Saudi Aramco-Saudi Arabian American Oil Co

May, 2013

This dramatic shift had historical and political circumstances with changed economic conditions. The paper shows the company: history, strategy and projects internally and internationally. It also shows us the innovation key role played in the global organizations growth and Leadership role.

Introduction
“Saudi Aramco-Saudi Arabian American Oil Co” that was established in (1933) ranked as “the biggest energy company in the world, generating more than $1 billion a day in revenues” (Forbs, 2012). It is also ranked as “the largest company in the world in terms of market value by 781 billion, according to study results conducted by Britain’s Financial Times newspaper in conjunction with Mackenzie British petroleum consulting”. Its working areas can be classified into three sections: “Exploration and production business – Refining, marketing and distribution – Staff development”. It works hard on all these areas to achieve its strategic intent that is “In 2020, Saudi Aramco is the world’s leading integrated energy and chemicals company focused on maximizing Income, facilitating the Sustainable”.

WHO WE ARE AND WHAT WE DO – (Saudi Aramco 2012 Annual report)

1. Exploration and production

“161 oil search and development wells completed”. The company operates on the exploration and production (monopoly right given by the Saudi government) with the ongoing work on the development of technologies relevant, in collaboration with the most important research centers in the world. In addition to local centers in “King Abdul-Aziz City for Science, Technology and Innovation” and “King Abdullah University of Science and Technology”, which work hand by hand on continuous developing researches and techniques to increase production. All of these organizations support the company exploration & production by coordinating with the Aramco R&D centers.

2. Refining, marketing and distribution
“According to the company 2012 Annual report, the company increased its refining capacity significantly to a competitive global level to be ranked as sixth in the world refining capacity, with 4.02 million barrels per day”.

3. Staff development
The company believes that the real investment in human. The real reason behind Aramco success and growth unable it to become the largest company in the world is due to the efficiency of its employees and their continuous efforts and loyalty. In order to prepare new qualified generations, the company follows two tracks: First:

Adopting creativity and innovation: Aramco worked on youth initiatives and creative investment through giving the

chance to these youth by incubation and R&D centers. The company has obtained “2012 World Oil Awards”, “Innovative Thinker Award 2010” and “New Horizons Award” for a “game-changing” invention. Second:

Transferring knowledge (early) from generations that have gained extensive experience to new generations: “The Company has developed a strategic plan to make 40% of the company’s employees under the age of 30, in order to prepare them early for higher positions”. They have applied for their (5600 employees) “knowledge transfer programs, mentoring programs, and changes to the organizational culture to maximize the creativity and potential for leadership among young workers” . The company provides the best services and programs for its employees in: (health, education and housing). In addition to ensure healthy and safe places of work, where the company proudly announced that the injuries rate in 2012 reached 8.3% only.

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Concession Agreement is signed May 29, 1933

Historical background
After World War II (end of the twenties), the attention of governments and energy companies aimed to a single goal: to find new sources of oil, after what resulted from illogical high prices in global market. Referring to Aramco history will take us to the discovery of oil in “Saudi Arabia” during the early thirties, when the country was young with rich natural resources, but in the same time with no income or qualified human resources. The government gave “SOCAL – Standard Oil of California Co” a concession to search for oil, when the company spent 3 years looking for oil in vain. At that time, “Texaco – Texas Oil” company got its golden chance by buying 50% of “SOCAL-Standard Oil of California Co” concession share. Texaco was able to successfully discover the first oil well in “Saudi Arabia”, by1944 it changed its name and it was known then as “Aramco”. Discovering the first oil well resulted high profits, buying “Aramco” shares by big companies and continued to bring more specialists, engineers and equipment to locations in the Kingdom in order to magnitude the unexplored oil. “Aramco” got the privileges of being the first company for the Saudi oil and gas market, that of course made it owns priorities, dominate the market and control prices because of the lack of a real competition.

When the company entered the Saudi Market through Oil & Gas American companies that was buying shares for oil exploration concession, “Saudi Arabia” was a new poor country dominated by Bedouin & illiteracy because of its desert environment. This environment didn’t allow Saudi government to take advantage of its natural resources of oil and natural gas. Therefore, Saudi government opened the doors for these companies to buy crude oil, on the condition of performs all exploration operations, refining and supply Saudi Arabia with a share of refined oil.

