Aramco Sits on 270 Billion Barrels

[Marina Schwarz + 1,576]

That's what two anonymous (of course) sources told Reuters as Aramco is being audited independently. Now I want to see their reserve replacement rate because they have been reporting 261 billion barrels for thirty years, I gather. And now suddenly the independent audit finds it's even more. Quite possible, of course but how relevant is it?

[Tom Kirkman + 8,860]

Aramco oil reserves and decline rates are still formally Saudi Arabia state secrets.

I don't trust the "anonymous" sources.

And I've mentioned before the lack of transparency regarding Aramco reserves and decline rates:

Oh, and that USD $2 trillion valuation?  Without transparency about the actual, proven reserves and actual, proven decline rates of Aramco's massive oil assets, then that number is reminiscent of the Emperor's New Clothes - try not to gawk in disbelief.

With water cut at 40% or 60% in some cases on Aramco's aging oil wells, with Enhanced Oil Recovery activities going on for years now, with China and Russia unwilling to purchase an exclusive 5% stake in Aramco, and with Al-Naimi, the former longtime head of Aramco leading the charge for renewable energy in the Kingdom, it seems increasingly unlikely that a Saudi Aramco 5% IPO with a valuation of USD $2 trillion will ever see the light day.

Maybe if the significantly over-valued $2 trillion valuation gets chopped in half, and Aramco fully opens their books to investor scrutiny, then - and only then - does a Saudi Aramco IPO have a chance to succeed. 

[Marina Schwarz + 1,576]

This is supposed to be an independent audit, so there should be a lot less space for pumping up the actual figure. But yes, I'd rather wait for the official conclusion of the auditors than trust "sources".

[Rodent + 1,424]

Aramco has had more than its fair share of leaks as of late. I find that disconcerting, given that I think they run a pretty tight ship. These "leaks" are more likely strategic. 

And yeah, the reserve replacement issue is possible, but seems unlikely. You take and take and take for decades,and end up with more than what you started with? Fishes and loaves, anyone?

[JHM + 30]

The difference between 270Gb and 261Gb should be irrelevant to market valuation. What matters is production over a ten to 20 year time frame. Much beyond that has practically no present value.

So at current production rate near 10mb/d, the R/P ratio is 73 to 76 year. Reserves of this R/P are simply candidates for future stranded assets. But that, too, is financially irrelevant due too ordinary discounting.

The only way Aramco's massive reserves become relevant is if they were to multiply production rates. For example 30mb/d would lead to a 25 year R/P ratio, most of which would have material present value. Of course, the downside is that doubling or tripling production would destroy the price of oil. If you double production while the price of oil falls 50%, you've done nothing to increase revenue. 

 

So basically, Aramco is stuck producing only 10 mb/d because there is not enough demand for them to substantially increase production. And this makes most of their legendary reserves worthless. They will keep producing a mere 10 mb/d, not because they are constrained by reserves, but because they are constrained by demand. The present value of that cash flow is all the stock will ever be worth.

[Bhimsen Pachawry + 72]

The world oil reserves is about 650GBL. The oil consumption (NGL, Tar sands exckuded) is 30GBL per year

Here are some of the rough oil reserves based on various calculations and speculations in GBL:

Oil reserves of Muslim countries:

KSA: 115

UAE: 35

Kuwait: 35

Iraq: 55

Iran: 50

Azerbaijan: 7

Qatar: 5

Oman: 5

Yemen: 3

Syria: 2

Bahrain: <1

Libya: 15

Algeria: 12

Egypt: 4

Malaysia: 4

Indonesia: 3

Total oil with muslim countries comes to around 350GBL.

Oil reserves in non-muslim countries are: 

Russia: 125 (with shale oil of 20GBL)

USA: 40 (with shale oil)\

China: 25

Nigeria: 22-25

Kazhakhstan: 25

Brazil: 12

Ecuador: 8

Angola: 8

Mexico: 8

Norway: 7

India: 6

Canada, Venezuela, Vietnam, Sudan, Colombia, Chad, Argentina, UK, Australia, Bruinei, Guinea, Peru and others: 20

Total oil with non-muslim countries is roughly 300GBL.

(PS:Venezuela and canada don't hold large reserves. What they hold is tar sands, an intermediate between coal and oil.)

