Oil and gas exploration in Abu Dhabi entered a new phase since 2018 as energy companies from North America, Europe and Asia competed in two rounds of bidding for licences to drill and develop onshore and offshore concessions. The use of competitive bidding rounds constitutes a new strategy for Abu Dhabi National Oil Company (ADNOC), as well as a new opportunity for firms participating in the tendering process. Under the new block licensing model, winning bidders are offered an exploration block for a participation fee and exploration investment with ADNOC during an agreed exploration phase.
If commercially viable discoveries are made by the company, then ADNOC has the option to retain a 60% stake in each of the blocks for an agreed period of time. In a written statement announcing the first blocks awarded in January 2019, Sultan Ahmed Al Jaber, group CEO of ADNOC, and recently appointed UAE minister of industry and advanced technology, said that the strategy represents “a major advancement in how Abu Dhabi maximises value from its hydrocarbons resources through commercially competitive bidding to secure the right partners for the right opportunities, and accelerate exploration and development of new commercial prospects”.
The first competitive bidding round was launched in April 2018, with the winners announced in the first quarter of 2019. Offshore Blocks 1 and 2 were awarded to a consortium led by the Italy-headquartered energy multinational Eni and PTT Exploration and Production (PTTEP), the exploration and production arm of Thailand’s national oil company, PTT Group. Another three onshore blocks were awarded in the same quarter. In February 2019 the onshore Block 3 was awarded to US-based Occidental Petroleum. This was followed in March 2019 by the awarding of onshore Blocks 1 and 4, which went to a consortium of Indian energy companies – namely Bharat Petroleum and the Indian Oil Corporation – and Japan’s INPEX, respectively. Meanwhile, onshore Block 2, which lies on the UAE’s border with Saudi Arabia, was originally intended to be part of the first round of bidding but was instead held over for the second round launched in May 2019, the winners of which are expected to be announced in 2020. The six blocks originally included in the first round of bidding have a combined area of approximately 20,000 sq km.
Offshore 1 & 2
The two offshore blocks available in the first round were awarded to a consortium of Eni, with a 70% stake, and PTTEP, which owns the remaining 30%. Two companies plan to invest Dh844m ($229.7m) to explore the blocks, which have a combined area of 8000 sq km. In a statement issued when the blocks were awarded in January 2019, Eni said that the consortium would make a financial contribution to ADNOC’s large-scale seismic survey announced in November 2018, which has been described as the world’s largest continuous onshore and offshore 3D survey of subsurface formations. In the same month Eni signed an agreement with ADNOC to collaborate on research and development on carbon capture, utilisation and storage technology. The new offshore exploration blocks complement Eni’s portfolio of interests in Abu Dhabi. The company has a 10% stake in the Umm Shaif and Nasr offshore concession, a 25% stake in Lower Zakum and a 25% stake in the Ghasha concession, as well as a 20% stake in ADNOC Refining.
PTTEP’s involvement in Blocks 1 and 2 marks the company’s first entry into the Abu Dhabi market. However, its parent company PTT Group is one of ADNOC’s largest crude oil customers, purchasing approximately 100,000 barrels per day of various crude grades from the emirate.
The award of onshore Block 1 has helped to strengthen economic ties between Abu Dhabi and India, the world’s third-largest consumer of oil. The Bharat Petroleum and Indian Oil Corporation consortium signed a 35-year agreement for the licence. The two companies, which already have operations in Abu Dhabi, will hold a 100% stake in the exploration phase, investing roughly Dh626m ($170.4m), including a participation fee, to measure the potential of the block. The consortium has also agreed to use and help fund ADNOC’s seismic survey. Onshore Block 1 includes both conventional and unconventional deposits of oil and gas. The unconventional gas has been found in the Ruwais Diyab area, where French energy major Total has been conducting exploration and appraisal.
The awarding of onshore Block 3 enables ADNOC to work alongside long-term partner Occidental Petroleum. Mirroring the terms of the other licences, Occidental Petroleum will have sole control of the exploration phase of the 35-year contract, although ADNOC has the option to retain 60% of any commercially viable production.
Occidental Petroleum paid Dh893m ($243.1m) for its stake, including a participation fee. The National newspaper reported in February 2019 that the block – which covers some 6070 sq km – could contain up to 3.5bn barrels of oil and 1trn standard cu feet (scf) of gas. Onshore Block 3 is located adjacent to the ultra-sour Shah gas field owned by Al Hosn Gas, a joint venture between ADNOC and Occidental Petroleum operating under a 30-year agreement that has been in place since 2011.
Onshore Block 4 was awarded to Japan Oil Development Company, a subsidiary of INPEX, which has a long history of working in Abu Dhabi. This development served to strengthen ADNOC’s relationship with Japan, one of its most important trading partners and the recipient of around 25% of the UAE’s crude oil exports. The block covers an area of 6116 sq km and is located adjacent to Abu Dhabi City. It includes existing oil production facilities as well as discovered but undeveloped deposits. INPEX has agreed to invest Dh646m ($175.8m) in the exploration phase of the licence.
The second round of bidding was launched in May 2019 and closed in December 2019. Five blocks – three onshore and two offshore – were available, with the winners expected to be announced in 2020. According to ADNOC, based on existing survey data, the five blocks could hold billions of barrels of oil and trillions of scf of natural gas. Within the combined area of the five blocks, there are 290 targeted reservoirs from 92 prospects and leads. The largest of the blocks is offshore Block 3, which covers roughly 11,000 sq km. The licence for this block will be used to explore for gas in deep geological formations and oil outside existing concession zones in the same area.
The new tactic of competitive tendering for exploration licences enables Abu Dhabi to strengthen its existing relationships with importers of its crude oil, while also leveraging the expertise of international energy firms in finding and recovering commercially viable deposits of oil and gas. The system also corresponds with ADNOC’s 2030 growth strategy, which aims to maximise the value of the emirate’s resources in order to meet growing global energy demand, while also fuelling the continued growth and diversification of the domestic economy. “Joint ventures with international firms are an important way of bringing knowledge and expertise to the local economy,” Helge Christian Beuthan, senior vice-president and managing director for the UAE at the Germany-based oil and gas producer Wintershall Dea, a subsidiary of chemical company BASF, told OBG. “ADNOC’s willingness to embrace international partnerships is a reassuring sign. Regardless of their country of origin, international firms are welcomed in Abu Dhabi for the added value they can bring to the sector.”