Abu Dhabi renegotiating onshore concessions as old deals end

 

With significant investment and new or renewed international partnerships, production from Abu Dhabi’s onshore oil fields, which are operated by Abu Dhabi Company for Onshore Petroleum Operations (ADCO), the onshore firm of Abu Dhabi National Oil Company (ADNOC), is due to reach 1.8m barrels per day (bpd) in 2018. A further 1.7m is set to be produced offshore by the newly consolidated Abu Dhabi Marine Operating Company (ADMA-OPCO) and Zakum Development Company. ADCO signed a significant new agreement with BP at the end of 2016, which gave the international oil company (IOC) a 10% stake in ADCO. Early 2017 brought further clarity to Abu Dhabi’s onshore fields, with the remainder of ADCO’s 40% foreign shareholding allocated to two firms from China.

Share Deal

In a $2.2bn deal, which resulted in Abu Dhabi becoming one of the biggest shareholders in BP, the Supreme Petroleum Council (SPC) and ADNOC granted the IOC a 10% share in ADCO and its onshore oil concessions for 40 years. BP revealed it had agreed to issue new ordinary shares representing around 2% of its issued share capital to be held on behalf of the Abu Dhabi government. Bloomberg reported that Abu Dhabi’s stake in BP, which is expected to be held by Mubadala Investment Company, was valued at £4.47 per share, making the emirate one of the biggest stakeholders in the IOC. Another GCC country, Kuwait, owns 1.7% of BP’s shares. In announcing the concession, Sultan Al Jaber, UAE minister of state and CEO of ADNOC, said, “This is an attractive and strategic agreement for both parties that will deliver competitive returns and long-term growth opportunities.” For his part, Bob Dudley, CEO of BP, welcomed the agreement, saying, “BP will work closely with ADNOC to realise the full potential of these world-class resources, and I welcome Abu Dhabi as an important investor in BP.”

Concession Leader

ADNOC made BP the concession leader in the Bab asset as part of the arrangement, and BP estimates this will boost its share of Abu Dhabi’s oil output to 260,000 bpd in 2017, with 165,000 bpd (10% of ADCO’s production capacity) set to be its share from the new concession. Prior to the latest agreement, BP’s net share of oil and gas production in Abu Dhabi was equivalent to 95,000 bpd through its 14.67% stake in ADNOC’s offshore company ADMA-OPCO, and 10% interests in both the Abu Dhabi Gas Liquefaction Company (ADGAS) and National Gas Shipping Company (NGSCO). BP intends to second up to 50 workers to ADCO as part of the new arrangement, bringing technology and expertise that will help Abu Dhabi optimise oil recovery from the field. Sultan Al Jaber acknowledged the value of this input, saying, “This agreement marks a milestone in our efforts to forge new partnership models that bring technology, expertise, and financing aimed at maximising the value of our resources and supporting the transfer of knowledge.”

Foreign Partners

It took 20 years for prospectors to find onshore oil in commercial quantities in Abu Dhabi at Murban No. 3 well in the Bab field. Under an equity distribution agreed in the 1970s BP, ExxonMobil, Royal Dutch Shell and Total each had a 9.5% share in ADCO’s concessions in addition to 2% for Partex, with ADNOC retaining 60%. When those arrangements came to an end, leaving ADNOC as the sole owner of the company, the SPC decided to re-appraise its strategy for dealing with international partners. While it had traditionally looked to these Western oil companies for their expertise and experience, over 75% of its crude oil was being shipped to countries in the Far East, and the expiry of the concessions provided an opportunity to further cement relationships with that region.

Japan’s Inpex and South Korea’s GS Energy subsequently acquired shares in ADCO of 5% and 3%, respectively. The France-based company Total was the first of the original concession owners to re-join ADCO, accepting a 10% share in January 2015. Total said it had been appointed leader for the Bu Hasa and South East assets, and claimed its share represented two-thirds of ADCO production. “Oil and gas will play a crucial role in the world economy for at least the next 30 or 40 years,” Hatem Nuseibeh, president of Total UAE, told OBG. “Nowhere in the world can you extract these resources cheaper and more safely than the Gulf and in Abu Dhabi. Every IOC wants to be here,” he added.

Total reported that its equity production in Abu Dhabi in 2013 had been 260,000 barrels of oil equivalent per day, and like BP, the company had a portfolio of shareholdings across the emirate’s hydrocarbons sector, including a 13.3% share in ADMA-OPCO, 15% in GASCO, 5% in ADGAS and 5% in NGSCO.

In early 2017 the remaining 12% of shares available to IOCs was awarded to CEFC China Energy (4%) and China National Petroleum Corporation (8%), the latter of which had earlier won a $330m contract for developments at ADCO’s Mender field, part of Total’s concession, designed to generate output of 20,000 bpd.

Major Asset

The oil and gas ADCO produces comes from tens of thousands of sq km of desert and coastal areas divided into assets and subdivided into fields. The South East Asset, under the concession awarded to Total, contributes almost 33% of ADCO’s oil from five fields: Asab, Sahil, Shah, Qusahwira and Mender. Asab alone comprises 21% of ADCO’s production, and it serves as the main hub for the fields in the asset. The other asset under Total management is Bu Hasa. Covering 600 sq km, the asset contributes 34% of ADCO daily production from three fields: Bu Hasa, Huwaila and Bida Al Qemzan. The Bab asset, which BP is leading, is the largest onshore oil field in Abu Dhabi by area. Bab contributes around 25% of daily oil production and 75% of total ADCO associated and non-associated gas. The plan is for Bab to raise production by 7.5% by 2020.

Optimising Production

Given the share of ADNOC’s total production it commands, ADCO is a vital component of both production increases and cost optimisation efforts of the parent company. According to Saif Alghfeli, CEO of ADCO, this puts more responsibility on the company. “It plays out through a series of initiatives, finding various ways to increase production and manage your costs,” he told OBG.

Although ADCO aims to boost production from 1.6m bpd to 1.8m bpd by 2018, crude oil cuts agreed by the Organisation of the Petroleum Exporting Countries may also give the company some breathing space. Under the agreement, the UAE will reduce its output by 139,000 bpd. This may relieve certain operational pressures, as ADCO employees and workers seconded from companies like BP and Total adjust to working together on optimisation strategies. Alghfeli believes enhanced oil recovery (EOR) techniques developed by IOCs, alongside Abu Dhabi’s own pioneering carbon capture utilisation and storage company Al Reyadah, will prove vitally important to improving yields. “Al Reyadah is a great example of a successful commercial-scale venture, and there is room for more of this kind of activity in ADCO’s EOR portfolio,” Alghfeli told OBG.

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The Report: Abu Dhabi 2017

Energy chapter from The Report: Abu Dhabi 2017

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