United Arab Emirates: E&P Profile

Of course, the resource wealth and opportunity landscape within the UAE is not to be scoffed at, and the dominance of the energy sector cannot be overstated, though unlike some of its neighbours, the UAE has had impressive success in encouraging important non-oil sectors, thanks to decades of commercial, industrial and tourism development drives, which has seen it surpass all of its fellow Gulf economies in most spheres.

The UAE welcomed 2012 as the world’s eighth largest oil producer, churning out an average volume of 2,813,000 barrels per day, and came out fourth in the top global exporters league, exporting around 81% of its total production.

In a tricky year for Iran’s upstream sector, and faced with a dwindling number of markets it has legitimate access to in 2012, it would have been hugely likely the UAE would have claimed the third spot on the podium of top global exporters this year, were it not for Iraq’s rampant rise up the table.

Although it closed out 2011 down in ninth position, Iraq’s new export terminals and partnerships with IOCs, all of which are contractually bound to ramp up production, will likely see it leapfrog the UAE into the top three leaving the country in a solid fourth again this year.

Capital cluster
The upstream sector in the other six Emirates is dwarfed by the scale, ambition, and future production plans in Abu Dhabi, the largest Emirate by size, and home to around 95% of the nation’s oil, and 92% of its gas.

Japan remains the country’s main oil customer, accounting for almost 40% of all shipments, though significant sales to South Korea and Thailand, as well as spot cargo sales to many others spread the revenue sources throughout Asia.

In terms of energy for export, the country’s principal investments and capacity increases will come from oil, as skyrocketing domestic energy use means that the bulk of gas developments are being funded to meet rising in-country demand.

The country has had to become a net gas importer of late, bringing in LNG and gas through the cross-border Dolphin Energy pipeline. Its need for gas imports will likely decline when the Shah gas project, being overseen by Al Hosn Gas Development Company (with Oxy as lead IOC partner) comes onstream in 2014. The giant Bab field in Abu Dhabi, also sour and technically challenging, is expected to be green-lit in the coming few years.

Oil E&P review
Much oil production in the UAE is from the Zakum oil system, a collection of fields which together make up the third largest oil zone in the world.

The Upper Zakum field is run by ZADCO, 60% owned by ADNOC with the Japanese Oil Development Co. and ExxonMobil holding the remaining stakes.

The largest onshore oil fields are operated by ADCO. ADCO operates the Bu Hasa oil field, which produces as much as 600,000 barrels per day, as well as the Murban Bab, Sahil, Asab, and Shah oil fields, contributing another 705,000 bpd of light, sweet crude.

The Qusahwira and Bab fields are under development by ADCO, adding 250,000 bpd by 2014. ADCO will also redevelop Bida al-Qemzan, adding 20,000 bpd to its current production of 225,000 bpd by Q3 2012.

These projects are components of a plan to boost ADCO’s aggregate production to 1.8 million bpd from its current 1.4 million bpd by 2017.

ADMA-OPCO operates the main offshore assets in Abu Dhabi, which have been in redevelopment to
maximise output. The Umm Shaif and Lower Zakum offshore oil fields have a capacity of 520,000 bpd combined, although after an expansion at each they will have a production capacity of 425,000 bpd and 300,000 bpd, respectively.

Two new oil fields have also come into development: Nasr and Umm al-Lulu. These will add a further 170,000 bpd capacity by 2018, and are providing the local EPC and fabrication markets with a slew of new work.

Dubai and Sharjah produce relatively minor amounts of crude oil.

Despite causing something of a global stir with an announcement in 2010 that the Dubai had struck upon a major discovery, no further details have since come to light.

Dubai is widely thought to produce around 100,000 barrels per day from four separate fields, the older and more abundant Fateh and Southwest Fateh oil fields, with extra production from the Falah and Rashid fields.

Sharjah’s only significant oil field is the Mubarak field, which produces 60,000 bpd.
Sharjah-based Crescent Petroleum operated this field for 35 years before handing control to the government back in December 2009.

Article continues on next page …

Abu Dhabi Contracts Renewals
In addition to a mammoth revamp of its offshore facilities, Abu Dhabi’s oil sector will see significant changes when ADCO’s onshore oil field concessions are put out to tender next year.

ADNOC is currently drawing up the bidding process, having confirmed that competitive tenders will be taken for the ADCO fields.

Top of ADCO’s list of concerns will be ensuring foreign oil companies make the maximum commitment to investing money and know-how into the fields.

Shell, BP, ExxonMobil and Total all work together under the current ADCO contract, holding 9.5% stakes, across the Bab, SAS (Sahil, Asab and Shah), NEB (Al Dabbi’ya, Rumaitha and Shanayel), Bu Hasa, Huwaila, Bida Al-Qemzan fields.

The oil companies receive $1 per barrel produced 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.

In addition, the companies charge Abu Dhabi for the use of their expertise, the provision of reports and ancillary services.

Analysts say that the current structure disincentivises these companies sharing proprietary oil field technology, and ADNOC may break up the concession into several parts, with each to be led by a supermajor.

The remuneration structure of the contract may also be subject to change, with oil companies hoping for a greater reward in exchange for making the huge investments required to sustain production at some of the region’s oldest fields.