 

Saudi had oil in place of 530GBL initially. The total production since 1950 is 165GBL. So, the oil in place itself would be 365GBL as of now. The total oil that can be extracted comes to about 50% for Saudi Arabia by EOR techniques. The bigger oil fields like Ghawar may have over 55% to 60% extraction due to their large size and hence relative ease of extraction while other smaller fields have extraction rate of 30% to 50% depending on various factors after EOR techniques. So, the ttal extractable oil reserves of 270GBL is true. Subtracting 165GBL already extracted, it becomes 105GBL remaining.

Now, about the independent audit, I want to know the techniques by which they audited. Did they drill wells extensively and check for reserves? I don't think KSA would allow anyone to do that, even for auditing. It is absurd to say that KSA has anything more than 120GBL.This audit is just bogus

[Bernard + 1]

Hi, I am new to the community.

[TomTom + 183]

14 minutes ago, Bernard said:

Hi, I am new to the community.

Welcome Bernard 

[CMOP + 227]

1 minute ago, Bill R Brown said:

William Brown Sr. Geophysicist from Spring Texas Just joined

Welcome @Bill R Brown

[CMOP + 227]

18 minutes ago, Bernard said:

Hi, I am new to the community.

@Bernard Welcome!

[Dennis Coyne + 82]

On ‎5‎/‎1‎/‎2018 at 12:51 PM, Bhimsen Pachawry said:

The world oil reserves is about 650GBL. The oil consumption (NGL, Tar sands exckuded) is 30GBL per year

Here are some of the rough oil reserves based on various calculations and speculations in GBL:

Oil reserves of Muslim countries:

KSA: 115

UAE: 35

Kuwait: 35

Iraq: 55

Iran: 50

Azerbaijan: 7

Qatar: 5

Oman: 5

Yemen: 3

Syria: 2

Bahrain: <1

Libya: 15

Algeria: 12

Egypt: 4

Malaysia: 4

Indonesia: 3

Total oil with muslim countries comes to around 350GBL.

Oil reserves in non-muslim countries are: 

Russia: 125 (with shale oil of 20GBL)

USA: 40 (with shale oil)\

China: 25

Nigeria: 22-25

Kazhakhstan: 25

Brazil: 12

Ecuador: 8

Angola: 8

Mexico: 8

Norway: 7

India: 6

Canada, Venezuela, Vietnam, Sudan, Colombia, Chad, Argentina, UK, Australia, Bruinei, Guinea, Peru and others: 20

Total oil with non-muslim countries is roughly 300GBL.

(PS:Venezuela and canada don't hold large reserves. What they hold is tar sands, an intermediate between coal and oil.)

 

Saudi had oil in place of 530GBL initially. The total production since 1950 is 165GBL. So, the oil in place itself would be 365GBL as of now. The total oil that can be extracted comes to about 50% for Saudi Arabia by EOR techniques. The bigger oil fields like Ghawar may have over 55% to 60% extraction due to their large size and hence relative ease of extraction while other smaller fields have extraction rate of 30% to 50% depending on various factors after EOR techniques. So, the ttal extractable oil reserves of 270GBL is true. Subtracting 165GBL already extracted, it becomes 105GBL remaining.

Now, about the independent audit, I want to know the techniques by which they audited. Did they drill wells extensively and check for reserves? I don't think KSA would allow anyone to do that, even for auditing. It is absurd to say that KSA has anything more than 120GBL.This audit is just bogus

Bhimsen,

Conventional 2P reserves (50% probability that more than this level will be produced) in 2011 were about 1260 Gb according to IHS estimates, see Section 3b of paper linked below

http://rsta.royalsocietypublishing.org/content/372/2006/20130179

World 1P reserves in 2011 may have been about 740 Gb (typically the 2P/1P ratio is about 1.7).

Note that the paper above includes NGL as a "conventional" oil resource, it is not clear how much of the 1260 Gb of 2P reserves is NGL.  Also note that in 1978 when Aramoco still had to comply with SEC rules, Saudi proved reserves were about 110 Gb and 2P reserves about 177 Gb (page 378, Twilight in the Desert).  From 1979 to 2016 Saudi output was about 120 Gb (BP data), so with zero discoveries or reserve growth 2P reserves would be 57 GB.  The fact is that as fields are developed and both knowledge and technical prowess increases, previous estimates are revised upward (this is called reserve growth).

In the US reserve growth was about 2% per year from 1980 to 2005 (a much more mature region).

Reserve growth may have allowed Saudi reserves to be maintained over time, though based on the information in Twilight in the Desert it looks like Saudi may report 3P reserves after 1987, so the jump of Saudi reserves in 1987 to 1988 was a switch from 2P to 3P reported reserves in the "quota wars".

