Abu Dhabi’s oil and gas industry is preparing to go through its biggest transition in decades, as the emirate assesses bids from companies vying to take stakes in its onshore oil fields, the concession for which expires in early January.

The UAE’s largest emirate and the world’s third-biggest oil exporter generates more than half of its crude output from its onshore fields. This makes the concession a highly prized asset for international oil companies (IOCs) looking for a long-term presence in the Middle East. Bids were submitted on 22 October with firms asked to hand in proposals for 5 or 10 per cent stakes in the fields, with state-owned Abu Dhabi National Oil Company (Adnoc) expected to retain a 60 per cent interest.

Adnoc will assess the bids before submitting its recommendations to the Supreme Petroleum Council (SPC) – the emirate’s highest state body for oil and gas affairs, chaired by UAE President Sheikh Khalifa bin Zayed al-Nahyan.

Concession competition

The current onshore concession signed in the 1970s is held by a joint venture of Adnoc and five IOCs: the UK’s BP; US-based ExxonMobil; UK/Dutch Shell Group; France’s Total; and Partex of Portugal. With the exception of Partex, all the existing partners have lodged bids for a place in the new concession.

The other bidders in the running are China National Petroleum Corporation, Italy’s Eni, Japanese group Inpex, Korea National Oil Corporation, US-based Occidental Petroleum and Norway’s Statoil.

“Normally, we prefer to see bigger [percentage] numbers, but we compete for what is on offer,” said Christophe de Margerie, chief executive officer (CEO) of Total, speaking at the Abu Dhabi International Petroleum Exhibition & Conference (Adipec) in Abu Dhabi on 10 November, where the expiry of the concession was a hot topic for discussion. Total submitted separate bids for 5 per cent and 10 per cent of Abu Dhabi’s onshore fields. The French firm has a 9.5 per cent stake in the current joint venture managing the concession, Abu Dhabi Company for Onshore Oil Operations (Adco).

“Everything has been done in a very clean and clear way by Adnoc. The concession is ending, so all the assets have been depreciated,” said De Margerie. “The new era will start when Adnoc decides who it will partner with and for what fields and percentages. We want to avoid a long transition period, but it is not in our control.”

“These are the crown jewels of Abu Dhabi and we take that responsibility very seriously,” Bob Dudley, CEO of the UK’s BP, said also speaking at Adipec. “We’ve proposed what we believe is a very, very serious bid.”

David Dalton, regional president for the Middle East at BP, added: “It is clear that all the fields in the Adco concession are interesting and exciting fields, but we feel we can make a contribution to all those fields through our enhanced oil recovery [(EOR) expertise].”

Local media have reported that the existing concession could be split into four separate blocks, with the development of each block led by a single company.

Adco structure

Adco separates its fields into four ‘assets’, which would likely form the blocks under new joint venture agreements. Adco’s four current blocks are the South East asset (Asab, Sahil, Shah, Qusahwira and Mender fields), the Bab & Gas asset, the Bu Hasa, Huwaila and Bida al-Qemzan asset and the North East Bab asset (Al-Dabbiya, Rumaitha and Shanayel fields).

The EOR capabilities of the bidding IOCs will be an important factor for Abu Dhabi, as Adnoc is planning an extensive EOR programme over the coming decades, including the region’s first carbon dioxide (CO2) injection project at the Rumaitha field.

“It seems that Abu Dhabi’s SPC is thinking about staying with a similar type of arrangement with regards to IOCs,” Total’s senior vice-president for exploration and production, Middle East, Arnaud Breuillac, said when asked about the concession earlier this year.

“The challenge is to get higher recovery factors, to get EOR projects beginning in the future at the right time with the right technology. This is a different type of activity. You cannot have one solution that is going to work for all your fields. You need to have a reservoir-to-reservoir approach.”

The Adco joint venture expires on 11 January 2014, but the SPC is unlikely to have reached a decision on a new ownership structure for the emirate’s onshore oil fields by that date. So the existing shareholders will continue to manage the fields until the new concession is formed, perhaps as late as 2015.

