B U I S 2 3 1 1 : P R I N C I P L E S O F M A N A G E M E N T

S E C T I O N 1 0 2Instructor: Dr. Rick Maguire

Group Project:

Revision of Management Functions & Strategy of Saudi Aramco

By:

Zaki A. Al-Nassif ID# 201102844

Faris Azzahrani ID# 200900688

Mohammed Al-Sonayin ID# 200901862

Omar Al-Essa ID# 200901819

Outline1. Overview.

2. Revision of Saudi Aramco Vision & Mission.

3. Saudi Aramco External Environment Assessment.

4. Saudi Aramco Internal Environment Assessment.

5. Analysis of Alternative Management Functions and Strategies

in Saudi Aramco.

6. Selection of the Management function and Describe changes in

Saudi Aramco.

7. Conclusion.

8. References.

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Overview:Saudi Aramco is the world’s largest oil company that exports energy from the Kingdom of Saudi

Arabia to the world. In the early 1930s, the Standard Oil Company of California which later known by Saudi

Aramco was established after signing a concession agreement to search for oil in the Kingdom of Saudi

Arabia. Since then, the story of the discovery and development of the greatest energy reserves the world has

ever known and the rapid transformation of the Kingdom of Saudi Arabia from a desert kingdom to a modern

nation-state have begun. From its headquarters in Dhahran, which is located in the Eastern Province in Saudi

Arabia, Saudi Aramco has grown from notional oil-producing company to a fully integrated and global energy

enterprise with subsidiaries offices throughout the Kingdom, North America, Europe and Asia

(www.Saudiaramco.com, our history, Nov.2012).

Saudi Aramco manages the world’s largest proven conventional crude oil and condensate reserves of

259.7 billion barrels. The average daily crude oil that Saudi Aramco produced in 2011 was 9.1 million barrels

per day (BPD). Also, Saudi Aramco has stewardship over the world’s fourth-largest natural gas reserves of

292.6 trillion standard cubic feet (SCF). Saudi Aramco operations span the kingdom, including its territorial

waters in the Arabian Gulf and the Red Sea, with production and distribution linking all market areas around

the world (Saudi Aramco’s 2011 Annual Review, Nov. 2012).

This report is a group project conducted by Prince Mohammed bin Fahd University students as a part

of principle of management course requirements, to evaluate Saudi Aramco visions and missions, carry out an

assessment of its internal and external environment, analyze its management functions and strategies, select

one function realization and describe changes. The first group member is Zaki Al-Nassif, who is responsible

for the revision of Saudi Aramco visions and missions along with conducting the internal environment

assessment. The second member is Omar Al-Essa, who is responsible for conducting an assessment of Saudi

Aramco external environment. The third member is Mohammed Al-Sonayin, who is responsible for analyzing

the alternative management functions and strategies. The last member is Faris Azzahran, who is responsible

for the selection of the management function and describing changes.

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Revision of Saudi Aramco Vision and Mission:

The mission statement for any organization represents its purpose and identifies the scope of its

products and services. In the case of Saudi Aramco, its mission statement stated by its Supreme Council is as

follows “Our mission is to remain committed to provide energy to the world and to maximize the value of the

country's petroleum reserves for the benefit of the Kingdom's citizens.” This mission represents the purposes

of Saudi Aramco which are providing the world with energy and maximizing the value of the petroleum

reserves of the Kingdom of Saudi Arabia for rewards the kingdom’s citizens (Saudi Aramco’s 2011 Annual

Review, Nov. 2012).

Along with its mission any organization must have a vision statement which represents a picture of the

organization in the future, organization inspiration and the framework for the organization strategic planning.

In terms of the vision statement Saudi Aramco management state its vision statement as “Our commitment to

remain the world’s leader in the production of petroleum-based energy is complemented by our commitment

to help solve a host of pressing issues. We believe we can make a difference wherever we do business by

investing in innovation and entrepreneurship, creating educational opportunities, powering economic progress,

increasing environmental awareness, and working in partnership for energy sustainability.” .(Saudi Aramco,

Powering Possibilities, Nov. 2012)

Saudi Armco vision doesn’t end by this statement. At Saudi Aramco, the vision is powering

possibilities by leading the drive to solve some of the issues that matter most to the global energy industries.

Saudi Aramco vision is transforming for the future of the Kingdome of Saudi Arabia. As Saudi Armco stated

in their vision of the future that “By 2020, Saudi Aramco will have evolved from being the leading oil and

gas company that it is today, into a fully integrated, truly global energy and chemicals enterprise with

extensive operations across the globe. What we aim to be tomorrow will facilitate a diversified and sustainable

expansion of the Kingdom of Saudi Arabia’s economy and enable a globally competitive and vibrant Saudi

energy sector.”(Saudi Aramco, Powering Possibilities, Nov. 2012)

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The vision for the future that Saudi Aramco has is best described through the company’s 2020

Strategic Intent as follow: (Saudi Aramco, Powering Possibilities, Nov. 2012)

o Shaping Saudi Aramco business portfolio through establishing an integrated value chain approach in its

crude oil mix, further develop the Kingdom’s unconventional gas resources and become a leading global

chemicals and refining company.

o Supporting the Kingdom in building a vibrant energy industry by promoting an energy efficient economy,

developing alternative energy options, and building a technology portfolio.

o Delivering an agile, flexible, and efficient organization to achieve operational excellence and world-class

reliability and safety performance through improved operational efficiency, agile decision-making and

budgeting activities, insightful performance measurements, and business process improvement.

o Building capacity, knowledge, and skills to improve Saudi Aramco processes and systems of leadership

selection and development, performance evaluation, innovation, and research and development. Saudi

Aramco will take the lead in developing a knowledge-based economy in Saudi Arabia.

In short, Saudi Aramco aims to unlock the potential of its people and its enterprise to transform from a

company of which the Kingdom is proud of into a company of which the world is proud of.

