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Volume 44, Number 5September/October 1993

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Saudi Aramco at Sixty

Written by Arthur Clark
Photographed by S. M. Amin

How can a company that's not quite five years old celebrate its 60th anniversary?

By inheriting a tradition, a reputation and a history too proud and too valuable to discard - and by building on that tradition.

Saudi Aramco, a company small only in years, was created by the government of Saudi Arabia in 1988, just five years ago this November, to continue the work of the Arabian American Oil Company (Aramco). Aramco, in which the Saudi government had been progressively acquiring an interest since the early 1970's, had been owned by the American oil majors Chevron, Texaco, Exxon and Mobil - and had ties to the petroleum industry in the Saudi kingdom that stretched right back to the beginning.

That beginning, in Saudi Arabia, was in 1933. That's when the Saudi government signed a concession agreement with the Standard Oil Company of California, predecessor of today's Chevron, opening up a large part of the young desert country for hydrocarbon exploration. In March 1938, following three years of frustrating drilling, the first commercially viable oil field was discovered at Dhahran (See Aramco World, May-June 1988). The kingdom and the company never looked back, in time joining the ranks of the world's greatest producers and exporters of oil and natural gas liquids.

So Saudi Aramco was born with a legacy that included a "can-do" attitude, an unmatched multinational work force, and a long list of achievements. The list included the first tanker shipment of crude oil from Saudi Arabia in 1939; in the mid-1940's, erection of the company's new refinery at Ras Tanura; in 1950, completion of the 1718-kilometer (1068-mile) Trans-Arabian Pipe Line linking the Eastern Province oil fields to the Mediterranean coast; and, in the 1970's, construction of Saudi Arabia's Master Gas System, a massive project which captured the gas wealth of the nation for use in industries at home and abroad (See Aramco World, May-June 1984).

The legacy is one the new company hasn't hesitated to enhance. In a remarkably short time, Saudi Aramco has developed from an oil enterprise focusing largely on production to one with operations extending around the world, and reaching vertically from the wellhead to the corner service station. The secret behind its long record of accomplishment is "the company's ability to accommodate ever-changing conditions and requirements," says Ali I. Naimi, Saudi Aramco president and chief executive officer. He calls the business's ability to meet tough challenges its "distinctive characteristic."

There are many milestones along the road to today's Saudi Aramco. To commemorate the first one - the May 29,1933 signing of the concession accord - Saudi Aramco kicked off its diamond jubilee late last May with special issues of the company weeklies The Arabian Sun and Qafilat al-Zayt (Oil Caravan). Other anniversary festivities have taken place, officially to mark 60 years of operation. But the focus is on the last decade, a period of tremendous expansion to become what today is the world's largest oil company.

That status was underlined in 1990 when nearly 4.6 million barrels per day of oil production vanished from world oil markets in the wake of the Gulf crisis and the subsequent international embargo on crude from Iraq and Kuwait. Between August and the end of that year, in a remarkable effort, Saudi Aramco was able to boost its output from 5.3 million barrels per day to 8.5 million barrels - a 62 percent increase - to help stabilize the market. Oil prices, which had ballooned to more than $40 a barrel, quickly retreated; an energy crunch was avoided that could have seriously harmed an already shaky world economy.

Last October, Saudi Arabia became the world's top oil-producing nation, eclipsing Russia, the number-one producer of the former Soviet Union. Saudi Aramco manages all but a tiny fraction of the production from the kingdom's fields, and is also the world's number-one exporter of crude oil and natural gas liquids.

Then, in June this year, the Saudi government entrusted Saudi Aramco with the functions of the kingdom's multibillion-dollar Saudi Arabian Marketing and Refining Company (Samarec), consolidating virtually all petroleum functions in Saudi Arabia - from exploration and production through refining, transportation and marketing. Saudi Aramco thus became responsible for all domestic refining, international product marketing and the distribution of petroleum products throughout Saudi Arabia. In July, the government extended the consolidation by also merging into Saudi Aramco most of the activities of the General Petroleum and Minerals Organization (Petromin), including Petromin's interests in the country's three joint-venture refineries. The decision to assign Saudi Aramco these tasks posed brand new challenges, said Naimi, and "is yet another measure of the government's confidence in our company."

