Abu Dhabi has awarded a $3.7bn contract to a consortium of Petrofac Emirates and South Korea’s Daewoo Shipbuilding & Marine Engineering on the development of the offshore Upper Zakum field.

The consortium signed a letter of intent with project operator Zakum Development Company (Zadco) on 4 April, with a formal agreement expected to be completed in May.

The engineering, procurement and construction (EPC) deal is set to be the biggest in the Middle East upstream sector this year.

The Petrofac-DSME team submitted the lowest commercial bid for the contract, known as EPC 2, to build an oil processing plant and associated facilities, as MEED reported in January.

Petrofac Emirates, the UK-based company’s joint venture with Abu Dhabi’s Mubadala Petroleum, said it share of the contract is valued at $2.9bn.

The second-lowest bid of $3.85bn was submitted by a consortium of South Korea’s Hyundai Heavy Industries (HHI) and US-based KBR, with other bids led by Japan’s JGC Corporation, South Korean group Samsung Engineering and France-based Technip.

Contractors originally submitted commercial proposals for the contract in September 2012, with HHI-KBR emerging as the lowest bidder, before Zadco asked five consortiums to resubmit bids.

It is unclear why Zadco did not favour a deal after the first round of bidding.

The contract is part of Zadco’s plans to increase the Upper Zakum field’s capacity to 750,000 barrels a day (b/d) from 500,000 b/d. Zadco has built four artificial islands to support drilling rigs as an alternative to installing new wellhead platforms and flowlines.

Zadco awarded the $800m EPC 1 first Upper Zakum package – covering the offshore section of the development – to a consortium of Technip and UAE-based National Petroleum Construction Company (NPCC) in July 2012.

The two main early production facilities contracts cover phase one of the development of Upper Zakum, which is planned to add 100,000 tonnes a year (t/y) to the field’s production capacity by the end of 2015. Packages for the phase two permanent production facilities are expected to be tendered at a later date.

Technip also carried out the front-end engineering and design (feed) phase of all early production facilities. The project management consultancy (PMC) is handled by UK-based Amec.

The Upper Zakum field, which Zadco believes is the world’s fourth largest, is located 84 kilometres off the coast of Abu Dhabi.

Zadco is a joint venture of state-owned Abu Dhabi National Oil Company (Adnoc), US-based oil major ExxonMobil and Japan Oil Development Company (Jodco).