New fields aim to make offshore oil account for around half of Abu Dhabi's production

With many of the emirate’s onshore oilfields reaching maturity, plans to expand future production to 3.5m barrels per day (bpd) will mean a much bigger role for the emirate’s offshore sector. Indeed, the next five years will see more than $25bn invested in offshore production, as the government hopes to reach the 3.5m bpd goal by 2017, according to an April 2015 report from Abu Dhabi-based newspaper The National.

Long History

Offshore production has been a part of Abu Dhabi’s oil industry since the 1960s, when the Abu Dhabi Marine Operating Company (ADMA) began exporting oil produced at the Umm Shaif field. In 1977 the government of Abu Dhabi acquired a 60% stake in ADMA through the Abu Dhabi National Oil Company (ADNOC), and as a result the offshore producer became one of the latter’s operating companies (OPCO), and hence known as ADMA-OPCO.

Today, ownership of ADMA-OPCO is split between ADNOC, which continues to hold 60%; BP, which owns 14.66%; Total, with 13.34%; and Japan Oil Development Company (JODCO), which holds the remaining 12%. AMDA-OPCO’s current concessions are due to expire in March 2018.

Alongside ADMA-OPCO, the Zakum Development Company (ZADCO) is principally responsible for production at the Upper Zakum offshore field. The field was developed in 1977, while in 1988 ADNOC decided to merge the Umm Al Dalkh Development Company with ZADCO. Today the company operates three business units: Upper Zakum, Satah and Umm Al Dalkh, and Zirku. The company’s shares are divided between ADNOC (60%), ExxonMobil (28%) and JODCO (12%). Concessions for ZADCO are not due to expire until 2041.

Expanding Offshore

The government’s expansion plans for offshore will entail increased production at both ZADCO and ADMA-OPCO facilities. The Upper Zakum field, which covers an area of 1200 sq km and has an estimated 50bn barrels of crude oil, currently produces around 500,000 bpd. The UZ750 project aims to increase this to 750,000 bpd for a plateau period of 25 years. To this end, ZADCO is investing $10bn in the two-phase project, which is due for completion by 2017.

The first phase, which will add an extra 100,000 bpd of production capacity to the field, is being carried out by the National Petroleum Construction Company and France’s Technip through a Dh3bn ($816.6m) contract. The second phase is expected to add a further 150,000 bpd and is being undertaken by Petrofac Emirates – through its joint venture with Mubadala Petroleum and Daewoo Shipbuilding and Marine Engineering – under a contract worth $3.7bn. Offshore production is famously both more technically demanding and, as a result, more expensive than typical onshore fields. Fortunately, UAE industry has developed special capabilities in techniques that can bring down the long-term costs of offshore production.

The most significant of these is dredging. The National Marine Dredging Company is a leader in the sector, and in August 2015 The National reported that the firm had completed work on the new channel for the Suez Canal. Their first oil project in Abu Dhabi was with ZADCO in the Upper Zakum field and involved the creation of four artificial islands on the offshore field. Abdalla Saeed Al Suwaidi, CEO of Abu Dhabi’s National Drilling Company (NDC), told OBG, “Despite the drop in oil prices, investments continue to be made in order to raise production levels and subsequently demand for sophisticated drilling rigs will remain unchanged.”

Creating New Spaces

Artificial island technology is also being used at ADMA-OPCO’s flagship new development, Satah Al Rasboot (SARB). SARB is the first ADMA-OPCO field to be developed without assistance from foreign shareholders and has involved the creation of two artificial islands, which will serve as bases for drilling. Construction of the islands was completed in July 2014, The National reported. Production from the field, which is expected to reach 100,000 bpd with a 12-18 year plateau, is due to commence in October 2017. The use of artificial islands will also represent considerable cost-savings over the lifespan of the project. Artificial islands are the best option for SARB, as there will be significant cost-savings with regard to the initial capital investment. Drilling from a land rig is almost half the cost of an offshore well.

New Fields

Following the completion of the islands, a $1.89bn engineering and construction contract was awarded to Hyundai, while a separate $515.4m package was awarded to Petrofac to develop the field. According to ADMA-OPCO, operating costs at the new field will be brought down by integrating services with ZADCO, whose Zirku Island will be used for processing, storage and export.

Alongside SARB, ADMA-OPCO is bringing on further new fields at Umm Lulu, which started production in 2014 and will reach full capacity in December 2018, as well as Nasr, which began producing in the first quarter of 2015. Furthermore, the Lower Zakum 1m-bpd programme, which is aimed at enhancing oil production capacity from the Lower Zakum field, is another major component of the overall scheme to raise the company’s oil production from the current 600,000 bpd to around 1m bpd by 2020. The company’s current expansion programme is very ambitious. While the artificial island concept has been executed in other places around the world, the scale and developments in Abu Dhabi are unprecedented. It requires immense coordination among industry stakeholders, optimising the most innovative technological advancements, as well as extremely efficient logistical applications.

