Background

Abu Dhabi National Oil Company (Adnoc) is the eighth-largest oil producer in the world and the fourth-biggest Opec producer, making it by far the most important oil company in the UAE.

The firm was formed in 1971 to help increase Abu Dhabi’s share of oil production in the UAE, which had begun in 1962-63, when two international consortiums of oil companies, Abu Dhabi Marine Areas (Adma) and Abu Dhabi Petroleum Company (ADPC), started exporting oil from the offshore Umm Shaif and onshore Bu Hasa fields.

In 1965 and 1966, Abu Dhabi cemented agreements giving the government a 50 per cent share of the output from oil concessions. Shortly after Adnoc’s formation, it took a 25 per cent stake in both ADPC and Adma; this was later increased to 60 per cent when the firms were renamed Abu Dhabi Company for Onshore Operations (Adco) and Abu Dhabi Marine Operating Company (Adma-Opco).

In 1977, a new Adnoc subsidiary, Zakum Development Company (Zadco), was created to oversee the development of the offshore Zakum field, and a year later Abu Dhabi Gas Industries Company (Gasco) was formed to take charge of the country’s gas resources. Zadco is a joint venture with the US’ ExxonMobil and Japan Oil Development Company (Jadco), while Gasco is a joint venture of UK/Dutch Shell, France’s Total and Portugal’s Partex. In 1999, Adnoc created another subsidiary, Abu Dhabi Oil Refining Company (Takreer), to take over operation of the country’s oil refineries.

Adnoc is working on a series of major developments, both on and offshore, at a cost of more than $50bn

In recent years, Adnoc and its partners have embarked on a huge capital spending programme to boost oil output to 3.5 million barrels a day (b/d) by adding capacity from existing and new fields and using enhanced oil recovery (EOR) techniques to maintain output at its ageing workhorses. Adnoc has also been in negotiations over the Adco, Zadco and Adma-Opco concessions, which are due to run out in 2014 and 2018 respectively. These negotiations are likely to dominate headlines in the coming years, representing as they do a huge opportunity for international oil companies to partner on the development of assets proven to be able to produce millions of barrels of oil a day.

Role in the UAE’s economy

Although not technically the state-owned oil company of the UAE, Adnoc nevertheless plays a hugely important role in the federal economy, accounting for more than two thirds of the union’s overall economic output in 2011 and 2012.

It is also the most important driver of Abu Dhabi’s economy, both as the source of most government revenue and as the main provider of feedstocks for industrial development. It was Abu Dhabi’s oil wealth that allowed the emirate to bail out neighbouring Dubai in 2009, when its construction—led boom collapsed. Adnoc is also one of the emirate’s biggest employers, with 25,000 workers, the majority of whom are locals.

The petrochemicals and industrial projects it provides feedstocks for are among the emirate’s other major employers. Adnoc plans to add a further 7,500 workers, most of them Emirati graduates of the Adnoc Technical Institute and Petroleum Institute, both run by the state energy firm.

Role in the global economy

The UAE is home to the world’s seventh-largest oil reserves, some 94 per cent of which are located in Abu Dhabi and hence overseen by Adnoc and its subsidiaries.

Strategy and concessions

Adnoc hopes to increase its oil production capacity to 3.5 million b/d by 2017 or 2018, and to lift gas output capacity significantly in the same period. To do so, it is taking a multi-pronged approach, working on a series of major developments, both on and offshore, at a total cost of more than $50bn.

Adco hopes to boost its overall production from onshore fields to 1.8 million b/d from about 1.4 million b/d currently, while Adma-Opco hopes to add 300,000 b/d, bringing its production up to 1.4 million b/d.

Zadco is targeting a more modest increase of 250,000 b/d, which would bring output up to 750,000 b/d.

Gasco has also entered into two ambitious joint-venture agreements with the US’ Occidental Petroleum and Shell to develop up to 2 billion cubic feet a day of sour gas production capacity at the Shah and Bab fields at a total cost of about $20bn. These projects are part of Adnoc’s attempts to produce more gas, as Abu Dhabi struggles to meet domestic energy demands.

Some of the biggest decisions the company will have to take in the near future relate to the ownership of Adco, Adma-Opco and Zadco, which effectively act as concession agreements.

The UK’s BP, Shell, Total and Partex hold a combined 40 per cent stake in Adco, but have been given no reassurances that Adnoc will roll the deal over.

Adnoc is expected to receive bids from international oil companies during the fourth quarter of 2013 to form a new joint venture to run its onshore oil fields, replacing the existing Adco.

Adnoc’s existing joint venture partners are BP, ExxonMobil, Shell, Total and Partex and, with the exception of the latter Portuguese company, these international oil companies have been invited to bid for the new joint venture.

The other companies prequalified to bid are thought to be China National Petroleum Corporation, Italy’s Eni, Japan-based Inpex, Korea National Oil Corporation, US-based Occidental Petroleum, Russia’s Rosneft and Norwegian group Statoil.

In addition, Denmark’s Maersk, Hungary-based OMV and Germany’s Winterhall were speculated to be planning bids, while Indian media reported in early October that a bid was being prepared by a consortium of Indian public and private companies.

Adnoc has set a deadline of 11 January 2014 for the expiration of Adco, which gives leaders in the emirate less than three months to select new partners for the concession. However, Adnoc is prepared for this date to be missed.

Adco currently represents about 9.8 per cent of the collective global production of its four supermajor partners – from about 7 per cent of ExxonMobil to around 13 per cent in the case of Total.

The Adma-Opco and Zadco concessions are less pressing concerns, but the partners involved are likely to be keen to maintain their interests in the firms. The Gasco agreement will run on until 2028.

The company also wants to expand the emirate’s role as a petrochemicals producer, and is a shareholder in both Borouge, an Abu-Dhabi-headquartered plastics maker, and Chemaweyaat, a major new petrochemicals development that will be the first in the country based on naphtha feedstocks, to be provided by Takreer.

Takreer itself is working on a $10bn expansion of its Ruwais refining complex, due for completion in early 2014. The new refinery will allow the company to process heavier grades of crude to international standards.

Adnoc has not made any notable investments abroad, meanwhile, largely because the job of developing overseas oil and gas assets has been devolved to two state-owned firms: Abu Dhabi National Energy Company (Taqa) and International Petroleum Investment Company (Ipic).