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Aramco to cut oil spending

Weak crude prices hurt Saudi economy, project investments

VIENNA — Saudi Arabia, the world’s biggest oil exporter, is expected to cut investment on oil drilling and refining projects over the next five years, a senior Saudi oil official said on Wednesday.

The spending cuts underscore the extent to which the ailing economy and weak oil prices are hurting investment in oil-production capacity and clouding expectations about the health of crude demand over the next few years.

Dozens of smaller oil companies, starved of cash and facing stiff financial constraints from low oil prices, have in recent months slashed project spending, though most big privately run oil firms, such as Royal Dutch Shell PLC, have maintained their spending plans for 2009.

The Saudi official spoke following a report in the Saudi daily al-Watan on Wednesday that Saudi Aramco — the world’s biggest oil company by production and reserves — plans to ax spending on drilling and refining projects to just $60 billion from 2009-2014.

That would be just half the level that the company expected in early 2008. The official said the theme of the al-Watan report was basically correct but questioned the accuracy of the numbers. “There will be a reduction in spending, but the details I am not sure about,” the official said.

Saudi Arabia has sunk many billions of dollars into new projects in recent years and is expected to raise its pumping capacity by 11% to 12.5 million barrels a day by summer.

Separately, speaking to journalists Wednesday at a conference in Vienna, Saudi oil minister Ali Naimi said the kingdom will continue to invest in oil-drilling projects.

He wouldn’t comment on whether Aramco would tighten its purse strings over the next five years.

IHS Global Insight energy analyst Samuel Ciszuk said the expected cuts to the kingdom’s oil-project spending were rational to the extent that project-development costs are starting to fall after surging in recent years.

“Saudi Aramco expects project costs to continue falling sharply … leading to lower investment needs at its projects, and faltering global demand is likely to make it continue its strategy of delaying projects, pushing some of them out of the coming five-year plan,” Mr. Ciszuk said in a research report.

As with many other energy-producers, Saudi Arabia is expected to take in lower oil revenue in 2009 because of weak prices. This is forcing oil states to roll back social spending and, in the case of Saudi Arabia, run a substantial budget deficit.

Mr. Naimi had told a packed conference hall that weak oil prices were crimping the global oil industry’s spending on new projects.

“Harmfully low prices are creating a damaging ripple effect, with diminished sector investments threatening the availability of much-needed future supplies,” he said.

Write to Spencer Swartz at [email protected]

WSJ ARTICLE

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