Abu Dhabi Diversifies Partners, Heads East

By Abdelghani Henni 4 Jun 2014

For decades, the oil and gas sector in Abu Dhabi was dominated by supermajors, but with the expiration in January of the region’s oldest concession—a constellation of onshore fields operated by a joint venture with Royal Dutch Shell, Total, BP, ExxonMobil and Partex—Abu Dhabi has gradually diversified its partners, bringing in Austria’s OMV, Germany’s Wintershall, Korea National Oil Company, and Japanese and Chinese companies. 

In 2012, South Korea’s National Oil Corporation and GS Energy won rights to develop three blocks covering 10% of Abu Dhabi’s landmass, while in June 2013, OMV, the Austrian oil producer part-owned by Abu Dhabi, won rights to explore for oil and gas east of the capital. On 30 April, Abu Dhabi awarded oil exploration rights to China National Petroleum Company (CNPC), giving the world’s top oil importer access to one of the world’s most stable oil producing countries. The concession follows a strategic cooperation agreement signed by the Chinese state-owned giant and Abu Dhabi National Oil Company (ADNOC) in 2012. For Abu Dhabi, the new deal with CNPC will bring access to an extensive demand base as well as strategic benefits in geopolitics. 

Since 2012, CNPC has been appraising the technical potential of five onshore and two offshore undeveloped blocks covering much of the area west of Abu Dhabi’s legacy fields. The joint venture will drill for crude and build the processing and transport infrastructure needed to export it, WAM reported, without giving details on the fields covered by the new concession. 

Abu Dhabi holds most of the reserves in the UAE, which pumped 2.8 million barrels a day in March, or 9.3% of oil supplied by OPEC, according to data from the International Energy Agency. 

The UAE concession system allows oil companies to acquire equity in hydrocarbon resources, with state-run Abu Dhabi National Oil Company (ADNOC) holding a 60% stake in each joint venture and foreign partners usually sharing the other 40%. Under the new joint venture, the Al Yasat Company for Petroleum Operations, the Chinese energy giant will be the sole foreign partner with 40%, and ADNOC will hold the 60% controlling stake. Local sources said that it would be “extremely unlikely” that Al Yasat would be given fields that are already producing oil but instead would be awarded riskier, less developed assets. 

CNPC had originally hoped to launch drilling in Abu Dhabi in early 2013, but progress on energy cooperation between Abu Dhabi and China stalled as delays arose with the strategic Fujairah pipeline built by a CNPC subsidiary. The pipeline, which allows all of the emirate’s current onshore production to bypass the Strait of Hormuz bottleneck by connecting to Fujairah, was plagued by technical problems stemming from late payments.

It’s worth mentioning that the expired partnership between the international companies and ADNOC accounted for about 1.5 million barrels a day of Murban crude, the UAE’s main blend. ADNOC took full control of the unit operating the fields while completing a bidding process to award new concessions. The expiration of historic onshore concession has already eaten into profits at its legacy partners, highlighting the importance for the majors of regaining access to the emirate’s reserves. Production at BP, Total, and Royal Dutch Shell fell by as much as 8.5% in the first quarter after the January expiration of the WWII-era contract. UAE Energy Minister Suhail Mohammed Al-Mazrouei told reporters in April that the largest US and European oil companies have a “good chance” of winning renewals for Abu Dhabi crude-oil concessions. “Unless they aren’t aggressive in giving us value, I think they will have a very good chance,” the minister told reporters at an oil conference in Paris. “They are the best in understanding the field because they have been there for 75 years, and we hope they will be among the winners.”

Abdelghani Henni is a Middle East Staff Writer for the Journal of Petroleum Technology.