State oil giant Saudi Aramco has put on hold its deepwater oil and gas exploration and drilling activities in the Red Sea because of high costs as it economises in an environment of low crude prices, industry sources said on Sunday.

The cost of operations in the Red Sea, a new area for Saudi Aramco, was around $1 million per day, said two sources, who declined to be identified because they were not authorised to speak to media.

"It is related to budget cost reduction in the Red Sea offshore," said one of the sources.

Saudi Aramco declined to comment.

The company's chief executive Khalid al-Falih said last week that Saudi Aramco would renegotiate some contracts and postpone some projects because of the plunge in oil prices over recent months. The firm has suspended plans to build a $2 billion clean fuels plant at its largest oil refinery in Ras Tanura, sources told Reuters last month.

However, Falih also said Saudi Aramco would continue investing in key projects, and had earmarked $7 billion to spend on unconventional gas in coming years after investing $3 billion in the past.

A second source said deepwater exploration in the Red Sea had stopped because of several factors, including environmental issues, costs, and the need for further studies to minimise risks.

"One of the most expensive offshore (areas) happens to be in the Red Sea - the depth is different from the Gulf coast. They did discover a lot of oil and gas but they need to do lots of tests. Now with the current prices, they have put it on hold until further notice to collect more data," said a third source.

Saudi Aramco said in its 2013 annual review that it was continuing operations in the Red Sea's deep waters and had made a new oilfield discovery at Al-Haryd.

"It would not be surprising if Saudi Aramco were to suspend exploration in the Red Sea because it is a very complex basin, and no significant discoveries have been announced since the Midyan field complex and the Um Luj condensate discoveries accomplished by the Aramco exploration team of the early 90s," said Sadad al-Husseini, a former top executive at Saudi Aramco and now an energy consultant.

Source: www.reuters.com

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