Two milestone events that took place just 10 years ago helped point the way to the giant oil enterprise of today. In May 1983, King Fahd ibn 'Abd al-'Aziz Al Saud inaugurated Aramco's Exploration and Petroleum Engineering Center (EXPEC), with its associated computer center and laboratories, in Dhahran. That November, Ali Naimi was appointed president of Aramco, becoming the first Saudi to hold the post.

EXPEC linked top-of-the-line computer, exploration and petroleum-engineering facilities with expert manpower to create a world-class technical center whose primary purpose is to find and produce oil and gas with maximum efficiency. With the establishment of EXPEC, Saudi Aramco effectively declared its independence from such centers outside the country in the key fields of exploration and producing.

"EXPEC has become one of the largest upstream earth-science and engineering centers in the industry" in the last 10 years, says Sadad I. Husseini, Saudi Aramco's executive vice president of production operations. As a result, the company "has essentially eliminated its dependence on upstream technological support from other oil firms, and now provides technical expertise and special services in-house in all facets of engineering and producing operations."

It is through EXPEC that Saudi Aramco has introduced new technologies, such as advanced three-dimensional seismic surveying in 1986, which provides better data for exploration and field development, or, in 1991, horizontal drilling, to tap hard-to-get oil. EXPEC underscores the company's commitment to use the most modern computer technology to develop the kingdom's oil industry - and carries it out: The center's newest supercomputer, used to process seismic data, can carry out an astonishing 2.5 billion calculations per second.

The return on Saudi Aramco's continuing investment in EXPEC and its related facilities is impressive.

In the field of exploration, for example, Saudi Aramco has discovered hydrocarbons in central and northwestern Saudi Arabia and on the Red Sea coast - 10 new fields in all, and all since 1989. The Central Arabian strikes, now under development, include the discovery of super-light, low-sulfur crude equal to the world's fifiest known grades. The finds are the fruit of a kingdomwide exploration program which, between 1986 and 1990, saw the company's prospecting mandate grow more than sixfold to cover more than 1.3 million square kilometers (513,000 square miles) - an area almost as large as Germany, France and Spain combined, or the combined areas of Texas, Oklahoma, Kansas and Colorado.

Saudi Aramco manages more than 60 oil and gas fields, including the world's largest field, Ghawar, and the largest offshore field, Safaniya. At the end of 1992, recoverable crude oil reserves in the company's fields were 258.8 billion barrels. That quantity is not only about a quarter of the world's known total, it is also 6.4 billion barrels above the total in 1988, despite the production of some 10 billion barrels of crude in the intervening years -clearest proof of a successful exploration program. (Reserves of gas tallied 181.15 trillion standard cubic feet, compared with 177.29 trillion cubic feet five years before.)

EXPEC has also figured centrally in Saudi Aramco's campaign to boost crude production capacity to 10 million barrels per day to be able to meet anticipated world demand, a project begun in 1989. In another important effort involving EXPEC, the company carried out a successful campaign in the mid-1980's to tap large amounts of "non-associated" gas - gas which could be produced independently of crude oil. This proved a valuable source of fuel gas for local industries and power generation at that time.

Of course, Saudi Aramco also transports and exports the hydrocarbons it produces. All together, the pipelines at the heart of its petroleum transportation system run about 11,700 kilometers (7266 miles), more than enough pipe to link Dhahran to Chicago. Saudi Aramco operates large port facilities on both the Arabian Gulf and the Red Sea coasts of the kingdom, and has paid particular attention in the last 10 years to developing the country's west coast as an export point.

In 1984, the company took over responsibility for running the East-West Crude Oil Pipeline, stretching 1200 kilometers (745 miles) from Abqaiq in the Eastern Province to Yanbu' on the Red Sea. Its capacity was then 1.85 million barrels a day. By 1987, the company had increased the capacity to 3.2 million barrels by building a parallel pipeline linked to the original line's 11 pump stations. This spring, Saudi Aramco boosted the line's capacity again, to a peak of five million barrels a day. The latest expansion included the addition of two "super-pumps" at each pump station, each pump driven by a turbine as powerful as that on a Boeing 747.