Saudi Aramco External Environment Assessment

OPEC stands for the Organization of the Petroleum Exporting Countries. This Organization is one of

the most important external factors that affect Saudi Aramco; it has the ability to stabilize the Oil prices in the

whole world. OPEC also has applied its first policy which is "Petrodollar" policy, this policy force any foreign

currency wants to buy Oil from OPEC members companies to exchange their currency to US Dollar then buy

from US dollar the quantity of Oil needed. (OPEC, 2011)

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This Operation makes the US Dollar the most sensitive and needed to stabilize because all countries

from China to Germany depend on US Dollar. OPEC comes now to stabilize the most important and

consumed material in the worlds (Oil) by increasing supply or lowering prices due to US dollar depreciation.

Lately the Oil supplier in the world like Libya and Iran faced political issues that lower the oil supply

quantity, therefore OPEC calls for Saudi Aramco and others such as Qatar Petrol and Chevron to increase

their supply and return stabilization back to the old price. Also OPEC tries to cover some US Dollar

purchasing power lost during the not yet ended depreciation that started in 2008. (OPEC, 2011)

Another role for Saudi Aramco which represent it’s most important external partner, its commitment

the Saudi’s society. Saudi Aramco has an important role to empower the Saudi’s domestic citizens. In several

decades Saudi Aramco started to build schools, roads, hospitals to improve local life and educate/prepare

youth people to work in the company. (Saudi Aramco Achievement 2011 SA Citizen report, 2012)

Saudi Aramco has a lot of efforts that improve the Saudi’s society, the lifestyle of Saudi’s citizen and

promoting community Health and Safety awareness. Among these efforts the yearly traffic safety awareness

campaigns that target to raise the traffic safety awareness in the Saudi’s society. These efferts include also, the

Traffic Safety Signature Program, Traffic Safety Manual, Gulf Cooperation Council Traffic Week, the

portable Safe Driving Simulator, Mothers of Traffic Accident Victims, Breast Cancer Awareness campaign,

Saudi Aramco Wellness Program, Smoking Cessation Program, Nutrition Week, Ramadan and ‘Id

celebrations and Summer Programs. (Saudi Aramco Achievement 2011 SA Citizen report, 2012)

In 2011, the campaign covers the entire Kingdom that has many achievements. First, effort is to

increase traffic safety awareness which target 3,000 students in the Central Region who attend presentation

about “Reckless Driving.” Also, Saudi Aramco lunch Traffic Safety Competition through its website that was

result in over 5 million hits from users in over 25 countries. Moreover, it developed a portable Safety Driving

Simulator to address the common drivers’ mistakes and to enhance the derivers’ awareness which was visited

by 43,874 young people over age 15 to learn about defensive driving. (Saudi Aramco Achievement 2011 SA

Citizen report, 2012)

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In addition to the traffic safety awareness campaigns, Saudi Aramco has target different areas in the

Saudi’s society through different campaigns. For example, the Saudi Aramco Wellness program that target its

employees and their family. In 2011, this program has more than 7,334 participants. Also, among the efforts

that Saudi Aramco commit to the Saud’s society is lunching on yearly basis across the Kingdom the Saudi

Aramco Cultural Program which usually conducts in every summer holiday. In 2011, this program was

attended by 250,000 people and was supported by 82,000 volunteer hours. Also, the Annual Energy

Conservation campaign which was conducted at Dhahran in 2011 under the theme “Yes, We are Part of

Energy Conservation.” This campaign was visited by 3000 people. Moreover, Saudi Aramco has a lot of

commitment toward the orphans in the Kingdome, it conduct annually celebration of Ramadan Ied and Adha

Ied for those orphens. (Saudi Aramco Achievement 2011 SA Citizen report, 2012)

More over Saudi Aramco has 60 years of publishing Saudi Aramco World, an award-winning

magazine and key company tool in promoting cross-cultural understanding, with 170,000 subscribers to the

print edition and 250,000 people visiting the website each month. (Saudi Aramco Achievement 2011 SA

Citizen report, 2012)

Furthermore, Saudi Aramco efforts didn’t just target the people in Saudi Arabia it also target the world

citizens. For example, in 2011 Saudi Aramco was a principal sponsor for the 2011 British Science Festival,

Europe’s largest public science festival which was visited by more than 80,000 visitors. (Saudi Aramco

Achievement 2011 SA Citizen report, 2012)

Saudi Aramco has also put plans for new commitment to address the Saudi’s community and the youth Saudis development. These plans include: (Saudi Aramco Achievement 2011 SA Citizen report, 2012)

o Inspiring 2 million young people in the Kingdom with the Youth Master Plan by 2020.

o Helping 35 students to participate at the Saudi Research Science Institute through 2013.

o Targeting 185,000 users per year to access Saudi Aramco’s Mathletics program over the next four years.

o Training 2,000 teachers and 50,000 students by 2013 through the Saudi Aramco/Siemens Discovery Program.

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o Training 50 to 70 volunteers in the Electrical and Electronic Engineers program to bring hands-on engineering lessons into their classrooms and identifying volunteers from academia, industry and Government schools for the Teacher-In Service Program, which focuses on math and science.

o Funding 20 interactive videos in 2011 through a partnership with SciTech and the Massachusetts Institute of Technology in order to stimulate students’ critical thinking and interest in science, technology, engineering and mathematics.

o Sponsoring 25 gifted students to attend King Abdullah University of Science and Technology.

o Renovating 139 Saudi Aramco Built Government Schools by 2013. (SA citizen report, 2010)

Another external important partner to Saudi Aramco it’s the Saudi’s government. Saudi Aramco has

outstanding Relationship with the Saudi’s government. This Oil country needs government support to run the

business, so the first years of Oil discovery, Kingdom of Saudi Arabia always made it easier and more safe to

run business Oil company by providing them support and security. Among the efforts that the Saudi’s

government provides to Saudi Aramco are providing needed lands to build plants, provide better places to

live for its employees and protect them and their sensitive places by providing security services to their

restricted areas. All of these efforts are just to help Saudi Aramco to keep the business running more

effectively and more accurately. (Saudi Arabian Oil Company, 2012)

Finally, as part of Saudi Aramco external players its joint ventures company which represent a huge

network of suppliers and customers. Saudi Aramco has many joint ventures; this strategy makes better

services and better product quality by upgrading technology and performance by the help of other experts in

the field around the world. One of the main joint ventures is YASREF when Saudi Aramco and China

