Saudi Arabia awarded nearly $21 billion (Dh77bn) in oil and gas deals in the first half of 2009, more than 20 times the value of hydrocarbon contracts in the final few months of 2008, a key Saudi bank said.

The surge was apparently a result of a decision by the state operator Saudi Aramco to re-tender key hydrocarbon projects that were to be awarded last year to take advantage of a steep decline in construction costs, the Saudi American Bank Group (Samba) said in its July economic bulletin.

The oil and gas contacts account for less than a third of the total public investment deals awarded during the first half of this year, reflecting a trend by the government to keep spending high to face the global financial distress.

In contrast, private investment declined sharply during that period after many projects have been put on hold because of the global credit crunch.

"In the hydrocarbons sector, contracts awards by Saudi Aramco have been stepped up again this year following a hiatus in the second half of 2008.

The value of awards in the January-June period was around $21bn, compared with less than $1bn worth of contracts in the last quarter of 2008," Samba said.

"The dearth of awards at the end of last year may have been related to the steep descent of oil prices, but is more likely a reflection of Aramco's determination to rewrite existing contracts to reflect cheaper input costs."

In statements last month, Saudi Aramco confirmed that it had re-tendered some of its oil and gas ventures to secure lower costs.

"Yes we have extended some project tenders but we are talking here about a period of weeks or months… we want to give contracts an opportunity to discuss these projects and update their costs," Saudi Aramco's President and Chief Executive, Khalid Al Falih, told the Saudi TV station Alarabia.

"We have taken into consideration the recent decline in the prices of building materials and the cost of labour and project construction… the aim of these measures is to give ourselves a chance to take advantage of lower costs this year compared with last year… at the same time we are giving all contractors an opportunity to give the best offers in terms of prices and costs."

Samba said recent awards in the oil sector have focused on the Manifa field development programme, which is part of Aramco's ongoing efforts to lift production capacity to some 15 million bpd by 2015.

The Karan gas field development has also featured prominently in recent awards as it is Aramco's largest single non-associated gas project, which is programmed to produce as much as 1.5 million cubic feet/day of gas from 2011 onwards. The project is part of a major Saudi initiative to develop its gas sector to face a rapid growth in domestic demand of seven per cent.

"Public sector awards in the non-oil sector dwarfs even this investment. The value of non-oil contracts in the January-June period amounted to a staggering $70bn, or 21 per cent of our forecast for 2009 GDP," Samba said.

According to the report, a large number of recent contract awards has been made in the power sector, where the Saudi Electricity Company is expanding and upgrading its generation and distribution capacity.

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