Increasing Cost-Efficiency

Indeed, investment in offshore oil production is driving increased demand for oilfield services in Abu Dhabi. ADNOC’s support services firm ESNAAD is expecting delivery of a new series of platform supply vessels (PSVs) and anchor-handling tug supply vessels within the next 24 months, according to Dagher Al Marar, CEO of ESNAAD. Al Marar told OBG that offshore expansion has led to an increased need for transport services, both of equipment and people, and that further logistical support will be required to continue the development of offshore production at both islands and rigs.

“Lower oil prices have resulted in the operating companies and service providers making decisions on how to reduce costs,” Al Marar told OBG. “Optimisation and collaboration to reduce ongoing contracts is one way in which to do [this].”

However, despite the need to cut costs in some areas, other critical operations, as well as future requirements, will still need to be invested in ahead of time. The 2015 expansion of ESNAAD’s fleet includes the delivery of the first of 10 new PSVs. The contract for the vessels was tendered in 2013 to Dutch firm Shipyard de Hoop, which will deliver the rest of the PSVs in sequence until 2017. The new vessels, which have been labelled the ESNAAD series, mark a new page in PSV design, as they both maximise efficiency and optimise cost while minimising environmental impact. Intended for offshore supply, the PSVs also provided an array of offshore support functions such as stand-by and firefighting. In addition, in July 2015 ESNAAD ordered nine anchor-handling tug supply vessels for delivery in the following 24 months. The basic design of the vessels will comply with ADNOC’s specific requirements, namely the ability to operate under the complex conditions of shallow water, high salinity, high temperatures and high humidity in the Gulf.

The vessels will help ESNAAD in meeting the growing demand for offshore production and services. At the Abu Dhabi International Petroleum Exhibition and Conference in June 2015, Al Marar said, “Offshore production will represent around 50% of oil production in Abu Dhabi, and therefore ESNAAD’s offshore services primary role is to accommodate the logistical and technical requirement of this vital sector within the emirate of Abu Dhabi. Tapping into offshore oil reserves has always had its specialty and challenges, and advances in technology have been helping the industry overcome such challenges.”

With advanced technology comes the need to invest in the requisite training facilities to create a highly skilled workforce to implement these initiatives. ADMA-OPCO’s expansion into new sites such as SARB has not only provided the company with the opportunity to invest in the latest digital oilfield technology, but also the training facilities to match. As part of the SARB development, ADMA-OPCO took the initiative to duplicate the main process facilities using synthetic oil and nitrogen. This is only the second occasion in the world that such a training facility has been created, and it was given as a gift to the ADNOC Technical Institute.

Raising The Bar

In line with the investment being made in research and development, the industry is taking advantage of creative technological advances. The offshore segment, along with the sector as a whole, is sure to benefit as well. Hussein Fouad El Ghazzawy, general manager and vice-president of Schlumberger UAE, told OBG, “New technologies, such as GeoSphere, mean the precision of landing wells in the reservoir has increased dramatically as operators can now see around the well bore for up to 100 feet, which means it is possible to do away with pilot holes altogether.”

The oil industry is also looking to build up capacity in operational skills, as well as research and development. As the largest drilling contractor in the Middle East, NDC is well placed to provide clients both in the emirate and region with drilling, work-over and well-maintenance services. The firm operates a fleet of land, offshore and island rigs, as well as a multi-purpose service barge. In June 2014 Dubai-based Gulf News reported that the NDC launched its Drilling Training Centre in the Bu Hasa area of Al Gharbia. The centre contains six halls, four labs and facilities to accommodate more than 300 trainees, which has been effective in equipping NDC’s recruits with a wide spectrum of technical knowledge and hands-on expertise that is needed in the drilling industry in general. Al Suwaidi told OBG, “Technological requirement for rigs are becoming much more advanced. With its state-of-the-art facilities, talented instructors and expert training partners, the NDC Drilling Training Centre offers customised and tailor-made training programmes and courses so that rig staff can operate the technologically advanced rigs efficiently and competently. In conjunction with the technological advances, it is also increasingly important to be very open to change and adaptation while still maintaining a long-term strategy. Clients’ projects are always changing in terms of scale and scope, and as a consequence international partners are an important additional resource in order to leverage their assets when gaps exist.”

The opportunity is not being missed to improve skills within the existing national workforce of Abu Dhabi. SARB specifically is ADNOC’s own responsibility. While ADMA-OPCO is not closing the door to other shareholders, it has said it sees this venture as an opportunity that will likely not be repeated in 30 to 40 years. Nationals are attached to every package, as well as other OPCOs such as ZADCO and Abu Dhabi Gas Industries. Abu Dhabi’s oil industry, it seems, is setting sail for an offshore future, with nationals playing a leading role in the industry.

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The Report: Abu Dhabi 2016

Energy chapter from The Report: Abu Dhabi 2016

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