Petrochemical Corporation (Sinopec) have agreed to formation of a joint venture related to the ongoing

development of Yanbu Aramco Sinopec Refining Company (YASREF) Limited, formerly the Red Sea

Refining Company. (YASREF, 2012)

Also SASREF is another joint venture which is a joint venture Company between Saudi Aramco and

Shell Saudi Arabia Refining Ltd, with a production capacity of 305,000 barrels per day. It is an export refinery

where Arabian Light Crude is upgraded into high quality refined products, including kerosene, naphtha,

benzene, low sulphur diesel, fuel oil and liquefied petroleum gas (LPG). (SASREF, 2012)

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Saudi Aramco Internal Environment Assessment:In this section of the report we will assess Saudi Aramco internal environment by doing a SWOT

analysis within its managerial environment. The SWOT analysis identifies the company’s strengths,

weaknesses, opportunities and threats (SWOT). The SWOT analysis is a useful and effective method for

analyzing corporate strategies when sufficient quantitative information is not available.

SWOT Analysis: This section of this report will examine Saudi Aramco’s internal environment through SWOT analysis.

SWOT analysis is one of the tools used to evaluate the company’s environment by using the following SWOT

matrix. In this matrix, a company’s internal resources that produce a favorable impact on the firm are categorized

as strengths, while the internal resources that generate an adverse impact are labeled as weaknesses. In the other

side of the matrix, the external factors that create a favorable effect on the company is an opportunities, while the

external factors that cause an adverse effect is called threats. Table 1 below summaries this matrix.

TABLE 1. SWOT MATRIX

Favorable effect Adverse effectInternal resources(Valu-chain)

Strengths Weaknesses

External Factors(Political, Economic, Social, and Technological)

Opportunities Threats

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As for Saudi Aramco SWOT analysis, Table 2 below shows a summary of this analysis.

TABLE 2. SWOT MATRIX OF SAUDI ARAMCO

Strengths Weakness The world’s largest reserves

production capacity.

Access to low cost oil and gas production assets.

Advanced upstream technologies and highly motivated employees

Good relationship with the government.

Sour crude oil

Heavy dependence on sales of a single commodity (crude oil).

Relatively small downstream capacity

Opportunity Threat High crude oil price and sufficient

investment capital.

Strong oil demand growth, especially in Asia

Saudi Arabia’s accession to WTO

Raising domestic gas demand growth and potential gas supply crunch

Potential slowdown of world oil demand growth caused by the recent high oil prices

Saudi Aramco SWOT analysis shows in Table 2 indicate some advantages that strength the company’s

position. Awarded with the world’s largest oil reserves and having inherited technological expertise from the

former Arabian American Oil Company (Aramco), Saudi Aramco has enjoyed a number of advantages,

including low-cost production oil reserves, advanced technological knowledge, a well-organized and efficient

decision-making system and highly- motivated employees. In particular, the oil production cost in Saudi

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Arabia is quite low compared to that of other oil producing countries around the world. This is because a large

portion of the Saudi Arabian oil fields are free-flowing from reservoir pressure alone and do not require

pumps to extract oil from the ground. (Saudi Aramco’s 2011 Annual Review, Nov. 2012)

Even though it is not specifically an internal resource of Saudi Aramco’s, the company’s good

relationship with the Saudi’s government should be also mentioned as strength. As it’s fully owned by the

Saudi’s government, Saudi Aramco is under strong national control and is essentially a tool of the

government. Unlike other oil companies, however, there is a clear segregation between the responsibilities of

the Saudi’s government and Saudi Aramco. The government represented by the Minister of Petroleum and

Mineral Resources has the authority to decide the country’s OPEC policy, oil production level and capacity

targets, and domestic petroleum product prices. On the other hand, Saudi Aramco can make decisions

regarding the company’s expenditures, investment projects, and other operational issues. This clear

segregation makes the company’s relationship with the government completely friendly, ensures the

company’s operational independence, and minimizes political interventions in the company’s operational

activities. (Marcel, Valerie, and John V. Mitchell, 2006)

The sources behind this good relationship are Saudi Aramco’s extensive expertise in the oil and gas

businesses and its impressive performances in the past. Saudi Aramco has continued to meet the demands and

targets set by the government and because of the country’s strong trust in the company’s performance and

capabilities, Saudi Aramco has been allowed to have a certain level of operational autonomy. In fact, while

Saudi Aramco’s five-year plan requires a final approval from the Supreme Council for Petroleum and

Minerals (SCPM) the council has never rejected a proposed plan from the company. Such an intervention in

the operational matters of Saudi Aramco is considered forbidden within the Saudi’s government, clearly

illustrating the mutual trust between the government and Saudi Aramco. Having a clear distinction between

government affairs and the Saudi Aramco activities in Saudi Arabia’s oil and gas sectors avoids inefficiencies

caused by inappropriate political interventions, and therefore promotes the stability of Saudi Aramco’s

outstanding business performance and its operational autonomy. (Saudi Arabian Oil Company, Management

Guide Section 02, 2012)

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Although Saudi Aramco has few observed weaknesses as an oil company, one of these is its sour

(high-sulfur) grade crude. Saudi Aramco produces five different grades of crude oil. Those grades are Arabian

Extra Light (AXL),Arabian Super Light (ASL), Arabian Light (AL), Arabian Medium (AM) and Arabian

Heavey (AH). (Saudi Aramco’s 2011 Annual Review, Nov. 2012) Most of the grades are categorized as a

sour grade whose sulfur component is above one percent. A sour crude oil grade in general is sold at discount

compared to those with low sulfur components. Given the global trend of tightening petroleum product

specifications, there will be less demand for these sour grades in the coming years, therefore making the sour

nature of Saudi Aramco’s produced crude oil a matter of concern in the energy firm’s marketing strategies.

Saudi Aramco’s heavy dependence on a single commodity which is crude oil is also considered one of its

weaknesses. The lack of diversification in its revenue sources has resulted in very volatile revenue flows in

the past, and the company is in need of revenue source diversification in order to stabilize its annual income.