“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,” Morten Mauritzen, the president of ExxonMobil’s UAE subsidiary, told the National.

“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.”

With the prospect of CO2 injection being rolled out at the Bab field by 2016 under a milestone project headed by Masdar, and other advanced tertiary recovery techniques likely to be required in the next contract period, the ability to demonstrate technical expertise on a large scale will be vital.

Second-tier interests could include awards for Korean firms in keeping with deepening ties between the UAE and South Korea.

Article continues on next page …

Gas Projects
The Shah project in the UAE is critical for infrastructure development in Abu Dhabi’s Economic Vision 2030 plan and when operational will process well fluids containing 23% H2S and 10% CO2 thus making the project a new benchmark for the world’s gas processing and treating industry. Alongside this project are the future expectations of developing the sour Bab and Hail fields.

Saif Ahmed Al Ghafli, chief executive officer of AlHosn Gas, the ADNOC division charged with bringing the massive Shah Field onstream, opened proceedings at this year’s SOGAT Conference in Abu Dhabi with a keynote address which emphasized the important role local projects are having in expanding the global sour gas field of knowledge.

“Sour gas fields worldwide account for some 40% of natural gas reserves and now the development and production of these reserves are under very serious consideration,” he said.

“Internationally there remain many issues to be overcome and understood. Particularly in terms of the design, use of appropriate materials and robust and carefully planned approach to HSE and cost management,” added the CEO.

Al Ghafli highlighted eight notable regional projects which are helping pave the way for greater sour gas development.

“Current activities include the offshore phase of the non-associated gas field at Karan in Saudi Arabia, PDO in Oman is working with Shell on the Harweel project and is currently developing a onshore sour gas field project some 300 kilometres from Muscat. In Kuwait, Shell is also assisting KOC with the development of it Jurassic sour gas field,” he said.

The Al Hosn chief said that each of these fields are located in difficult geological formations, and represent complex gas compositions. He also cited the developments at Iran’s South Pars, and the enormous gas sweetening operations in Qatar.

“Here, in the UAE gas demand is on this rise. The Shah Field development will deliver gas at a rate of 200BCF per year. The upstream sour feed gas, along with the volume of processed gas and produced sulfur will present a new global benchmark for the gas processing and sulfur production industry,” he added.

The Al Hosn project at Shah will involve several gas gathering stations, and the construction of processing trains to handle one billion cubic feet per day to produce 500 million cubic feet per day of network gas, 4,400 tonnes per day of natural gas liquids, 35,000 barrels per day of condensates and up to 10,000 tonnes per day of sulphur granulation, he outlined.

Al Hosn has awarded contracts worth over $6 billion to date to provide key services for its Shah Sour Gas field development project. Korea’s Samsung Engineering and Italy’s Saipem, Europe’s biggest provider of oilfield services by market value, won an aggregate of about $5 billion in contracts for gas processing, sulphur recovery and other oil and gas services back in 2010.

On July 24 the first rental rig from H&P Company through the National Drilling Company arrived onsite at the Shah field. The rig, H&P 484, officially spudded its first well on the MP-4 pad on July 25.

Saipem won three contracts worth $3.5 billion while Samsung said it secured a separate contract for $1.5 billion.

Saipem’s contracts are for $1.9 billion for gas processing, $1.45 billion for sulphur recovery and $196 million for product pipelines. Samsung will build utility and offsite facilities needed for the project.

A group comprising Tecnicas Reunidas and Punj Lloyd Group also won a joint contract worth $463 million for gas gathering in the project. Fluor Corp. and CH2M Hill Companies unit Veco Corp. have been awarded the project management contracts for the Shah project.

The UAE’s AL Jaber Group was awarded the early works package, estimated at $300 million. Al Jaber is building the infrastructure, including roads as well as units such as gas treatment plants.

Article continues on next page …

Milan based engineering firm Siirtec Nigi has been awarded two contracts by Saipem to design and supply eight packages, each including burner, reaction furnace, steam drum, waste heat boiler, and 20 sulphur condensers.

This equipment represents the core of the sulphur Claus unit. It will be installed at the Shah Gas Field in the UAE. The field units will process around 1 billion standard cubic feet per day (SCFD) of sour gas to produce around 540 million SCFD of gas suitable for consumption.

The total amount of acid gas fed to the equipment contains nominally 10,000 tonnes per day of sulphur. There are four identical trains, each designed to process 25% of the total capacity. Each train consists of two parallel packages as described above.

ADNOC has said it expected to see first production from the field by late 2013 or early 2014. The project is the first the United Arab Emirates has undertaken to exploit a sour gas field.
Metito has been appointed to provide demineralized water services to the Shah project.

Its $2.18 million contract will see Metito design, engineer and supply a demineralization plant and water polisher plant in order to provide high purity water which will feed the boiler of the development’s petrochemical process plant. The polisher plant will use a special grade of resin which can operate at high temperature and produce the required treated water quality.

“The demineralization system is vital to ensure the longevity and efficiency of the processing plant and Metito is dedicated to using and innovating specialized solutions to offer maximum effectiveness to all our clients,” said Bassem Halabi, group business development director – Metito Overseas.