At Yanbu', Saudi Aramco hiked the capacity of the crude oil export terminal itself by 60 percent, to 4.2 million barrels per day. That job included construction of a fourth supertanker berth and a new control center, and erection of a 1.5-million-barrel crude-oil storage tank. The new tank, part of a 12.5-million-barrel tank farm, measures 125.5 meters (412 feet) around, and is the largest-diameter crude storage tank in the world.

While forging ahead with those concrete projects, Saudi Aramco has also continued the metamorphosis into an integrated international oil company that began in the mid-1980's. In 1984, the company formed subsidiaries to provide crude-oil tanker transportation services and to acquire oil-storage facilities abroad. In 1985, it began marketing crude directly to refining companies, rather than solely to the Saudi government's Petromin and the four Aramco partners.

Today, Saudi Aramco has a global marketing organization with subsidiary offices in New York, London and Tokyo - and sells directly to more than 50 refiners worldwide. It owns a tanker fleet. And it has made big investments in refineries and product-distribution networks, including thousands of gasoline stations, in the United States and South Korea.

This "downstream" expansion effort aims to "protect and potentially increase the market share of Arabian crude, maximize the revenues from the sale of Arabian crude, and provide secure outlets through strategic alliances with refining companies in our major markets," says Abdallah Jum'ah, executive vice president of international operations.

Saudi Aramco's first international investment, a joint venture with a Texaco subsidiary in late 1988, created Star Enterprise - which became the sixth largest marketer of gasoline in the United States on its first day of operation, January 1, 1989. The deal gave Saudi Aramco, through a subsidiary, a 50-percent share in three major refineries and in a petroleum marketing network that covers all or part of 26 states from Maine to Texas, and the District of Columbia. Moreover, it provided the company with a guaranteed outlet for up to 600,000 barrels daily of Arabian crude oil.

Saudi Aramco looked east, to South Korea, for its second international tie-up: In July 1991 a subsidiary bought a 35-percent share of the SsangYong Oil Refining Company. SsangYong is South Korea's third largest petroleum refiner and its leading manufacturer of lubricants. This transaction gave Saudi Aramco an outlet for up to 325,000 barrels a day of crude, plus a refining and marketing stake in the fast-growing Pacific Rim region.

And Saudi Aramco is actively building on those investments. Last year, Star Enterprise completed an addition to its refinery in Port Arthur, Texas, that will increase the yield of high-value products, like gasoline and diesel fuel, obtained from heavier grades of crude. And work is under way to boost the production of high-value products at SsangYong's refinery in Onsan, South Korea. Meanwhile, Saudi Aramco is continuing to search in North America, Europe and the Far East for other profitable downstream investment opportunities in the industry.

The company has also substantially increased its ability to deliver the crude it produces by acquiring supertankers of its own. The Saudi Aramco fleet, operated through a subsidiary named Vela International Marine, now stands at eight ships - up from four in 1988 - with 15 new vessels under construction. The first of the new supertankers is slated to be delivered late this year, and the last ones in 1995.

All this activity has also brought fundamental changes in the responsibilities of Saudi Aramco's finance organization, notes Nabil I. al-Bassam, executive vice president of finance. "Finance participates in downstream project evaluation and analysis," he says, "develops new risk-management and insurance programs, handles the receipt of funds worldwide, and tracks customer crude sales and the associated receivables."

If EXPEC marks Saudi Aramco's success in applying modern technology in upstream operations, and tankers and refineries around the globe highlight the company's bold new downstream dimension, then Ali Naimi himself represents the third factor in the Saudi Aramco equation - a training effort that's placed the direction and operation of the enterprise squarely in Saudi hands.

Naimi joined Aramco in 1947 at age 11 - in the pioneering days before the kingdom's labor laws regulated hiring ages - and climbed the ladder of professional development step by step through the company's training program. He is the most prominent among scores of company-trained Saudis now holding key posts with Saudi Aramco. In early 1988, at the same time Minister of Petroleum and Mineral Resources Hisham Nazer was named Aramco board chairman, Naimi, already company president, was named chief executive officer. When Saudi Aramco was founded that November, Nazer became its first board chairman and Naimi the first president and ceo.

