Tomas a few more comments on SA;
Historically, in the sixty's, when the Saudis terminated foreign ownership of wells in their country they effectively took possession of the world's known supply of oil, and the Major oil companies, that they threw out, had a need for oil but only money as an asset, and no way of making money at the wellhead.
Let us now move forward in time to about 1998. By that time the Majors have developed ways of finding the wellhead profit they lost in areas of the globe that was beyond Saudi (and later OPEC) control, but at a considerable cost. The countries where they found that oil then borrowed too much money from world banks for important internal requirements like graft, corruption and national development and needed to keep producing their oil to keep from going bankrupt. As for the Saudis, they still have all the oil they want, but if they or the other members of OPEC produce too much of it, that production only served to lower the price they receive.
Enter the great monopolizer, and Saudi loyalist, Sheik Ahmad Zaki Yamani, a man who's bargaining skills may be the best the world has ever seen. Because of this, Yamani's every move is observed all over the world. Therefore, he prefers to work secretly. However, when he is pushed by the international press for a comment or the reason for an action, he speaks in parables and never gives the real reason for anything.
Yamani's task, as I perceive it, was two-fold. First he had to gain control of pricing to shore up the Kingdom, and, second, he must eliminate his competition to restore control of the world's oil to that Kingdom. It's like the old warlords' proverb, "You can only have what you can take, and you can only keep what you can hold."
Let us now briefly look at the events of the last two years with respect to Yamani's first goal, price stability. Yamani gives the world's oil producing countries an ultimatum: reduce oil production or SA and OPEC will drive the price down below the price you can produce oil for. They ignore him. OPEC increases production and the price for Saudi-light drops below $10.00. The oil producers meet, production quotas are established and everyone goes home. When the supply of crude is cut, the international banks threaten, and cheating begins. SA opened up the valves once again and the price again falls to $10.00. The banks capitulate, roll the international loans, and the price of oil is stabilized and in Saudi control for the moment.
Now for the second goal, eliminating the competition, but before I give you my opinion, let me clearly state that it is just that, AN OPINION which is based solely upon subjective deductions. There are no historic tracks or salient quotations that I can provide, because Yamani plays his cards so close to his chest. There is only the observance of a series of events that lead in a direction which is too coherent to be serendipitous.
Two years ago the Saudi Crown Prince visited America and met secretly with the heads of all the Majors, presumably to dangle the prospect of cheap drilling in SA before them. However, SA said that it was primarily interested in U.S. companies. Since that time, none of the U.S. Majors have committed to new, large scale, exploration projects, and those fields, which had previously been found, are being drilled and pumped. CHV was called to Saudi and given a very nice bone last year. At the same time Exxon and Mobile merged, thereby reestablishing the old Standard Oil group that has long held ties with SA. Now XOM is going through divestiture in order to secure FTC approval for the merger, and those actions should be completed by the end of June, or early July. In the meantime, the British and Dutch are being entertained (offered a bone) and diverted from drilling a little while longer.
I suspect that after they have left the Kingdom that XOM will be called in and given the prize, a 50% interest in drilling the Empty Quarter, and it is in the interest of the Saudi to do so. Having XOM in their corner provides Saudi with a worldwide downstream distribution network for their upstream product. Conversely, the decreased costs in drilling will more than compensate XOM for the loss of wellhead interest they will experience. In addition, with XOM able to produce at Saudi prices the other Majors will be forced to cut similar deals with other ME countries or suffer a significant loss in share-price. That will significantly reduce production, and competition from non-OPEC countries over the next five years. It also reestablishes OPEC dominance in world oil pricing and Saudi control of OPEC, backed by U.S. guns.
FWIW
jo |