For a similar reason, the company’s long position in upstream capacity over downstream capacity may be

pointed out as another weakness. Indeed, securing outlets for its crude and increasing the company’s vertical

integration are in the company’s long-standing interests. (Al-Attar, Abdulaziz, and Osamah Alomair. 2005)

Regarding the company’s prospects, the world’s growing oil demand and its unexpectedly low price

elasticity definitely provide great opportunities for a company like Saudi Aramco, which holds a large oil

reserves. According to a forecast made by the International Energy Agency, the world oil demand growth rate

for the next quarter century is faster than that of the past quarter century. It is a widely accepted consensus that

oil will continue to be the world’s most important energy source, as it maintains the largest share of the

world’s total primary energy supply. This, combined with the forecasted demand growth, promises a future

market for Saudi Aramco’s vast crude oil resources. (International Energy Outlook 2011, Sept. 2011)

Also, due to the recent high oil prices, Saudi Aramco could secure sufficient funds for capital

investments, thereby providing more opportunities for Saudi Aramco. Supported by the recent cash flow,

Saudi Aramco has launched a number of investment projects covering its entire value chain, from exploration

to refining and shipbuilding. Moreover, Saudi Arabia’s admittance into the World Trade Organization (WTO)

in December 2005 also creates a rosy opportunity for Saudi Aramco, especially in the petrochemical business.

The biggest achievement for Saudi Arabia in its negotiations during the WTO admissions process was that it

succeeded in persuading the other member countries to allow the Kingdom to maintain its low domestic

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natural gas price. The country’s current domestic natural gas price of $0.75/MM BTU is exceeding low

compared to international market prices, in effect, providing significant cost competitiveness for Saudi natural

gas-based industries, such as petrochemicals manufacturing. (Alexander, Green. Nov.2012)

Although there seems to be no imminent threat for Saudi Aramco at this moment, the rapid growth of

its domestic gas demand may lead to a potential gas supply shortage in the Kingdom. Recent high economic

growth has inflated domestic power and desalination demand and a number of natural gas-based

petrochemical projects will likely upset the already tight balance in the country’s gas supply. Exports of

liquefied petroleum gas (LPG) from Saudi Aramco are expected to cease in a few years as LPG will be used

as a substitute for natural gas in the country. The risk of a potential gas supply crunch is now looming. Saudi

Aramco is at this moment the sole entity in charge of securing and providing a sufficient amount of natural

gas for domestic users, so the state energy firm is under strong pressure to enhance its existing gas supply

capacity. (Alexander, Green. Nov.2012)

Facing the challenge:

Saudi Aramco’s changes in corporate strategies are introduced in this report under to address the

above-mentioned SWOT analysis. Some strategies are pursued to take advantage of opportunities while some

are planned to minimize threats.

In the 1990s, Saudi Aramco’s corporate strategies tended to focus on improvements in profitability

and cost reductions in its existing businesses. In the last two to three years, however, the company has moved

towards cultivating extensive capacity expansions in all of its businesses. (Saudi Aramco’s 2011 Annual

Review, Nov. 2012).

Saudi Aramco has become more aggressive in its exploration activities over the last few years. This is

a strategy to solidify the company’s strengths with opportunities as they arise, namely, a tactic to discover

additional low-cost oil and gas reserves with a sufficient amount of investment. Although the number of rigs

Saudi Aramco had used for exploration was very small until a few years ago, the state firm is now rapidly

increasing the number of rigs it is operating. (Saudi Aramco’s 2011 Annual Review, Nov. 2012).

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Table 3 below shows the company’s recent exploration results. It is notable that most of the recent

findings are gas fields. These gas-oriented results imply that the company is placing a higher priority on gas

field findings in an effort to expand the domestic gas supply capacity. .( Petroleum Intelligence Weekly, 18

December 2006)

Month, Year Field Finding (grade, if oil)Nov, 2006 Nujayman-1 Gas / condensateSept, 2006 Kassab-1 GasJul, 2006 Zamlah-1 Gas / condensateApr, 2006 Karan-6 GasMay, 2005 Halfa-1 Oil (AXL)Apr, 2005 Du'ayban-1, Oil (ASL)Dec, 2004 Midrikah-1 Gas / condensateOct, 2004 Abu Sidr-1 Oil (ASL)

Saudi Aramco’s most impressive achievement in recent exploration activities was the discovery of the

offshore Karan gas field in April 2006. A Saudi Aramco official suggests that the field has “hydrocarbon

bearing reservoirs of excellent quality,” and its production will be ultimately raised to 1 billion cubic feet a

day. Given the current intensive exploration program, a similar giant gas field finding may follow the Karan

discovery; however, factors such as growing domestic gas demand and Saudi Arabia’s traditional policy of

restraining natural gas exports will effectively suppress Saudi Aramco’s natural gas exports for the predictable

future, even though the company’s gas supply capacity has significantly expanded. .( Petroleum Intelligence

Weekly, 18 December 2006)

Saudi Aramco’s effort to raise production capacity and to secure surplus capacity is also considered a

strategy to reinforce its current strengths by taking advantage of this opportunity. Maintaining a sufficient

spare capacity has been a primary source of Saudi Arabia’s unrivaled influence over the international oil

market. Thanks to strong oil revenues over the past several years backed by solid world demand growth, the

Kingdom has plenty of opportunity to pursue upstream development projects. Although recent cost inflation in

upstream projects may be regarded as a threat to the ongoing upstream expansions, a Saudi Aramco senior

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executive rejects speculation that such cost inflation would prevent the current upstream expansion activities

by citing the company’s supreme cost competitiveness. (Saudi Aramco’s 2011 Annual Review, Nov. 2012).

Also, Saudi Aramco has accelerated its investment in the refining sector in recent years. These

expenditures are an effort to make up for its large refining deficit and to minimize the adverse effect a

potential widening of the light-heavy spread would have on the crude oil market by securing sophisticated

refining capacity able to process Saudi Aramco’s heavier crude oil. (Saudi Aramco’s 2011 Annual Review,

Nov. 2012).