The Saudi Aramco training program is one of the largest of its kind in the world, with a full-time training staff of nearly 1800. It dates back to the early days, when Saudis learned the trade informally, working side-by-side with American oil men. The first formal industrial training programs were established in the 1950's; college-level training quickly followed. Currently, about 11,000 Saudi employees are undergoing vocational training or pursuing academic curricula, both inside and outside the kingdom (See Aramco World, March-April 1993).

Thanks to this extensive and long-term training effort, Saudis now hold nearly all the company's senior management positions, and staff 66 percent of its supervisory posts. Equally critically, they comprise 98 percent of the company's key oil- and gas-facility operators.

Today, Saudi Aramco's work force of more than 46,000 is around 75 percent Saudi, compared with 50 percent a decade ago. Overall, staff is drawn from some 50 countries, giving the workplace a distinctly multinational flavor. There are around 5500 Asian, 3400 North American, 2100 European and 1000 non-Saudi Arab employees, many sharing their professional skills as mentors with a new up-and-coming generation of Saudis.

Abdelaziz M. al-Hokail, executive vice president of manufacturing operations, calls the company's "Saudization" program a "major corporate direction ... pursued rationally and cautiously to ensure that all Saudi employees are expertly trained and can assume increasingly higher levels of responsibility as their experience grows." Expatriate employees, he says, "play an important role in the success of these efforts."

Saudi Aramco's international flavor carries over to its board of directors. The board includes seven Saudis drawn from the top ranks of the kingdom's oil, business and research sectors, and three Americans with decades of experience in the fields of international energy and banking.

As Saudi Aramco has grown, so has its emphasis on operational and environmental safety. In the environmental realm, the company's commitment to conduct operations so as to protect public health from the harmful pollution of land, air and water is long-standing. In 1991, in an operation lasting many months, Saudi Aramco acted with other Saudi government agencies to successfully protect vital industries along the Arabian Gulf shore when the largest oil spill in history entered Saudi Arabian waters as a result of the Gulf War. The company recovered more than a million barrels of oil, the most ever collected from a spill (See Aramco World, May-June 1991).

In its role as an international crude shipper, Saudi Aramco has established a Global Oil Spill Coordination Group to respond rapidly and effectively wherever the company operates to protect the environment in the event of a tanker spill. The company has carried out elaborate oil-spill exercises at home and abroad, while continuing extensive in-house environmental protection and monitoring programs.

The company has also remained an important force in the local community. The Home Ownership Program, under which Saudi Aramco provides free lots and subsidized home-construction loans for Saudi employees, began in 1952. Employees have built some 33,000 homes under the program, about half of them in the last decade. The company's School Construction Program, carried out in cooperation with the kingdom's educational authorities, has built 92 new schools for Saudi and other children in the area since 1953 - nearly a third of those in the last 10 years. Other landmark community construction in the last decade includes the Dhahran Mosque in the company headquarters area, and the nearby Saudi Aramco Exhibit (See Aramco World, November-December 1992).

Those buildings and programs, too, are important parts of the Saudi Aramco legacy - a legacy whose vitality was underlined late last year when representatives of Saudi Aramco, Texaco and Star Enterprise met in Port Arthur, Texas, to dedicate new facilities at the Star refinery there. The ties between Saudi Aramco and Texaco date back to 1937, when Texaco's predecessor, the Texas Company, joined in the Arabian oil venture, Minister of Petroleum Hisham Nazer told the gathering. That original link helped to build the oil industry in Saudi Arabia. Today, as Star Enterprise exemplifies, the building continues. "To succeed in the global economy," said Nazer, "we must continue, all of us, to cross new boundaries, both philosophical and geographical - some familiar, some difficult, all challenging."

It would be hard to better sum up the reasons for Saudi Aramco's exceptional 60 years of success.

Arthur Clark, a Dhahmn-based staff writer for Saudi Aramco, has recorded the company's development for the past 13 years.

This article appeared on pages 20-31 of the September/October 1993 print edition of Saudi Aramco World.


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