Aramco delays restart of mothballed oilfield

OLD SITE: The Dammam oilfield was Aramco's first oil discovery in the 1930s. (Getty Images)

Top oil exporter Saudi Arabia has cancelled plans for a $1 billion project to restart production from the country's first oil discovery due to the potentially high costs, industry sources said on Sunday.

State oil giant Aramco has put under review contracts for some of its biggest expansion projects, signed at the height of the commodities price boom. Aramco aims to negotiate cheaper deals reflecting the sharp fall in the cost of raw materials.

The cost of redeveloping the Dammam oilfield would have been high because the field is under a populated area, sources said. The headquarters of Aramco itself is near the field.

The project target was to pump 75,000 barrels per day of crude and 100 million cubic feet per day of gas, sources said. The cost would have been around $1 billion, one source estimated.

"You can see why they've cancelled in this environment," said one source. "I'm sure also that due to the area being populated, the cost for redevelopment was excessive. It may be retendered at a later date. Who knows?"

Aramco told interested companies it had cancelled the bidding process after a number of contractors prequalified, one source said. The contract was due to be awarded in the first quarter of 2009, he said.

Also this month, Aramco delayed bidding for the 400,000 bpd Yanbu refinery, to be built with partner ConocoPhillips, to the second quarter of 2009 from the fourth quarter of 2008.

Aramco has also said it wanted to renegotiate contracts for equipment at a 400,000 bpd refinery project at Jubail with France's Total.

Both refineries will process heavy crude from the 900,000 bpd Moneefa project. Aramco has put Moneefa under review.

Oil was first discovered in Saudi Arabia discovered oil at what is now known as the "Prosperity Well" at Dammam in 1938. (Reuters)

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