Vertical integration, in fact, has been one of Saudi Aramco’s consistent strategies. While Saudi

Aramco’s refining capacity is small relative to its upstream capacity, its total refining capacity is sizable. In

fact, Saudi Aramco is the ninth largest refiner in the world. Saudi Aramco has expanded its downstream

network in foreign countries as well, through downstream equity acquisitions in the U.S. in 1988, South Korea

in 1991, the Philippines in 1993, and Greece in 1996. Saudi Aramco has been long interested in the Japanese

downstream sector, and it held talks with Japanese oil companies about a potential equity investment in

their refineries at least twice in the 1990s. Although these talks failed to produce anything concrete, Saudi

Aramco did acquire equity in the Japanese refiner Showa Shell in 2004 and 2005 and is currently

supplying it with 300,000 b/d of crude oil.( Petroleum Intelligence Weekly, 18 December 2006)

Finally, Saudi Aramco’s latest strategy has been to pursue opportunities in the petrochemicals sector in

an attempt to benefit from the Kingdom’s acceptance into the WTO as well as to diversify the company’s

crude oil-oriented revenue structure. (Saudi Aramco’s 2011 Annual Review, Nov. 2012).

In Saudi Arabia, Saudi Basic Industries Corporation (SABIC) has been the dominant player in the

domestic petrochemicals industry, while Saudi Aramco has stayed on the sidelines. However, this situation

changed when Saudi Aramco launched a U.S. $4.3 billion mega project to upgrade the existing refinery in

Rabigh on the Kingdom’s west coast into a refining and petrochemical complex. (Saudi Aramco’s 2011

Annual Review, Nov. 2012).

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Japan’s Sumitomo Chemical was selected as Saudi Aramco’s joint venture partner in the Rabigh

project in August 2005. This agreement was greatly appreciated and welcomed in Japanese industrial circles,

as the bilateral business relationships between Japan and Saudi Arabia had been rather “dry” for some time,

consisting mainly of buy-sell crude oil transactions since Japan’s Arabian Oil Company lost its longstanding

upstream stake in the Khafji field of the Neutral Zone in 2000. The Rabigh refinery and petrochemicals

project is strongly expected to help restore and solidify the bilateral business relationships between Japanese

and Saudi firms in the energy sector. (Petro Rabigh, Nov. 2012)

The Rabigh project, known as PETRORabigh, is essentially an upgrading of the existing Rabigh

refinery, which was originally built by a joint venture with a Greek oil company, Petrola, in 1985. The

refinery is equipped with a 400,000 b/d topping capacity without any upgrading unit and is utilized as a swing

facility, from which its production shifts are subject to export demand. The project plans to turn this simple

skimming-type refinery into a mega refining and petrochemical complex by adding a high-olefin fluid

catalytic conversion (HOFCC) plant, ethane cracker, and other related downstream facilities. (Petro Rabigh,

Nov. 2012)

Another factor driving Saudi Aramco’s pursuit of petrochemical projects is that they may create more

local jobs in Saudi Arabia. As the company expands its value chain further downstream to more labor-

intensive plastic products or textiles manufacturing, a larger number of jobs can be created. The population in

Saudi Arabia grew significantly at a 2.7 percent annual average from 2000 to 2005, and unemployment among

the younger generation is causing a serious problem in Saudi Arabia, not only economically, but politically, as

well. By developing these downstream operations, Saudi Aramco aims to address a critical national challenge

as well as diversify its business portfolio. (Azzam Y. Shalabi, March 2006)

This SWOT analysis help us to identify the areas that need to be improve and the points of strengths

and the opportunities that Saudi Aramco can improve its position through it. In other word, it captures a broad

picture of Saudi Aramco’s internal environment.

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Analysis of Alternative Management Functions and

Strategies in Saudi Aramco:

In this section of the report, the four management functions (Planning, Organizing, Leading and

Controlling) are interpreted under the context of Saudi Aramco.

Organizing:

In term of organizing hierarchy divided to different level. Saudi Aramco fully owned by the Saudi

government, however, in term of organizing the authority in Saudi Aramco, it’s managed by different levels

the highest is the Supreme Council for Petroleum and Mineral Affairs, chaired by the Custodian of the Two

Holy Mosques King Abdullah bin Abdul Aziz. This Council shall develop policies and objectives of the

company's top level decisions. It includes members from the government and the private sector. (Saudi

Aramco Oil Company, Management Guide, the Corporate Organization, Section: 1, 01 October 2012).

The second level of management is the board of directors of Saudi Aramco, which chaired by the

Minister of Petroleum and Mineral Resources. Saudi Aramco’s board of directors is responsible for high-level

planning, budgeting and decision-making for projects along, with the company’s executive management

committee which is headed by Abdulaziz Al-Faleh the president & chief executive officer. However, for the

needs of Saudi Aramco’s operational activities and due to the size and complexity of the company, Saudi

Aramco has been divided into business segments in which every sector is headed by a member of Saudi

Aramco executive management committee. (Saudi Aramco Oil Company, Management Guide, the Corporate

Organization, Section: 1, 01 October 2012).

Saudi Aramco is divided into seven major business lines which are upstream operation, downstream

operation, Engineering, Project Management & Operations Services, Finance, Industrial Relations and Law,

Corporate Planning and Management Services. These organizations are headed by senior management level

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position called Senior Vice Presidents, each delegated the authority to plan and manage the activities of his

business area. (Saudi Aramco Oil Company, Management Guide, the Corporate Organization, Section: 1, 01

October 2012).

The Business Line Heads either report directly to the president & CEO or to the Executive Vice

President. The primary functions of the six business lines are as follows:

o Upstream business line which is involves all activities related to the exploration, development

and production of oil and gas prospects, the maintenance of potential, and the processing of oil

and gas.

o Downstream business line which is cover all activities related to the refining, distribution,

terminating, domestic and international sales, marketing and shipping of oil and refined

products, plus the management and coordination of domestic and international downstream

ventures.

o Engineering, Capital project management & Operations Support business line which is

responsible for corporate engineering and technical functions, project management, plus

business and industrial support activities for all of the company’s organizations.

o Finance business line which is responsible for the Company’s accounting, treasury and

auditing functions.

o Industrial Relations business line which consolidates an array of essential company services -

personnel, medical and community services, government and public affairs, and safety and

industrial security.

o Law, Corporate Planning and Management Services are additional organizations which report

directly to the President & CEO.