Saudi government and private sector played a major role in supporting strategic development of the company, even before it becomes a Saudi company. They followed a clever and a long-term strategy that took over 35 years. “Kingdom of Saudi Arabia” agreement with the American companies “Aramco” included a condition: to employ and train Saudi employees & engineers. “In 1940, the number reached 3,229 Saudi employees”. Aramco also started to attract the best expertise in the world that were also training the Saudi employees and sending them abroad courses. After ten years, that “increased daily production to 500 thousand barrels” and changed economic, cultural and business conditions in Saudi Arabia, King Abdul-Aziz nationalized Aramco Company that gave Saudi government the right to: get a percentage of the company’s profits and also allowed to  Saudis to act as Board members. With time, Saudi qualified employees numbers increased, Saudi economic market revived and political conditions in the world changed. Gradually, all these local and international factors helped the government to increase its share in Aramco, until it “reached 100% in 1980”. After 8 years, it was renamed “Saudi Aramco”, under the supervision of “Saudi Ministry of Petroleum”.

That step shows a brief of the strategy of Aramco entering the local and international markets gradually by: first, establishing a solid infrastructure done by the best specialists and the latest possibilities. The second stage was by activating the Rehabilitation manpower national role, and training them by field experts. Final stage was entering the global market with this huge capable well experience company. That long-term strategy highlighted government’s important role in supporting projects development and encourage employing local labor. Saudi government had a significant role in supporting “Saudi Aramco – Saudi Arabian American Oil Co”, by establishing “King Fahd University of Petroleum & Minerals” in the early sixties and activated a strategic partnership between the University and “Aramco” that states on giving priority to recruit graduates, and ensure the continuity of the developmental role and belief in Aramco key role in the national economy.

Like all international companies trend, “Saudi Aramco” relies on innovation and R&D as a strategy, through establishing a high-level research centers and creation of innovators adopt programs, in order to enhance the competitive benefit in the face of market risks, changing environments and apply the national vision in creating of a society based on knowledge.

Aramco in local market “Saudi Aramco” considered a Saudi national achievement with international potential and standards. It’s a success story linked to “Kingdom of Saudi Arabia” Unification in 1932 that has resources worth billions of dollars. Starting with the company local achievements on exploration and production business, the company manages 3 major local projects in that area:
First:
“Manifa field” is the world’s fifth-largest oil field” (Saudi Aramco FACTS & FIGURES, 2011).

Second:
“Karan field”: is the first submerged gas fields in Saudi Arabia, which “produces 1.8 billion standard cubic feet per day”.

Third:
“Wasit Gas Plant” will be one of the largest integrated plants the company had ever built”, the project is in cooperation with C-K Engineering Company, Construction Company Ltd and Samsung Engineering.

In chemicals business achievements, the company established “Petro Rabigh” in 2005 at Rabigh city on the Red sea. It is a “Sumitomo Chemical” joint venture project, Petro “Rabigh converts ethane gas with its world-scale ethane cracker to 1.3 million tons of ethylene per year”. It’s also important to mention “Sadara”.project in eastern area (KSA), (Saudi Aramco) new joint venture with “Dow Chemical Co”, that will be the largest petrochemical facility ever built in one phase” (Saudi Aramco FACTS & FIGURES, 2011).

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Locally “Saudi Aramco” role is not limited in creating huge productive energy sector, through successful economy energy ingesting. After having Saudi government full support, it has in turn monitored national strategy targets to support Saudi economy and society by:

 First:
Support national projects and local companies: It contributes to the success of Saudi national project and private sector by providing training programs and join venture in order ensure meeting international standards, and makes it take advantage of its field experience, capabilities and international connections in energy sector. Besides, the company gives priority to the Saudi material suppliers and service providers “90% of material procurement needs and 75% of service procurement needs met by local suppliers”.
Second:

Provides jobs citizenship and training: One of the most important strategic goals of the company is citizenship, which had achieved major successes, by providing job opportunities for citizens. In addition, providing scholarships and training courses at advanced centers and universities. For the records: “ the company has (54,041) employees, (46,259) are Saudis and (7, 782) from other nationalities”.

Third:
Social responsibility: The Company has a proven track record of social responsibility projects and implemented belief in the importance of its role in supporting the national, humanitarian, community development at local and global levels. It had contributed to several projects in various fields: Charity – Educational – Environmental – Clean Energy – National Development…Etc.)Some these projects are: Planting 50,000 trees on the Kingdom shores, Establishing “tumors treatment center” and “clean fuels transportation project”.

