While IOCs balk at low revenue per barrel from ADCO, their position in Abu Dhabi’s largest oil concession is for from guaranteed.
Abu Dhabi’s largest oil concession is set to expire after a 75 year term, and the international oil companies in on the current deal are positioning themselves ahead of negotiations for the contract’s renewal.
Abu Dhabi Company for Onshore Oil Operations (ADCO) has confirmed that a decision on who is to participate in the renewed contract will be made within the next few months, and has warned IOCs to expect changes from the current contracts.
ExxonMobil has signaled that they too will expect the new contract to change, in light of the tight margins on offer under the expiring contract. Exxon, together with fellow 9.5% stakeholders Total, Shell and BP, receives only around $1 per barrel in revenue from ADCO, a rate last reviewed in the 1980s, when oil prices and the operating costs of running oil fields were significantly lower than they are now.
“Whatever mechanisms they want to use for a fiscal system – whether it’s a certain number of dollars per barrel or a tax royalty regime – it needs to be within a framework that ensures there is a long-term predictability and alignment of all the stakeholders,” said Morten Mauritzen, the president of ExxonMobil’s UAE subsidiary, told the National. Mauritzen would like to see a structure absent in the current contract that incentivises improved performance at ADCO’s fields.
According to official data in the UAE’s 2010 yearbook released in September, Abu Dhabi – which owns 60% of ADCO – is pumping $5.3 billion into the improved exploitation of the Sahil, Asab, Bab and Shah fields, in a bid to increase production, from 1.4 million barrels per day (bpd) to 1.8 million bpd.
More widely, Abu Dhabi is hoping to spearhead the UAE’s increase in production capacity in a bid to win greater clout within OPEC as Saudi Arabia’s market marking prowess is believed to wane.
IOCs have been holding off on matching the government’s investment in ADCO assets until a new contract is confirmed, and are concerned about deploying new proprietary techniques in a project shared with their main rivals.
Executives in the main shareholders have suggested that for this reason the ADCO structure is no longer suited to maximizing production, and have suggested that the company gives each IOC exclusive control of a pro-rated amount of the company’s fields.
A key investment for ADCO has been in Enhanced Oil Recovery, through pumping pressurized carbon dioxide into ADCO’s mature reservoirs to increase yield. If the scheme is successful, this EOR technique may be rolled out across the emirate’s declining oil fields.
“One of the significant contributions which our major oil company partners make to ADCO is the input of technology,” Abdul Munim Al Kindy, ADCO’s general manager, told Oil & Gas Middle East.
“Between our stakeholder partners we can tap a wealth of experience and knowledge when it comes to CO2 injection. These partnerships have been quite effective in terms of shaping and contributing to our objectives and programs.”
BP’s chief executive Bob Dudley has been emphasising his firm’s relations with the United Arab Emirates.
“Abu Dhabi and the emirates have been important to BP for 70 years,” Dudley told a press conference in the Emirate this month. “And we’d want to continue to cooperate with people, technology.”
Compared to BP’s more adventurous businesses in Russia and Iraq, the Abu Dhabi deal is low margin but uncomplicated, and retaining it would usually be routine for BP.
However, with the company struggling to reignite growth in the wake of the Macondo disaster, keeping a foothold in Abu Dhabi will be a test for Dudley of whether he can maintain business as usual while pushing into frontier projects in emerging economies.
“It’s really up to Abu Dhabi to really determine who they think would be the best ones to work with that can bring the value adds, that can bring technology and help Abu Dhabi in the best way to maximise the development of their oil and gas resources,” Mauritzen said.
IOCs have been witnessing the rise of South Korean firms in the region, initially within the EPC market, but increasingly in field development and other areas where the country’s conglomerates have gained expertise.
Reflecting a wider trend in the upstream industry, Abu Dhabi this year promised South Korea the rights to develop one or more fields with total reserves of at least 1 billion barrels.
South Korea has worked hard to build relations with the UAE, working closely in its nuclear energy program and supplying resources for hospital and military training, opening doors for its companies operating in oil and gas.
Added to the uncertainty ahead of the new contract being negotiated are two new appointments to the UAE’s Supreme Petroleum Council (SPC), the government body that oversees oil and gas development.
Dr Jua’an Al Dhaher, formerly at Abu Dhabi Investment Authority, replaced Yousef Al Omeir as secretary general, and Abdulla Nasser Al Suwaidi was promoted from deputy chief executive to director general of ADNOC earlier this year.
Both are expected to take a more private-sector approach to Abu Dhabi’s oil portfolio, as the appointment signal a greater willingness to make the emirate’s share in ADCO independent of the direct control of the SPC.
