In April 2018 Sultan Al Jaber, UAE Minister of State and group CEO of Abu Dhabi National Oil Company (ADNOC), announced the launch of Abu Dhabi’s first competitive tender for partners to participate in the exploration and development of oil and gas.
The move is likely to pave the way for further open tenders, as the emirate looks to boost production, open the sector to a broader range of international companies, and gain access to technology and expertise from around the globe. Furthermore, a new multibillion-dirham seismic survey of the emirate, which is expected to get under way in the coming months, should provide the data that is required for mapping further exploration efforts over the longer term.
Size & Scope
The tender covers six blocks, four onshore and two offshore. The blocks are very large, between 2500 sq km and 6300 sq km, with the latter around three quarters of the size of a UK North Sea quadrant, which would consist of around 30 blocks. The total area covered by the concessions is nearly 30,000 sq km. The expected structure is for the partners to bear exploration costs, and then take a 40% interest in the block once development and production starts, provided targets and other requirements are met. The first bidding round closed in October 2018, when ADNOC announced it had received bids from 39 companies. ADNOC is due to award the blocks by early 2019, and first production is expected in 2023-24.
Paradigm Shift
The launch of the exploration concession tender is likely to prove a significant milestone in the evolution of Abu Dhabi’s hydrocarbons sector. It could prove a landmark development not only for Abu Dhabi but the oil and gas industry as a whole. It is rare for major producers of the Organisation of the Petroleum Exporting Countries to permit international companies to explore for hydrocarbons. In a statement to OBG, ADNOC said that the tender “represents a major advance in how Abu Dhabi unlocks new opportunities, maximises value from its hydrocarbon resources, and accelerates the exploration and development of new commercial resources”. The company said that the offer was part of its expanded approach to strategic partnerships across all the areas of its business, with the aim of deepening and broadening its partnership base.
Technology Transfer
In addition to reflecting the emirate’s increasing openness to foreign involvement, the tender is indicative of its focus on value added and technology transfer. The blocks’ development is likely to require the latest technology, which foreign partners are best placed to provide. The tender called for expertise to accelerate the development of both conventional and unconventional hydrocarbons resources.
Bidders are likely to have an eye on the emirate’s increasing interest in techniques such as enhanced oil recovery to boost production and prolong the lifespan of its oil and gas resources. The requirement for ADNOC’s partners to commit both capital and operational expenditure is likely to lead to a stronger focus on efficiency, including the use of big data to ensure that resources are well allocated and wastage minimised.
Opportunity Knocks
The development presents a significant opportunity for global energy companies, with relatively low risk for partners, given the scale of the resources and high probability of successful discoveries. Abdulmunim Saif Al Kindy, ADNOC’s director of upstream, said the blocks are expected to contain many billions of barrels of oil and trillions of cu feet of gas. ADNOC said that some of the area under tender already contains discoveries, and across the six blocks there are currently 310 targeted reservoirs and 110 prospects and leads. Abu Dhabi’s political stability and the reliability of the government as a partner are also significant advantages, particularly when many other oil-producing countries have greater political risk and changeable regulatory environments. “The tender is a major development,” Albert Holtslag, technical manager at Shell Abu Dhabi, told OBG. “Abu Dhabi has a lot of under-exploited regions. The focus has been on large developed assets and near-field. Compared to Saudi Arabia and Oman, for example, there has been less greenfield development.”
Eye on the Future
Given the scale of the projects, ADNOC is keen to ensure that the tendering process is thorough and handled with care. Getting the process right is particularly important, given that the exploration tender is the emirate’s first. Nor is it likely to be the last: Abu Dhabi has large areas that can still be explored for oil and gas, particularly as technology for exploration, development and extraction develops. The emirate’s emphasis on utilising its hydrocarbons resources to drive economic development should mean continued opportunities for international partners. This first round contains six large blocks but the inventory of possible opportunities extends beyond these areas and includes both conventional and unconventional opportunities, ADNOC said, with plans to have further bid rounds in the coming years.
In addition to bringing benefits to successful bidders, the tender is good news for engineering, procurement and construction (EPC) contractors. Margins have been tighter for some EPC firms in recent years, due to ADNOC’s drive for greater cost effectiveness. But as exploration pushes forward, a new wave of drilling and the prospect of multibillion-dollar investments is expected to create opportunities. “Competition has significantly increased,” Yousef Al Nowais, chairman and managing director of Arab Development, a civil, mechanical and electrical engineering, and contracting services firm, told OBG. “However, the process for screening and approving new competitors seeking to enter the local market should be strengthened even more, particularly as prices have been driven down, because there are long-term risks that quality standards may be compromised. On the other hand, partnerships with experienced international players can strengthen local operational standards.” Those contractors best able to bring new technology to bear while delivering operational efficiencies will be well placed to win anticipated business.
Seismic Study
Confidence in the potential for further discoveries in the emirate comes from its location in a hugely resource-rich basin and the scale of investments being made in further exploration. In July 2018 ADNOC awarded contracts worth Dh5.9bn ($1.6bn) for the world’s biggest continuous seismic survey to BGP, a subsidiary of the state-owned China National Petroleum Company. The award was also made through a competitive bidding process, as ADNOC’s emphasis on bringing value through open competition is being implemented throughout the sector development chain.
The survey, which covers around 53,000 sq metres, with 23,000 sq metres onshore and 30,000 sq metres offshore, is expected to last until 2024, and will entail using high-resolution 3D imaging to gather seismic data, using streaming vessels and ocean bottom nodes offshore, and vibrator trucks on land, probing reservoirs up to 7600 metres below the surface.
The data collected will be used to model potential hydrocarbons reservoirs and identify untapped resources for future development. BGP will work with ADNOC’s Thamama Subsurface Collaboration Centre, which uses smart analytics and artificial intelligence to process data to help optimise field development plans, reduce drilling costs and manage production capacity. Its technology monitors drilling sites and allows specialists to gain a more detailed understanding of subsurface reservoirs. It is integrated with the Panorama Digital Command Centre, which uses a huge set of data points to monitor ADNOC’s operations. “The seismic project is a very good move,” Holtslag told OBG. “It is more effective than scanning a few areas separately, as there will be better coverage.
The deal comes as Abu Dhabi seeks to strengthen its relationship with China, the world’s largest crude oil importer. China is looking to diversify its oil supply in order to meet its domestic energy demand, and some of its major suppliers face political or security risks. Al Jaber said that the deal reflected not only the growing energy links between the two countries, but Abu Dhabi’s commitment to continued upstream investment to bolster proven reserves and production. It is likely that the new exploration concessions will attract interest from China in addition to other major emerging markets. “China is bringing new investment and has money to spend,” Parambath Radhakrishnan, director of business development for the MENA region, at engineering, procurement and construction com- pany KBR, told OBG. “And China also needs affordable oil. There is a new approach to partnerships and an openness to foreign investors.”
It reflects the emirate’s increasing openness to competitive bids from around the world, as well as a sharp focus on efficiency, value addition and technology-transfer requirements. It also reaffirms the emirate’s commitment to greenfield hydrocarbons investment as it seeks to increase production in order to be able to supply the increasingly expanding downstream segment as well as the rise in domestic demand.
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