On Thursday last week Occidental Petroleum (Oxy) confirmed it had netted one of the largest joint venture opportunities available in the Middle East upstream industry when it publically formalised its 40% stake in the Shah super-sour gas development project with ADNOC subsidiary, Abu Dhabi Gas Development Company.
Of the front runners, widely considered to be Shell, Total, and ExxonMobil, Oxy lays claim to having the largest portion of its business invested in the Middle East. More than a quarter of Oxy’s worldwide oil and gas production comes from the MENA region, where the company has been active for more than forty years. Production at Oxy’s operations in Qatar, Oman, Yemen, Libya and Bahrain stood at 254 000 barrels of oil equivalent per day in 2009.
Oxy is the second-largest oil producer in both Oman and offshore Qatar, and a partner of Abu Dhabi’s Mubadala in the giant Dolphin Project, the premier trans-border natural gas project in the Middle East. One of region’s largest energy initiatives, Dolphin supplies natural gas – produced from wells offshore Qatar, processed at Ras Laffan and transported through a 230-mile-long subsea export pipeline – to markets in the United Arab Emirates and Oman.
In December 2010 Oxy won a contract to drill for deep gas onshore Bahrain. Bahrain’s Oil and Gas Affairs Minister and National Oil and Gas Authority (Noga) chairman Dr. Abdullah Mirza, said that Oxy would carry out drilling for gas at depths of up to 20,000 feet and that it would not charge Bahrain for the operations.
“All drilling costs would be borne by the company for the first seven years by when it would be known whether they have found results,” he told the paper.
“If gas is located, there will be a negotiation process but if there is no gas, it would not be a loss to Bahrain,” he said adding that cost of operations to Oxy over the seven year period could cost between US$100-200 million.
Following on from that successful relationship, Oxy tied up with Mubadala again this year to redevelop the long-producing Bahrain field, site of the first oilfield discovery in an Arab Gulf state in 1932. Field operations began on December 1, 2009.
The only player to have come out publically and say it would not be interested, specifically on the terms originally offered to and accepted by Conoco, was in fact Oxy.
“We have consistently said over the last two years that the terms of the contract that was negotiated between ConocoPhillips and Abu Dhabi, the terms economically, are not attractive to us; however, if the Government wishes to approach us with different terms, we’ll look at them,” said Dr. Ray Irani, Oxy’s chairman and CEO in a Q1 conference call last year.
The company was clearly back at the table for the Shah project, but remained tight-lipped about any discussions since the beginning of this year.
Occidental Petroleum Corporation confirmed on Thursday last week it had been selected by the Government of Abu Dhabi, through ADNOC to participate in the development of Abu Dhabi’s Shah gas field, one of the largest gas fields in the Middle East.
Under the terms of the new agreement in principle, Oxy will hold a 40-percent participating interest in a 30-year contract. The Abu Dhabi National Oil Company (ADNOC) holds the remaining 60-percent interest.
“We are honoured that the Abu Dhabi government has chosen Oxy to participate in this major gas project,” said Dr. Ray R. Irani, Occidental’s Chairman and Chief Executive Officer. “Production at the Shah Field will be an important future resource to fill the rapidly expanding regional demand for gas.”
“This is another important step in the implementation of our growth strategy and in our relationship with the Emirate of Abu Dhabi. The development of this field under the agreement provides an exciting opportunity to create value for the people of Abu Dhabi and for our stockholders,” said Dr. Irani.
The Shah gas project involves development of high-sulfur content reservoirs within the Shah field, located onshore approximately 180 km (110 miles) southwest of the city of Abu Dhabi. The project will involve development of several gas gathering systems, construction of new gas and liquid pipelines and processing trains to process 1 billion cubic feet of high-sulfur content gas. This is anticipated to produce approximately 500 million cubic feet per day of network gas and a significant amount of condensate and natural gas liquids.
ADNOC is already in the process of developing the field with the majority of project engineering procurement and construction contracts already awarded. Production from the field is scheduled to begin in 2014.
Capital expenditures are estimated to be in the range of $10 billion for the project with Oxy’s share proportional to its ownership.
Oxy is the fourth largest U.S. oil and gas company, based on equity market capitalisation. Oxy’s international assets account for approximately 45 percent of the company’s worldwide production and approximately 55 percent is produced from the United States.
Oxy In Iraq:
Eni, Occidental Petroleum Corporation and Korea Gas Corporation (KOGAS) announced in December 2010 that they have achieved and sustained a 10-percent increase in oil production at the Zubair field, near Basra in southern Iraq.
Production from the Zubair field has grown to more than 200,000 barrels of oil per day from the approximately 183,000 barrels of oil a day produced when the consortium started field operations in the first quarter of 2010.
The consortium, led by Eni (32.81%) with partners Oxy (23.44%), KOGAS (18.75%) and the Missan Oil Company (25%), signed a technical service contract in late January to redevelop the Zubair field with Iraq’s state-owned South Oil Company (SOC) and Missan Oil Company as State Partner.
With the successful 10-percent increase in initial production, the consortium’s contract cost recovery mechanism commences, with the group additionally earning $2 per barrel on the incremental oil production.
The consortium plans to increase production from the Zubair field to 1.2 million barrels of oil a day, representing an increase of about 1 million barrels of oil per day. Target production is expected to be reached progressively within the next six years and maintained for seven years thereafter.
“Oxy’s success in Iraq is a direct result of an outstanding partnership with the Iraqi government and our consortium partners in developing one of the world’s great oilfields,” said Dr. Ray R. Irani, Chairman and Chief Executive Officer of Occidental Petroleum. “We are proud of our initial results in Iraq as well as our continued success in numerous other projects across the Middle East.”
The redevelopment of the Zubair field, one of the largest discovered fields in the world, will support Iraq in becoming a major player in global oil markets. It also will foster social and economic development at a regional and national level, by providing training and development opportunities for the thousands of Iraqi workers of Zubair and by promoting much-needed economic stimulus.
The Zubair Field Operating Division manages the rehabilitation and expansion project, which is staffed mainly by employees from South Oil Company with expert support from the consortium.
