Saudi Arabia's Oil Reserves
By Dr. Sadad Al-Husseini

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An edited version of this article, complete with graphics, first appeared in the May 17, 2004, issue of Oil & Gas Journal.   Click here to see the full article and graphics.  

The Saudi-American Forum wishes to thank Mr. Al-Husseini for permission to share this article with our readers and to the Oil and Gas Journal for its assistance.

Saudi Arabia's Oil Reserves By Dr. Sadad Al-Husseini

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Recent media reports have suggested Saudi Arabia may not be able to supply its share of the world oil demand for the near future. "Experts" have argued in major U.S. papers and at energy forums that not only are the Kingdom's petroleum reserves overstated but also that the Kingdom has rejected necessary foreign investments in its energy sector and that poor production practices have damaged its oilfields.

During my own tenure at Saudi Aramco as the senior executive in charge of exploration and production, we undertook numerous initiatives to improve the accuracy and reliability of these estimates. We drilled, cored and logged numerous key wells in every active field and reservoir and surveyed the most significant oilfields with complete 3-D seismic coverage. Massive simulation models were constructed to consolidate this and huge archives of geological and production data were accumulated to support our understanding of the reservoirs. These simulations spanned decades of performance history on a zone-by-zone and well-by-well basis. Over the years, these models have been updated annually and have confirmed our predictions of reservoir performance and our calculations of reserves and oil recoveries.

As to the possibility of future reserves additions, there are extensive reservoir and source rocks in Saudi Arabia spanning the Paleozoic through Cenozoic time scales. These must surely offer additional opportunities for oil and gas discoveries. The size of such fields, however, will be substantially smaller than current proven accumulations. This is due to the seismic reconnaissance and grid coverage that has already spanned the most promising regions of the Kingdom in search of giant oil and gas structures. While there may yet be many undiscovered oil and gas accumulations with millions of barrels of reserves, they are likely to be of limited acreage and vertical closure by Saudi standards.

Whether the exploration for such accumulations will add billions of barrels of future reserves will depend on the prevailing economics and government policies within the Kingdom. The more liberal the policies, the more commercially viable exploration and development will become in future decades.

In terms of immediate additions, the enhancements to conservative oil recoveries in undeveloped reservoirs will be more important than new field discoveries. Furthermore, if the past is any indication of the future, advances in technology are bound to reduce the cost of recovering marginal discovered resources, thus adding to the reserves figures. Given the fact that the discovered but undeveloped Saudi reservoirs make up about 130 billion barrels of the Kingdom's total reserves, the addition of new proven reserves through future reservoir developments is a foregone conclusion.

A 10% increase in recovery estimates for these reservoirs alone would generate 13 billion barrels of additional reserves. This is significant but clearly not sufficient to replace the high rates of Saudi production, currently averaging 3 billion barrels per year.  On the other hand, at the current production rates and with an existing reserves base of 260 billion barrels, the issue of future reserves replacements will not be a concern until well beyond 2020.

The supposed inability of Saudi Arabia to meet its production targets in the next few years also requires discussion. At the current depletion rate of 3 billion barrels per year, which represents 2.3 % of the remaining 130 billion barrels of proven developed reserves, this concern is debunked by simple mathematics. Utilizing existing technology and sound engineering analysis, my staff and I were confident that Aramco could sustain even higher rates of production, if necessary.

From an economic point of view, however, the cost of production must rise to meet increasing production complexities that evolve with reservoir maturity. Although the Kingdom's oil reserves are immense, they are not infinite, and they do include a broad spectrum of reservoir qualities. As production increases to include lower quality or mature reservoirs, the cost of production will increase accordingly. 

Such steady cost escalations have been anticipated for a long time. For example, the majority of the Saudi carbonate reservoirs under production are supported by water injection. As their depletion advances, high resolution reservoir simulations have shown that the flood fronts will disperse within the numerous oil zones. The produced oil will inevitably commingle with increasing volumes of injected water. Workovers, recompletions and new horizontal laterals will delay the water ingress into the producing wells for an extensive period of time. Eventually, however, this becomes unavoidable. At high water cuts, wide-spread artificial lift is virtually inevitable. This in turn will require the processing and disposal of very high volumes of produced water. These maturity-related transitions may not occur for years to come, but they are ultimately unavoidable and have obvious economic implications.

The offshore clastic reservoirs do not have water injection, but they do have complex geological configurations and matching variability in aquifer support. The main sands benefit from very dynamic aquifer support while stringer sands have less access and therefore less support from the aquifers. As the main sands are depleted, and in spite of careful reservoir management, major workovers will become necessary. These workovers will attempt to selectively tap into the remaining oil reserves. Since these are concentrated in the stringer sands, offshore artificial lifts will also become inevitable in years to come. Whether gas lift or submersible pumps are utilized, given the size and scale of these operations, the investments will be substantial and will be accompanied by increasing operating costs.

Historically, such cost escalation has been deferred by developing new increments of oil reserves in parallel with maturing old fields and reservoirs. The past economic limits that have driven production declines in the older reservoirs in Saudi Arabia have often occurred at 20% to 25% depletion of the original reserves in sand and shale reservoirs and 35% to 40% in the carbonates. Technology and the addition of reserves may extend these production plateaus to higher levels of depletion, but this is unlikely to exceed a further gain of 10% to 15% under optimum economic considerations.  On the other hand, once declines begin, highly commercial production will still extend for decades, as has been demonstrated by virtually every mature reservoir in Saudi Arabia.

Inevitably, the higher the production rates, the more the reservoir maturity is accelerated and the shorter the overall duration of the optimum economic production plateau. Front-end investments may be accelerated to achieve higher production plateaus, but these do not always give optimum oil and gas recoveries or full reservoir life cycle economics. In Saudi Arabia, optimum economics depend on many variables, including the integrated economics of the full suit of reservoir developments, based on the maturity and status of all the available fields and reservoirs.

From a policy point of view, the decision to actually expand long-term production capacity is further complicated by the quality of long-term energy forecasts. For 2020, these estimates have varied in recent years from 90 to over 120 million barrels per day of total oil consumption. With such disparities in projected demand, the risks of idle capacity or price collapse are very severe for major oil producers. In an industry with project lead times that are measured in years and capital investments measured in billions of dollars, such inconsistencies are not conducive to firm long-term facilities planning or capacity investments. In my own experience, the quality of the long-term forecasts has been the most severe impediment in the face of orderly capacity expansions and long-term project economics.

Finally, the Saudi government has been accused of being unwilling to accept foreign investments that would facilitate the development of its oil resources. Without such investments, it is argued, the Kingdom's capability to satisfy the world's energy needs will be further eroded. There are two problems with this argument. First, it ignores the fact that the government does actively pursue foreign investment in its economy as exemplified by the downstream energy sector and the recent gas projects. Such investments have allowed the Kingdom to focus on its upstream oil sector, which has not suffered for lack of financing.

Secondly, it ignores the reality that investments in the oil sector generate their own incremental revenues. These in turn finance additional investments. The only scenario where this process would not operate is the scenario where oil prices collapse, and the returns on investments are inadequate. In such circumstances, investments to increase production capacity would not be realistic, and the financing issue would be a moot point in any case.

Regardless of such future developments, however, it is a foregone conclusion that Saudi Arabia will remain the cornerstone of global energy supplies, and its role will be the key role in stabilizing the world's energy markets.