"Saudi Arabia will play the lead role [in meeting future demand] not only because it has the biggest reserve base but also because Saudi Arabia has an operating oil company that has a proven track record over 70 years of delivering, of overcoming any operational, any technological, any organizational or any financial challenges. The track record is there," Saudi Aramco's Abdul-Baqi, who has been with the state company for more than 30 years, told the conference.

Aramco counts on some of the lowest production costs in the world, of about 70˘ per barrel compared to an industry average of about $4-$5/bbl; low depletion rates of 2% per year; and state-of the art technology that will enable the company to boost production to a sustainable 15 million barrels per day for the next 50 years if the world oil market requires it, the executives said.

Saudi Arabia could "easily achieve" and sustain production of 10 million b/d through 2054, by relying on just 15 billion bbl of its more than 100 billion bbl of probable and possible reserves, Saleri said, adding that although Aramco's current business plan calls for maintaining current production capacity levels, the kingdom had plenty of oil in the ground and its own finances would be sufficient to be able to boost production (PIW Dec.15,p3).

"We have a lot of acreage to explore and potential to find a lot more oil and gas," said Abdul-Baqi, noting that Aramco has always been conservative with its reserve estimates and growth forecasts. He identified the Empty Quarter and the zone near the border with Iraq, where Aramco has only drilled about 10 wells, as underexplored areas of enormous potential.

He said Aramco's conservatism in all aspects of its business had been a pillar of its success. He outlined the company's five key principles: sustainable performance, maximum hydrocarbon recovery, life-cycle economics, prudent reserves management and careful safety and environmental practices.

"The company has a policy of maintaining a healthy cushion between its current production and maximum sustained capacity. The cushion has served us extremely well and will continue to serve us extremely well in the future," he said.

Aramco projects volumes of "oil initially in place" to reach 900 billion bbl by 2025 -- 700 billion bbl of already discovered oil and 200 billion bbl of undiscovered oil. The 99 billion bbl Saudi Arabia has produced to date represents just 14% of the 700 billion discovered.

"We believe we are looking at very conservative expectations of 150 billion bbl over and above the 260 billion bbl we have booked -- an increase of 60%," Abdul Baqi said. In the last 10 years, Aramco garnered a 52% success rate in the 64 oil and gas exploration wells it drilled.

Saleri said that, in contrast with most other oil companies, Aramco does not include reserves attributable to enhanced oil recovery methods in its probable and recoverable numbers. "This is a very significant distinction and a reflection of the company's very conservative approach to managing its reserves," he added.

Dismissing Simmons' claims that Saudi Arabia's big oil fields had either peaked or were nearing peak production, the two Aramco executives noted that the kingdom's average depletion for all its fields is just 28%, with the oldest field, Abqaiq 78% depleted, its giant Ghawar having produced 48% of its proved reserves and Shaybah, one of its newest developments, having 95% of its proven reserves left to produce (see table).

"Our 28% average is fantastic by anyone's standards in the industry," Saleri said, adding that Saudi Arabia could easily increase production by increasing its depletion rate but with more than 2 million b/d of currently mothballed capacity, the market is not demanding additional oil at this time. Some 50% of Saudi Arabia's booked reserves have been developed but Aramco is pacing its development plans with supply-demand fundamentals.

"We have two giant fields -- Manifa and Khurais -- which have combined proved reserves of 41 billion bbl -- currently shut-in because of low demand," Saleri said. "The company in its overall business logic does not see the current need to put them into production. That 41 billion bbl is not considered as developed under our statistics."

The Saudis' go-slow approach to bringing on production, Saleri maintained, had enabled the country to extend the life of key fields as new technology became available. "What was originally considered low probability eventually becomes high probability going from probable to proven," Saleri said. "What we were hearing about our oldest field [Abqaiq] back in the 1970s was already produced about 10 years ago. We were originally [expecting] about 11 billion bbl and we have already produced about 2 billion more."

Turning to Simmons' concerns about the increasing water cut, Saleri said the current average was 36%, compared to more than 80% in Russia. He noted that the water cut in the giant Ghawar field, which at 5 million b/d is by far the world's largest oil producer, has actually declined to 33% because of technological improvements.

New technology has had an "incredible impact" on Aramco's performance, Abdul-Baqi said. He said the vertical wells of the 1980s have been replaced by complex horizontal wells that have quadrupled productivity and reduced unit development costs by 300%.

"I think technology when appropriately used has … changed the game but when we apply it improperly, of course it could work against you," Saleri said. "In many of the cases -- Oman's Yibal is a very good example -- they chose to apply [maximum reservoir contact wells] without understanding fully the reservoir architecture…. Cutting edge technology is not the solution; it must be coupled with superior diagnostics and over and above that with independent surveillance and monitoring. In our success stories, there are no coincidences."

The Saudi Oil Pie

*In billions of bbl.