Abu Dhabi: Making concessions

The face of Abu Dhabi’s oil industry could be set for a major makeover, with long established international operators facing increased competition for existing concessions and new contracts due to be agreed in coming years. In particular, energy-hungry Asian states are queuing up to gain access to the emirate’s oil fields.

From 2014 onwards, most of the concessions to operate Abu Dhabi’s on and offshore oil fields will come up for renewal, and all the indications are that the relatively small pool of concessionaires will be expanded, while almost all existing operators have signalled their interest in continuing to operate in the emirate.

Among those keen to retain their stake in Abu Dhabi’s existing fields is Japan, which is also looking into the possibly of expanding its share by adding new reserves. Japan may have to increase its oil and gas usage, having committed to winding back its nuclear energy programme following the Fukushima disaster in March.

On October 9, Yukio Edano, Japan’s minister of energy, trade and industry, held talks with senior officials from Abu Dhabi regarding the renewal of the oil concessions held by Japanese firms in the emirate’s oil fields. One of these is the Japan Oil Development Company, which currently has a 12% stake in four fields in Abu Dhabi’s largest offshore concession, and a further 40% share in another field. All of these concessions are due to expire within the coming seven years.

According to Edano, Japan was very keen to see the term of the existing concessions extended and for new ones to be granted.

“We would like to continue these concessions,” he told reporters. “Oil from Abu Dhabi is important and will continue to be important going forward. We discussed concession extensions and new investments, including oilfields which have not been developed, as well as onshore blocks.”

It is not just Japan that is looking to extend existing concessions, with many of the major oil firms operating in the Gulf region also looking to renew their contracts. Companies currently present on Abu Dhabi’s fields include leading multinationals ExxonMobil, Total, Shell and BP.

The emirate is also planning to step up production in its existing fields, as well as bring new fields on line, part of a scheme to boost output from the current 2.7m barrels per day (bpd) to 3.5m bpd by 2016.

However, Japan and the international majors may face some competition for the new round of concessions. China is being seen as another potential suitor for Abu Dhabi, as it seeks to increase oil imports to fuel its burgeoning economy.

South Korea is also keen to break into the Abu Dhabi energy sector, and in March signed an agreement with the government to take a stake in a concession with proven reserves of 1bn barrels, while a separate deal will see the Korean National Oil Corporation become involved in the development of three other fields with estimated reserves of 200m barrels.

To maximise output and profits from the emirate’s existing oil fields, the sector is gearing up to employ unconventional extraction techniques. Abu Dhabi officials are well aware that many of the emirate’s older fields are nearing the end of their operational life. To extend their lifespan, new technology is being deployed, in particular enhanced oil recovery processes, such as pumping pressurised carbon dioxide into old reservoirs to force out more crude.

Companies looking to gain concessions for existing fields will need to be well versed in using advanced technology to maximise yields, while also being able to keep costs to a minimum. These factors will likely come to the fore when negotiations for the next generation of concessions begin.

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