya

500

Aluminum

2007

Shaybah

250

AXL

2008

Nuayyin

100

American sign language

2006

Khurais

1200

Aluminum

2009

Safaniya

200

AH

2010

Manifa

900

AH

2011

Entire

3150

Beginning: Weekly Petroleum Argus, 8th January 2007.

The tabular array above summarizes the company ‘s capacity undertakings which are continuing on the agenda and so some of them are even competed before the framed agenda. These undertakings have helped the company keep stable net incomes through their finds. The completion of some undertakings such as the Haradh undertakings has exhibited the company ‘s first-class ability in both cognition and dynamic capableness directions with respects to engineering. Apart from the enlargement undertakings mentioned in the above tabular array, Saudi Aramco has other capacity enlargement undertakings such as spread outing the impersonal zone production and hiking production in Shaybah field to one million per twenty-four hours. These undertakings are projected towards maximising the company ‘s grosss.

Keeping a specific degree of trim capacity is polar to Saudi Aramco ‘s upstream schemes. This is due to the importance of Saudi Aramco ‘s purchase against other rivals and oil consumers which is drawn from the trim capacity. The company asserts that it aims at keeping its trim production capacity at about 2 million barrels per twenty-four hours at lower limit. Statisticss besides indicate that the company maintained a two million trim capacity barrels per twenty-four hours in 2006 while its functionaries maintain that appropriate schemes are in topographic point to keep this trim capacity.

4.3 The Vertical Intergration Strategy Applied in Saudi Aramco Company

In the recent old ages Saudi Aramco has recorded accelerated investing schemes in the refinement sector. This is in its attempts to cover up the big refinement shortage that it experiences and curb the negative effects that come along with the enlargement of the oil market through geting sophisticated refinement procedures which are in a place to treat Saudi Aramco ‘s heavier rough oil.

Vertical integrating has remained one of the consistent schemes applied by Saudi Armaco in guaranting that the company maintains a ample refinement capacity. This scheme has seen the company being ranked the 9th largest oil refiner globally. It has besides enabled the company spread out its downstream web more so in foreign states such as the United States, South Korea, Philippines and Greece. The company ‘s involvement in perpendicular integrating was apparent in 1990s when oil monetary values were worsening and the company had no equal investing financess. This scheme has helped the company actively pursue downstream investings despite the presence of constrictions in the international refinement capacity. This scheme demo the company get 14.96 per centum portion in Showa Shell while the company besides holds a refinement capacity of 695,000 barrels per twenty-four hours outside Saudi Arabia which is about a one-fourth of the company ‘s refinement capacity.

Since clip in memorial, the company has besides been known to hold adopted two rules while prosecuting its downstream investings. These values include procuring the refinement capacity which ought to be equal to at least half of the upstream investings. The 2nd value is to procure mercantile establishments for Saudi Arabian petroleum oil alternatively of taking direction control embracing more than 50 per centum portion. The tabular array below illustrates the most recent investing undertakings in the company ‘s refinement sector in both Saudi Arabia and abroad. As depicted in the tabular array the entire capacity add-on is projected to be 2.67 million barrels per twenty-four hours when all this undertakings will be to the full completed. This implies the fact that the completion of these undertakings will impel the company into a first position.

Saudi Armaco Company ‘s Refinery Expansion Plan

Undertaking

JV Partner

Addition ( b/d )

Start-up

Status

Fujian ( China )

Exxon Mobil, Sinopec

160,000

2008

Under building

Seosan ( Korea )

S-Oil ( Subsidiary )

480,000

2010

Board of Directors approved.

Port Arthur ( US )

Shell ( Motiva )

325,000

2010

Construction begins 2007

Jubail

Entire

400,000

2011

Confirmed. Final Investment Decision pending

Yanbu

ConocoPhillips

400,000

2011

Planned

Quingdao ( China )

Sinopec, Local

200,000

2007

Under Negotiation

Ras Taura

300,000

Planned

Jubail

Shell ( SASREF )

305,000

Possible enlargement

Yanbu

100,000

Possible Expansion

Entire

2,670,000

Beginning: Weekly Petroleum Argus, 1st January 2007

As depicted in the tabular array two refineries Yanbu and Jubail are to be constructed and run by foreign companies and the Saudi Armaco company has picked ConocoPhillips and Jubail as its spouses in transporting out the undertakings. The refineries are aimed at bring forthing high quality crude oil merchandises that are at par with developed states specifications. The company has besides devoted its attempts to the abroad markets chiefly in the Asia. This is reflected with the building of Seosan Refinery in South Korea. Most of these undertakings are designed to treat rancid and heavy class oil so as to control the Saudi Armaco company ‘s petroleum oil quality failing. If the company can be in a place to posses it ain sophisticated refinement capacities so it will besides be able to transform low quality petroleum oil into more valuable crude oil merchandises and increase their grosss and expand markets.

5.0 The effects of these schemes

The consequence of the Saudi Armaco company ‘s export refineries is limited on the Asiatic markets while it is more conspicuous in Western markets. Construction of these refineries has boosted the Saudi Armaco ‘s production capacity from 1.5 million barrels per twenty-four hours to 7.6 1000000s barrels per twenty-four hours. These schemes have besides helped develop a strong relationship between the company and international markets and stakeholders. This has helped keep a stble market for the company.

6.0 Decision

Having analyzed Saudi Amarco ‘s concern profile and direction schemes, it is evident that the company ‘s execution of its schemes is motivated by its desire to get the better of its failings and reenforce its strengths while seeking to control the impacts of menaces and take advantage of the available investing chances. All the schemes developed by Saudi Amarco are geared towards peculiar ends and missions that are bound to spread out the company ‘s expertness and every bit good every bit experience as a developed oil and gas bring forthing company. This implies the fact that the company will go on being a dependable province house in the oil and gas processing sectors.

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