Target Engineering Construction Co, a subsidiary of Arabtec Holding, the UAE’s largest construction company by market value, was awarded the contract for the civil and building works for the project.

The contract was awarded by Saipem at a contract value of $56 million. The period of construction is expected to be 33 months, and began in March last year.

The scope of works include the construction of 12 substations buildings and instrument
equipment shelters with a total area of around 20,000 square metres. The contract includes the EPC of all MEP works for these buildings.

Newcomers Welcome
The Abu Dhabi National Oil Company (ADNOC), OMV and Wintershall Middle East signed a Technical Evaluation Agreement to appraise the sour gas and condensate field in Shuwaihat, located some 25 km to the West of Ruwais in the Western Region of Abu Dhabi in late June this year.

Operator Wintershall will conduct the appraisal phase with OMV as an equal partner by drilling up to three appraisal wells and acquiring 3D-seismic over the field.

In the case of a successful appraisal campaign, ADNOC will participate in the development and production phase of the Shuwaihat field.

OMV CEO Gerhard Roiss said: “The signing of our first upstream joint venture in Abu Dhabi underlines our exploration and production strategy in the Middle East and strengthens relations with the United Arab Emirates and ADNOC.

The close partnership with the International Petroleum Investment Company (IPIC) is already a central element of our success, as illustrated by the shareholder relationship we have had for many years and our partnership in the petrochemicals industry.”

To optimize the appraisal and future development of the Shuwaihat sour gas and condensate field, Wintershall and OMV will employ advanced technologies of the highest standards.
Wintershall and OMV have a track record in Germany and Austria of developing and producing from sour oil and gas fields (H2S and CO2) and oil fields.

A successful appraisal campaign will result in Shuwaihat being an important development of a gas and condensate field in the Western region of Abu Dhabi, contributing to cover the increasing hydrocarbon demand of the UAE and the country’s long-term export capability.

LNG in Fujairah
Abu Dhabi investment companies Mubadala and International Petroleum Investment Company (IPIC) committed in march of this year to commission a strategic floating LNG import and re-gasification unit facility in Fujairah which will avoid the Strait of Hormuz.

The UAE’s energy security has been at issue as international pressure against the Iranian regime over inspections of its nuclear program has been met with defiant rhetoric and shows of strength by the Revolutionary Guard in the Strait.

The Emirates have required more gas than they have produced since 2007.

Mubadala and IPIC – branded under the joint venture as Emirates LNG – have not yet given details of contracting for the design or construction of the terminal or attendant pipeline, though it is thought the initial feasibility study for the terminal has been completed.
The unit will be constructed in two phases, reaching a final import capacity of 1.2 billion standard cubic feet of un-liquified gas per day.

Article continues on next page …

ADMA-OPCO reduces gas flaring to zero
Gas flaring at Zakum oilfields has been reduced to zero, Abu Dhabi Marine Operating Company (ADMA OPCO), has revealed.

Mahboob Mian , Environment Services Section Leader , ADMA – OPCO, said that the achievement is part of the company’s strategy to reduce gas flaring in commitment to conserve the
environment and cut carbon di-oxide emissions.

With a focus on zero flaring, featured a session on ADMA-OPCO with Mahboob Mian, Env Section Leader discussing the group’s multi-million dollar Gas Processing Facility (GPF) project in Zakum Fields and how it became the first project within ADMA-OPCO to achieve zero flaring.

With 0.4 million standard cubic feet of gas recovered and reused each day through the facilities Vapour recovery system, this sustainable project leads the way in increasing energy saving and more importantly increasing environmental protection.

South Korean ties
In March, the UAE and South Korea deepened their strategic ties when Korean companies took the historic step in taking a 40% stake in new field concessions in Abu Dhabi covering 10% of the emirate’s landmass.

The Korean National Oil Company (KNOC) has taken a 34% stake in three exploration blocks, with the country’s oil firm GS Energy taking a further 6%. In return, South Korea is obligated to stump up $2 billion of the $5 billion investment required to develop the field.
Abu Dhabi, via national oil company ADNOC, retains a 60% stake and will put up the rest of the required investment.

“We now have our own fields in the Middle East,” said Lee Myung-bak, South Korea’s president, remarking on South Korea’s first equity stake in the region’s oil. Abu Dhabi promised the deal to South Korea in the second half of 2011.

The 11,560 square kilometre concession up for development includes Tafula, Abu Dhabi’s largest undeveloped field, and prospects close to the Zakum field. South Korea has announced the fields hold recoverable resources of around 570 million barrels.

Field development is slated to begin almost immediately, with production – which could reach 43,000 bpd – planned in 2014. The contract marks a new high in political relations between the countries and caps a huge PR campaign by South Korea that its national oil services offering is ready to move beyond its core EPC offering in the region and be rewarded for its industrial ties with secure oil supplies.

The move further consolidates South Korea’s oil ties to the Gulf region, following a 20 year, 669,000 barrels per day oil supply deal with Saudi Aramco in February 2012, and a commitment to wean itself off Iranian crude by reaching out to other GCC countries.