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(Saudi Aramco Oil Company, Management Guide, the Corporate Organization, Section: 1, 01 October

2012).

Khalid bin Abdul Aziz Al-Faleh is the President and Chief Executive Officer. Khalid Jassim

Albuanyen is the senior vice president for refining, marketing and international business, refining and

marketing, supply and distribution planning and business opportunities and develops and coordinates joint

ventures and project manager for the development of the Rabigh. While Salem Saeed Al Ayed is the senior

vice president of engineering and project management and engineering services, project management, project

manager for the development of King Abdullah University of Science and Technology and the development

of new ventures. Also, Abdulrahman Fahad Al-Wuhaib is the senior vice president for business services and

industrial services, information technology and logistics. Furthermore, Abdullatif A. Al-Othman is senior vice

president for finance and control, treasury and accounts and Financing development projects. Abdul Aziz

Fahd is the senior vice president of industrial relations and Community Services, buildings, offices and

relations director and staff training, medical services and industrial safety and security Affairs, Saudi Aramco.

(Saudi Aramco Oil Company, Management Guide, the Corporate Organization, Section: 1, 01 October 2012).

Leading:

In term of leading, Saudi Aramco has been called the top oil company in the world. This is not simply

because it has the biggest reserves and produces more crude oil than any other company. It’s also because

Saudi Aramco places great importance on finding motivated and interested employees and providing them

with the training and education they need to succeed. It is these people who are behind the remarkable

achievements you have been reading about. From its beginnings in the 1930s, Saudi Aramco has always had a

strong commitment to education and training—both for its workers and for the broader Saudi population. This

commitment has only grown with the years, helped along by the active participation of the Saudi government.

(Saudi Aramco’s 2011 Annual Review, Nov. 2012).

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In 2007, a group of nine boys and girls attended the International Science and Engineering Fair in the

United States as the first-ever representatives from Saudi Arabia. Saudi Aramco is the second-biggest

employer in the Kingdom of Saudi Arabia (the government is the largest employer in the Kingdom). And

Saudi Aramco’s employees are not all geologists and oil-rig workers, either. The company operates clinics,

hospitals, schools and more, all of which serve not only employees but also the larger communities in which

they are located. For the success of Saudi Aramco, all employees must fulfill their role and contribute to its

goals. To accomplish this, employees need to understand what is expected of them and recognize the impact

of their efforts on meeting the objectives of Saudi Aramco. (Saudi Aramco’s 2011 Annual Review, Nov.

2012).

This process is achieved through “Performance Management Program. “Performance Management

Program is the process by which Saudi Aramco can align an individual’s contributions to the organizational

goals, assess and develop employee’s competencies, evaluate employee’s performance, and provide feedback

to guide improvement. Performance Process is a continuous activity that includes planning, managing and

reviewing performance. Both management and employees have definitive responsibilities within each step.

(Saudi Aramco performance Management Program, PMP Guide, January 2009)

Performance Process is designed to do the following:

(Saudi Aramco performance Management Program, PMP Guide, January 2009)

o Improve the performance of Saudi Aramco and its employees. Employee’s efforts are aligned to meeting

the company goals.

o Enable management and employees to plan and review performance. Performance Management provides

structure and accountability for managing performance. This will help both management and their

employees to set and meet expectations.

o Provide a forum for career planning discussions.

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o Employee’s performance plans can act as a guide for career planning. Through regular performance

reviews, employees can work with their management to build development plans that align their career

aspirations with Saudi Aramco goals.

Controlling: In term of controlling, Saudi Aramco has written procedures to control all of their normal operation

and employees which is called Saudi Aramco general instructions. This procedures offers the policies applied

to Saudi Aramco employees. . (Saudi Aramco General Instruction Manual, May, 2011)

Saudi Aramco’s general instruction manual addresses different area of Saudi Aramco’s operations.

This instruction classified as following:

o The General Instructions: Are a compilation of instructions and information of general interest to Saudi

Aramco - SAO departments, maintained on the Saudi Aramco Intranet. The on-line documents at

http://sharek/cops/GI/Pages/home.aspx are the current and official General Instructions. Organization

Consulting Department (OCD) has functional responsibility for maintaining the integrity of the General

Instructions.

o Financial Related General Instructions: The Accounting, Policy, Methods and Systems (APM&S)

Department is authorized to obtain approvals and edit all of the General Instructions for the Finance

Business Line.

o Mandatory Engineering Requirements: Consist of Saudi Aramco Engineering Standards (SAES), Saudi

Aramco Engineering Procedures (SAEP), Saudi Aramco Materials Specifications, and Saudi Aramco

Standard Drawing. Referenced documents such as Industry Codes, Sanitary Code, General Instructions,

etc. are also mandatory, to the extent indicated in the mandatory engineering requirements.

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SAES are standards that establish minimum mandatory requirements for selection, design,

construction, maintenance, and repair of equipment and facilities. The requirements in these

standards apply Company-wide.

SAEP are procedures that establish a systematic method or process of accomplishing an

engineering related activity. They are mandatory and apply to a Company-wide basis. SAEP are

maintained by Engineering Services Organization.

o A Special Manual (not General Instructions): Is a compilation of instructions of special interest to a

limited number of departments, mainly the originating department. Examples: various engineering

manuals, medical manuals, aviation manuals, Refinery Information Manuals (RIM), Operating

Information Manuals (OIM), etc. The originating organization is totally responsible for the distribution

and maintenance of such special manuals. All documents which are identified as Confidential are Special

Manuals.

The controlling organization for a Special Manual does the following:

Determines the name and purpose of the Special Manual and states the authority upon which it is

issued. Special Manuals are not to be named “General Instructions”.

Prepares and reviews (with other concerned organizations) all of its own Special Manuals and their

Supplements.

