Halliburton, Saudi Aramco Ink Deal to Increase Natural Gas Production in Saudi Arabia

Houston-based Halliburton Co. (NYSE: HAL) will begin working with Saudi Aramco, officially known as the Saudi Arabian Oil Co., to help lift its production program.

Halliburton signed a three-year contract to provide oil field services that will help the Saudi Arabian company produce natural gas trapped in shale and tight sands, also known as unconventional resources, in several areas — North and South Arabia, Jafurah and the Rub’ al-Khali, or the “Empty Quarter” — according to a May 27 press release and Saudi Aramco’s website. Work is expected to begin in June.

The increased gas output will “serve domestic needs, offset local crude burning, provide feedstock for chemical industry development and spur regional economic development in line with Vision 2030” and Saudi Aramco’s In-Kingdom Total Value Add Program, Upstream Senior Vice President Mohammed Qahtani said in the release.

The Vision 2030 program is Saudi Arabia’s plan to diversify the country’s economy and reduce its dependence on oil as well as spur economic modernization and foreign investment. Similarly, the IKTVA program aims to expand Saudi Arabia-based business operations to boost long-term economic growth, diversification, job creation and workforce development.

Saudi Aramco was expected to begin producing natural gas in March from the Jafurah basin, which could rival the Eagle Ford, Bloomberg reported at the time. Last summer, CEO Amin Nasser said the company had plans to spend $300 billion over the next 10 years for projects related to maintaining spare capacity for oil as well as boosting exploration and production of conventional and unconventional gas, per Bloomberg.

The New York Times reported that Saudi Aramco has awarded $4.5 billion in contracts over the past year to international oil service companies to increase its gas production, but many failed to recover the gas at an economical price. S&P Global Platts also reported that it’s still uncertain whether the resources are recoverable at a cost that is low enough to make production viable.

Yet, Saudi Aramco appears confident in Halliburton “as a leader in unconventional resource development,” and Halliburton is ready to help the company, per the release.

“We are excited to apply our broad knowledge, efficiency and experience in unconventionals from Halliburton’s leadership position in North America to Saudi Arabia,” Jeff Miller, president and CEO of Halliburton, said in the release.

“This is a great opportunity to provide a tailored application of Halliburton technology, logistics management and operational excellence to maximize Saudi Aramco’s asset value and deliver optimal recovery.”

This isn’t the only deal Saudi Aramco has made to achieve Vision 2030 and its IKTVA program.

In April, Saudi Aramco’s Motiva Enterprises LLC signed memorandums of understanding with TechnipFMC (NYSE: FTI) and HoneyWell UOP to study potential petrochemical projects that could create multibillion-dollar investments in the U.S.

Saudi Aramco and Paris-based Total SA (NYSE: TOT) also signed an MOU in April to build a giant petrochemical complex in Saudi Arabia. That $5 billion project would be built near the existing Satorp refinery — a joint venture between Saudi Aramco and Total — in Jubail.

And proceeds from Saudi Aramco’s long-awaited initial public offering are expected be used for investment in refining and petrochemicals, rather than in exploration and production, CEO Amin Nasser told Bloomberg in March. That IPO could be held as soon as the second half of this year, per Bloomberg, but it likely could be delayed until 2019, per the Financial Times and others.

Saudi Aramco has a significant presence in Houston. The company subleased approximately 200,000 square feet in Two Allen Center last fall.

In the building next door, Motiva Enterprises LLC renewed and expanded its lease in One Allen Center in June to occupy 204,500 square feet. As part of its lease agreement, Motiva will retain naming rights for One Allen Center; the building will be known as Motiva Plaza.

Meanwhile, Halliburton — and two other Houston-based oil field service companies — saw lower revenue in the first quarter. Halliburton reported revenue of $5.74 billion, down from the fourth quarter’s $5.94 billion. The company was also dealing with issues in North America’s rail network, which it uses to ship frack sand to well sites. Luckily, the company’s rail woes are behind it, Miller said in the company’s first-quarter earnings call.

Originally published on Bizjournal