Abu Dhabi faces some difficult decisions over the coming months as it prepares to receive bids from international oil companies (IOCs) vying to form a new company to operate its onshore fields.
According to Abu Dhabi National Oil Company (Adnoc) director-general Abdulla Nasser al-Suwaidi, companies will bid for a stake in the 20-billion-barrel-plus concession in late October.
Despite much speculation over the selection process, little is known about how Adnoc and the Supreme Petroleum Council (SPC) will go about choosing partners to replace the current concession Abu Dhabi Company for Onshore Oil Operations (Adco).
Adnocs existing joint venture partners are BP, ExxonMobil, Shell, Total and Partex and, with the exception of the latter Portuguese company, these IOCs have been invited to bid for the new joint venture.
The other companies prequalified to bid are thought to be China National Petroleum Corporation (CNPC), Italys Eni, Japan-based Inpex, Korea National Oil Corporation (KNOC), US-based Occidental Petroleum, Russias Rosneft and Norwegian group Statoil.
In addition, Denmarks Maersk, Austria-based OMV and Germanys 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.
Speculation is likely to increase over the coming months with Abu Dhabi unlikely to officially reveal a list of bidding companies.
Adnoc has set a deadline of 11 January 2014 for 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.
There is no deadline [to form a new joint venture], Al-Suwaidi said on the sidelines of an Abu Dhabi awards ceremony on 1 October. The agreement is expiring in January, but the consortium, which is Adco, will continue to operate regardless [of whether the joint-venture agreement expires].
It will expire, but still the operation will continue without disruption, he added. It will not take a long time [to form a new joint venture] all the legal things have been done.
The sheer size of the concession makes it an important target to IOCs looking to book crude reserves. Abu Dhabis onshore fields represent about half of the total crude production of the UAE which, in turn, is the worlds third largest crude exporter.
These are very safe barrels, which are a highly predictable and very material part of the existing partners production portfolios, says Richard Quin, head of upstream research, Middle East & North Africa at UK-based consultancy Wood Mackenzie.
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.
According to Wood Mackenzie, Abu Dhabis decision will depend on a variety of factors including: competitive profit-sharing terms; access to the best technology; maximising wealth creation; aligning the emirate with major Asian crude buyers; ensuring long-term security; and appeasing the public.
The inclusion of CNPC, KNOC and Inpex appear to be a nod to the Asian countries buying the majority of crude being pumped in Abu Dhabi.
How do you balance all of these things? You cant have competition and best technology at the same time as ratcheting up fiscal take, because this is going to cost a lot of money and costs are going to rise on a per-barrel basis considerably of the coming decades, says Quin.
The real challenge is that this has to be resolved in months, assuming that the deadline is fixed. In reality, it could easily roll into the New Year, he added.
Wood Mackenzie data and forecasts show a downward trend in return on investment for IOCs operating in the Middle East from 2000 to 2018. The Adco renewal will be a litmus test in assessing the appetite of foreign companies for safe, low-value barrels in the Gulf.