Supplies copies to other organizations according to its own discretion.

Assumes sole responsibility for the content of the Special Manual.

All confidential documents must be treated as Special Manuals.

Special Manuals are issued over the signature of the Head of the Controlling Organization.

In summary Saudi Aramco’s General Instruction are mean to controlling set by Saudi Aramco

management and limit the authority of several levels in the management. The authority of a General

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Instruction does not extend beyond the approving and concurring organizations. General Instructions and their

cancellations are issued over the approval signature of the Head of the proponent organization. Minor

revisions to an existing General Instruction need only be approved by the Head of the proponent organization.

Major or Complete Revisions need to be approved by all approvers of the General Instruction as well as the

head of the proponent organization. (Saudi Aramco General Instruction Manual, May, 2011)

Planning: In term of planning, Saudi Aramco corporate planning organization is responsible to plan its

operational activity to achieve its corporate objective. To achieve Saudi Arnaco’s corporate objectives Saudi

Aramco implement two types of planning, long-range & short-term plans, accountability reports. These plans

and report make up the planning cycle as showing in the below picture. (Saudi Aramco’s Planning &

Programs Analyst Guidelines, 2008)

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The planning cycle consist of five major corporate reports which are business plan, capital program

and budget, operating plan, accountability reports and monthly MIS report.

The 5 year business plan is a primary long range planning tool which establishes long range

objectives, goals, and assumptions and develops broad programs to meet long range objectives. It also,

analyzes alternative ways to meet goals for all predictable results, sets the dates for goal accomplishment,

ensures business line coordination and efficiency ,estimates the capital, manpower and net direct expenditures

for each of the five succeeding years and prepared annually and approved by the board of directors early in the

year preceding the first year of the plan. (Saudi Aramco’s Planning & Programs Analyst Guidelines, 2008)

This 5 year business plan broadly covers three main areas. The first are is Strategic Planning which are

Plans that detail the action steps needed to respond to changes in business conditions and resources. Second,

the Manpower, Manpower and training are major part of the planning effort and is the basis for the budget that

constitute more than 70% of net direct expenditures (NDEs.) Finally, Capital Program which is a forecast of

the capital requirement for five years period. (Saudi Aramco’s Planning & Programs Analyst Guidelines,

2008)

Second the operating plan which provides overall direction for the company operation program

activities and identifies associated manpower, net direct expenditures and support services requirements. Also,

it develops quantified, measurable goals to be accomplished during the next year and quantify the resources

required for next year’s operation. Finally, it provides a basis for accountability reports which describe

progress in meeting objectives and expenditures are being managed.

Finally, The Accountability Reports and the MIS monthly reports which allow management to see if

resources are being used efficiently and progress is being made towards long-rage goals. Capital project and

budget items approval and summary reporters keep management abreast of Capital Program and indicate

where problems warrant immediate adjustments to the Capital Budget. (Saudi Aramco’s Planning & Programs

Analyst Guidelines, 2008)

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Selection of the Management function and Describe

changes in Saudi Aramco:This part of the report, talk about the Acceleration Transformation Program (ATP program), which is

used by Saudi Aramco to implement change. This program involves all the functions of management which

are; First: Planning, which involves recognition of the goals and objective establishment of the company and

the planning process itself to do any specific task within the company. Second: Organizing, that is one of the

most important aspects in the work force within Saudi Aramco and in fact the secret of its rapid secessions,

organizing also involves how the work tasks should or shouldn’t it be done. Third: Leading, includes

motivating, educating, and helping the employers of the company by alternative methods as well. Four:

Controlling, includes but is not limited to higher management leadership, and observation of objectives in

order to make sure that everything is intact and should be done as scheduled to be.(Management Stephen

P.Robbins. Mary Coulter)

Next, this report will briefly explain what is the ATP program aim for and how does it work as a

system within Aramco.

Acceleration Transformation program simply strives to unlock the human potential by not just doing

the work task only but by doing them professionally as well, let me tell you how. Saudi Aramco is working

day and night to find alternative power sources instead of oil which are healthy and in the same time profitable

and less time consuming to extract and use, however the task may sound simple, but it’s not, and that is why

this program was founded in the first place. Saudi Aramco organized meeting that lasted for three decades

until 2011 in Washington DC city talking about how they can manage the program and for the meetings to be

held in Washington DC it was only considered as advantages because employers were coming from the

middle east and see how the economy and politics can actually affect a company holds of shares.

Saudi Aramco is already an exceptional player in the international oil production sector, but Even

though the company is recognized as having the largest oil reserves internationally, considered as the best

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petroleum extractors, and producers of natural gas as well, and moreover it was stated that the company will

increase their petroleum output from 1 million barrels per day to 2 million barrels per day in the upcoming

few years. However, with only one power resource one can only go so far. The company is also shifting to the

chemical production market as an alternative power source approximately within 5 years from now. (Khalid

A. Al-Falih said, 19-jul-2011)

In addition to the reasons that mentioned above for the foundation of the ATP is that Saudi Aramco

was losing way too much money accelerating its down fall in the process which could be avoided, how? Ok

hear is the answer simply put “refined crude”. International companies such as Chevron where buying regular

unrefined oil from Aramco and refrain it in their respective facilities then sell it back for Aramco -as an

example-as gasoline (which is refined oil and one of the most basic forms of power) with ten times the price

they bought it from Saudi Aramco with which is true and had happened many times in the past few years

making the company lose most of its accreditation from other companies from worldwide for not realizing

such simply avoided mistakes “Fortunately, Saudi Aramco has finally realized it and started building their

own crude refining factories which is going to be one of the best in the world” (Khalid A. Al-Falih said ,CEO

of Saudi Aramco)

In order to avoid such loss of money and sell refined oil with all its forms whether as Gasoline; may be

dangerous to human health as it is if it were to be smelled, kerosene; light oil for light use which evaporates in

specific temperatures , Number 2 fuel oil; which is easily disposed of after use unlike kerosene, Number 4

fuel oil; which is regular liquidity substance that flows easily but may harm the environment if not stored

properly , Number 5 fuel oil (Bunker B), Number 6 fuel oil (Bunker c) or as Lubricating Oil. Unlike other

plants owned by other companies, Aramco plants will be equipped with the best technology including all

types of refined oil as mentioned above. (US Environmental Protection Agency)

Therefore, forcing many companies such as Texaco that already own 50% of the business to buy from

Saudi Armco refining facility’s helping Saudi Aramco’s future in the process. If the company plans for the

ATP program went as scheduled for the upcoming two decades, the company will continue to flourish,

because there will be alternative power sources to produce for example if the management of exploration and

expedition are having a difficulty in the exploration for new oil wells they will try and explore for other

25 | P a g e

sources of power that are available and much easier to get for example Natural gas, therefore, having less

time, less cost, and also less need of labor they will be a better company ‘technically speaking’ (The Pulitzer

Prize-winning historian Wallace Stegner said).