[Bhimsen Pachawry + 72]

3 hours ago, Dennis Coyne said:

Bhimsen,

Conventional 2P reserves (50% probability that more than this level will be produced) in 2011 were about 1260 Gb according to IHS estimates, see Section 3b of paper linked below

http://rsta.royalsocietypublishing.org/content/372/2006/20130179

World 1P reserves in 2011 may have been about 740 Gb (typically the 2P/1P ratio is about 1.7).

Note that the paper above includes NGL as a "conventional" oil resource, it is not clear how much of the 1260 Gb of 2P reserves is NGL.  Also note that in 1978 when Aramoco still had to comply with SEC rules, Saudi proved reserves were about 110 Gb and 2P reserves about 177 Gb (page 378, Twilight in the Desert).  From 1979 to 2016 Saudi output was about 120 Gb (BP data), so with zero discoveries or reserve growth 2P reserves would be 57 GB.  The fact is that as fields are developed and both knowledge and technical prowess increases, previous estimates are revised upward (this is called reserve growth).

In the US reserve growth was about 2% per year from 1980 to 2005 (a much more mature region).

Reserve growth may have allowed Saudi reserves to be maintained over time, though based on the information in Twilight in the Desert it looks like Saudi may report 3P reserves after 1987, so the jump of Saudi reserves in 1987 to 1988 was a switch from 2P to 3P reported reserves in the "quota wars".

 

I have included all 2P reserves and assumed that they are almost fully exploitable.

KSA original oil in place was 530GBL and the proven reserves were 110+177 GBL. I have calculated production of roughly 160-165GBL till date (manual calculation and hence  error). I have taken the KSA oil reserves to be 280GBL in total and hence have concluded that it is 115GBL left.

Considering the fact that 280GBL is about 53% of OOIP, I would not dare to increase the extractability beyond that point. The technology has not been enhanced in much of the manner as far as I see. USA oil reserves is growing continually, not because USA improvised technology but because USA uses the clause of 'economicality" of extraction at current oil price. USA has deliberately controlled its oil extraction by means of increasing tax, leasing rights restriction, environmental clearance etc and hence the reserves have been held lower than the "technically extractable limit".

About Natural gas, the total natural gas reserves come to roughly 6000TCF (some say it is 7000TCF by expecting Russia to have more gas as lot of it is unexplored). 6000TCF is equivalent of 1trillion barrel of oil. 

I am not sure how NGL is calculated as the composition of NGL is mainly ethane, butane and propane and petrol. If I am right, it comes to about 20-25% of the energy of natural gas. Hence the NGL can be considered as about 250GBL

So, total oil from my calculation comes to be 650GBL + 250GBL  = 900GBL. The number you suggested for 2011 report might have come from 2010 data and was 1260GBL. Considering the usage of oil of 27GBL a year, NGL of 3GBL a year. For 8 years, we find the usage to be 216GBl of oil, 24GBL of NGL. The usage totals to 240GBL and current oil reserves come to 2060-240 = 1020Gbl, which is somewhat higher than my number.

I would not, however consider NGL as same as oil and hence stick to the oil numbers as 650GBL. Also, I would not consider ethane as oil equivalent, which forms majority of the NGL.

[Mahyar + 16]

First of all, it is always better to mention the source (or sources) of every statement in order to be trusted.

Regarding the difference between the reserves value, it is probably due to using different RF for reserves calculations.

[William Edwards + 708]

On 4/30/2018 at 1:33 PM, JHM said:

The difference between 270Gb and 261Gb should be irrelevant to market valuation. What matters is production over a ten to 20 year time frame. Much beyond that has practically no present value.

So at current production rate near 10mb/d, the R/P ratio is 73 to 76 year. Reserves of this R/P are simply candidates for future stranded assets. But that, too, is financially irrelevant due too ordinary discounting.

The only way Aramco's massive reserves become relevant is if they were to multiply production rates. For example 30mb/d would lead to a 25 year R/P ratio, most of which would have material present value. Of course, the downside is that doubling or tripling production would destroy the price of oil. If you double production while the price of oil falls 50%, you've done nothing to increase revenue. 

 

So basically, Aramco is stuck producing only 10 mb/d because there is not enough demand for them to substantially increase production. And this makes most of their legendary reserves worthless. They will keep producing a mere 10 mb/d, not because they are constrained by reserves, but because they are constrained by demand. The present value of that cash flow is all the stock will ever be worth.

Let me applaud JHM for his sound assessment and comment.