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Saudi Arabia Prepares 28 Pct Increase in Oil Rigs

Source: Reuters 3/29/2011, Location: Middle East

Top oil exporter Saudi Arabia has unexpectedly called on oilfield service firms to expand the kingdom's oil rig count by nearly 30 percent, according to Simmons & Co, to ensure spare production capacity remains ample as supply uncertainty grows.

Saudi state-run oil giant Saudi Aramco met with leading oil service companies including Halliburton over the weekend, unveiling plans to boost the country's rig count this year and next to 118, from around 92 now, Simmons & Co analyst Bill Herbert said on Monday.

"Saudi Arabia has been expected to tread water on its production capacity, so this is unexpected," Herbert said from Houston in a phone interview.

"The risk premium in the Middle East has risen. Also, with Libyan production falling, Saudi Arabia may feel it has to be ready for higher production capacity."

Plans to boost the rig count constitute the most overt evidence that Saudi Arabia, holder of the world's biggest oil reserves, is stepping up investment in the face of crude prices of over $100 a barrel, though it is unclear whether this will expand the kingdom's spare capacity beyond the current total of as much as 3.5 million bpd, or merely prevent it from falling.

"It's definitely not for expanding capacity," said Siamak Adibi, senior consultant at FACTS Global Energy in Singapore.

"For this year, the majority of new wells to be drilled is just for maintaining existing capacity" of 12.5 million barrels per day, Adibi added, including the neutral zone.

Saudi oil-minister Ali al-Naimi has outlined plans to boost the kingdom's crude oil production capacity to 15 million bpd, including mention of specific fields, saying such an expansion would only proceed if warranted by demand.

But Simmons & Co founder Matthew R. Simmons, until his death in August 2010, repeatedly questioned the kingdom's ability to boost and sustain production at high levels in the long term, citing geological constraints.

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