The ATP in the future also is going to be responsible the economy growth. Because now when we

look at the trends concerning the Kingdom’s energy consumption, we uncovered some more startling

forecasts. The Kingdom is currently consuming about 2 million barrels per day of liquids.

If we project out to the year 2030 and we assume a medium economic growth rate at the current level

of energy intensity – which is the amount of energy required to create one unit of GDP - you can see that the

Kingdom will be consuming 5.8 million barrels of liquids to meet energy demand. And if we assume a high

level of economic growth at the current level of energy intensity, the Kingdom will consume 12.8 million

barrels per day of liquids. This is more than the company’s maximum sustained capacity. So you can see this

is clearly unsustainable. Even the 5.8 million barrels per day scenario is unsustainable when you consider that

we will need to import any product shortfalls at market value. (Arun Sudhaman posted)

The target we are shooting for is high economic growth at U.S levels of energy intensity. In this

scenario the call on liquids is only 3.6 million barrels per day, reducing the Kingdom’s energy demand by

12.3 million barrels per day of oil equivalent.(Cooperate Strategies Of Saudi Aramco)

Saudi Aramco’s Strategic intent of the ATP is further defined by these six statements:

o An agile organization which is one of the most respected employees worldwide . Not only will Aramco

make much quicker and better decisions, but Aramco will also be a strong magnet of the best talent.

o A preeminent oil and gas exploration and production business. Aramco will build on their core business

expanding on their resource base and become a major unconventional gas player.

o An integrated global-scale refining and chemicals business. Aramco will become a top tier global

chemicals player.

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o Leadership in technology development and a flourishing knowledge economy. Aramco will be a net

exporter of technology and become the birthplace of entrepreneurship in the Kingdom.

o An energy-efficient national economy. Aramco will reduce liquid consumptions locally and enable

alternative sources of energy in the kingdom.

o An export-oriented sector of energy-support industries. We will increase local content from less than 4%

to more than 70%. We will also create ½ a million direct and indirect Saudi jobs.

So, when Saudi Aramco achieves the Strategic intent, what will the Saudi Aramco of the future look

like? We can emphasize it by the following; Saudi Aramco’s employees have seen an integrated view of their

strategic priorities. These strategic priorities clearly set out their role, intent and level of engagement in a

number of areas - such as chemicals and leadership in technology development - to support the Kingdom.

(STRATEGIES UNDERTAKEN BY SUDI ARAMCO) These efforts do not necessarily represent a change

of direction since all these activities were already being undertaken by the company, but it does represent a

scale-up of ambition and aspirations.

Finally, to achieve these lofty goals, Saudi Aramco should be aware of the need to tune up the

company's engine and improve the efficiency of their internal processes. This final realization is an important

one. Having defined the 'what' of the ATP strategy, it is important to review and ensure that the 'how' is

company's engine, will get them there. (Revitalization Exploration)

Conclusion:Having reviewed Saudi Aramco’s strategies, it is clear that the company’s implementation of its

corporate strategies is motivated by efforts to reinforce its strengths, overcome its weaknesses, take advantage

of opportunities, and minimize the impact of threats. All of the observed strategies by Saudi Aramco have

clear missions and targets and are well-developed, thanks to the state energy firm’s extensive expertise and

experience in the oil and gas business. There is, therefore, no doubt that Saudi Aramco is and will continue to

be a very reliable global oil supplier.

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Exploration and Production Costs." OPEC Review 29.4 (2005): 243-66. Print.

2. Alexander, Green. "2012-2013 Natural Gas Price Forecast." Investment U RSS. Investment U White

Paper Report, n.d. Web. 14 Nov. 2012.

3. Azzam Y. Shalabi, “Saudi Aramco’s Initiatives in Export Refining & Integrated Petrochemical

Projects,”

4. Presentation to MEED Conference, March 2006, 10-11.

5. Emil content, “Khalid A. Al-Falih” Shared by Adel Sultan 1 year ago Extracted info on (Sa, 24, Nov

2012). - http://twitmail.com/email/167853231/19/President---CEO-of-saudi-aramco-announcing--

Accelerated-Treasformation-Program----ksa--aramco

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12. Aramco’s refining capacity is even larger than that of Chevron.

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SHINGTION, D.C 19-jul-2011 Extracted info on (Su, 11, Nov 2012). -

http://www.saudiaramco.com/en/home/news/speeches/unlocking-human-potential-saudi-aramcos-

accelerated-transformati.html#news%257C%252Fen%252Fhome%252Fnews%252Fspeeches%252Funlocking-

human-potential-saudi-aramcos-accelerated-transformati.baseajax.html

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22. Saudi Aramco’s 2011 Annual Review. Rep. Dhahran: Saudi Aramco, 2012. Www.saudiaramco.com/.

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AnnualReview2011/AR2011En-1.pdf>.

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http://www.epa.gov/oem/content/learning/refined.htm

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Strategies Of Saudi Aramco) (MANAGEMENT ENVIRONMENT OF SAOUDI

ARAMCO).Extracted info on (Fr, 7, Dec 2012). - http://www.bakerinstitute.org/programs/energy-

forum/publications/energy-studies/docs/NOCs/Papers/NOC_Kobayashi%20SAramco.pdf

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<http://www.eia.gov/forecasts/ieo/index.cfm>.

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