Aramco in global markets
“Saudi Aramco” plays a major role in the global economy by keeping substantial of crude oil production volume to ensure stability of worldwide oil prices. For example: in 2012, the European economy slowdown was one of the latest challenges that needed Aramco flexibility in order to stable the global oil price, since it is an essential change in a global market. In its global projects investment, the company achievements spread as a network of offices and joint venture with global companies in 18 major cities in the world such as: (Tokyo – London – Hong Kong – Alexandria – Beijing Singapore – New York – Houston – Milan, etc.) between working in : “ refining petroleum products depots and other data business relationship in energy field”. Aramco strategy was also to invest in other countries energy projects, which have earned their trust due to its long experience in oil and energy sector. That investment in the international market led to benefit from other global companies best practices. The company will be able to face ongoing technical challenges that appear in energy field and improve its development and innovation skills to cope with global development.

With the company that bears a major responsibility and controls a key role in global energy market through controlling oil prices in the international market, but still facing number of challenges regarding to market renewable resources.

The biggest challenge facing Aramco and all international energy companies: (resource depletion). The global use of energy in different forms is increasing continuously. It so far reached up to 90 billion oil barrels yearly, which requires Aramco thinks about sustainable solutions to ensure continuation of sources and exploit the best ways. That’s where many forms of renewable and alternative energy for oil and natural gas have failed to meet market demands, and achieve the required effectiveness.

Aramco strategy that will help to face international challenges and solve natural sources problems is based on : knowledge and innovation . The company recognizes that the reliance on natural sources only will lead to resources Inexhaustible. Therefore, Aramco adopted a strategy of investing in two main components: Investing in Human Resource Development: In order to keep the company first global ranking, Aramco invested millions encouraging innovation programs. That will lead to provide new blood, creative ideas, loyalty, supporting national economy and build a society conscious.

R&D Centers: Aramco invested billions of dollars to establish the most advanced research and development centers, in order to take advantage of a new type of resources, for example: (carbon dioxide, solar energy , Nano science and others) which will contribute to the prosperity of industries, save resources, efforts and cost. The company seeks to invest on KSA natural resources and change the cognitive structure of the Saudi society by making a knowledge-based society, made its projects fully supported by Saudi government. Especially that Aramco developing program ends up with employing and financing innovations.

Conclusion
(Saudi Aramco) with 80 years of experience was established basing on global need, structured based on solid thoughtful grounds and evolved gradually over time for national interests. It represents a global successful model based on knowledge and training citizens who started with primitive educational background. These Saudi pioneers strived to learn and continued benefit from the expertise. The Company entered Saudi market as foreign investor, and transferred knowledge and technology to Saudi market, gradually became a Saudi company with experts Saudi employees. This study shows a successful story of strategic planning in the establishment, entering global market and in future projects stages.

As future plans, Aramco believes in shaping the future and lead local and international markets, using innovation and by collaboration with international research centers, knowing in advance overcome risks and converts it to privileges. That shows clearly in “Saudi Aramco new projects established in 2012: “Carbon dioxide” research center in Korea” and “Saudi Aramco Energy Ventures” (SAEV).

References:
“Shaping tomorrow-2012 annual report” (2012) “Saudi Aramco” [Online], Available online from: ualReview_EN.pdf (Accessed: 27 May 2013).

 Guerrera,F. Hoyos,C. (2006) “Saudi Aramco revealed as biggest group”, FINANCIAL TIMES [Online], Available online from : (Accessed: 25 May 2013). 17

“Aiming Higher- Saudi Aramco 2011 FACTS & FIGURES”(2013) Saudi Aramco [Online] Saudi Aramco , Available online from :
acts%20and%20Figures%202011/2011-Facts-Figures-Eng.pdf (Accessed: 25 May 2013).

“Our history” (2013), “Saudi Aramco” [Online], Available online from: http://www.saudiaramco.com/en/home.html (Accessed: 25 May 2013).  “FT:
Non-Public 150 Companies Worth $7 trillion, Dominated by Oil and Private Equity” (2006) “Metrics

Business and marketing intelligence” [Online], Available online from : http://www.metrics2.com/blog/2006/12/15/ft_nonpublic_150_companies_worth_7_trillion_domina.html (Accessed: 26 May 2013).
“Saudi Aramco -12.5 million barrels per day”, Forbs [Online], Available online from : http://www.forbes.com/pictures/mef45ggld/1-saudi-aramco-12-5-million-barrels-per-day/ (Accessed: 25 May 2013).

 “Board of Directors Report 2011- Rabigh Refining & Petrochemical Company” (2011) Petro Rabigh [Online], Available (Accessed: 27 May 2013).