No deadline

“There is no deadline [to form a new joint venture],” Abdulla Nasser al-Suwaidi, director general of Adnoc said in Abu Dhabi in October. “It will expire, but still the operation will continue without disruption. It will not take a long time [to form a new joint venture]… all the legal things have been done.”

Adnoc’s IOC partners in Adco are expected to continue to help operate the fields after 11 January, but without the risk associated with a stake in the concession. The heads of the joint venture partners have said they will continue to assist Adnoc with technical advice during the transition period.

Once appointed, the new stakeholders will have two major projects to oversee in Abu Dhabi’s onshore sector.

Adco is currently assessing bids for the phase three expansion of its Rumaitha and Shanayel fields, part of the North East Bab asset, while a separate contract for a CO2 injection facility at Rumaitha is due to be awarded. A contract on the third North East Bab field, Al-Dabbiya, is scheduled to be signed next year.

Meanwhile, MEED revealed in September that Abu Dhabi plans to invest $1bn in three oil fields to expand its onshore crude production by 143,000 barrels a day. Adco will carry out full-field developments on the Sahil and Qusahwira fields and start production at the Mender field for the first time.

Maximum returns

When assessing its potential partners for the new 20-year-plus concession, the ability to get the maximum recovery out of these fields will be high on Abu Dhabi’s agenda.

The  emirate will want the best possible partners to take it into a new era of onshore oil and gas production.  

Compared with Abu Dhabi, oil companies elsewhere in the UAE play only a marginal role in the hydrocarbons sector, with Dubai providing a small fraction of the country’s total output and therefore its revenues.

Dubai energy operator looks to expand production

Upstream operator Dubai Petroleum Establishment (DPE) is estimated to produce about 50,000-70,000 barrels a day (b/d) of crude from offshore fields including Fateh, Southwest Fateh, Falah and Rashid. This represents a significant fall from the early 1990s peak of about 400,000 b/d and reflects diminishing reserves that are only expected to last another 15-20 years.

DPE is focused on maximising recovery from its existing fields, while exploring for new oil and gas reserves, both onshore and offshore.

Since 2009, Dubai’s Supreme Council of Energy has overseen oil and gas policy in the emirate. Its board includes representatives of all the major state-owned bodies active in the hydrocarbon field including DPE, refiner Emirates National Oil Company (Enoc), the Department of Petroleum and the Dubai Supply Authority (Dusup), responsible for procuring and transmitting gas across the emirate.

DPE is currently preparing to expand Dubai’s oil production capacity by developing a second phase of production facilities at its offshore
Al-Jalila field.

The state-owned company has tendered the engineering, procurement and construction phase of the Al-Jalila oil field offshore platform B and pipelines, with companies submitting engineering, procurement and construction bids in September. DPE is assessing the bids and is expected to award the estimated $100m contract in the first quarter of 2014.

The Al-Jalila field was discovered off the coast of Dubai in February 2010 next to the existing Rashid field.

DPE awarded the engineering, procurement, installation and commissioning contract for initial production facilities in September 2010 to a consortium of US-based Global Industries and the local Lamprell. The deal covered a basic unmanned offshore production platform with a single compressor unit and about 12 kilometres of flowlines to transport oil produced at the field to DPE’s onshore processing and distribution facilities.

Sources with knowledge of the project estimated the first phase would produce around 5,000-10,000 b/d of oil, but this could not be confirmed by DPE.

In addition to upstream expansion, the emirate is looking at the possibility of constructing a new oil refinery. In September, the government of Dubai signed an early agreement with Angolan and Chinese investors to build a refinery in the emirate to meet growing fuel demand.

Dubai inked a memorandum of understanding with China Sonangol, a joint venture of Angola’s state oil producer Sonangol and Hong Kong-based New Bright International.

“Fitted out with advanced technology, the refinery will seek to ensure the sustained supply of refined end products for the emirate’s future energy consumption while further augmenting Dubai’s export portfolio,” the Dubai government said announcing the deal. The local Noor Investment Group has been hired as the financial adviser for the Supreme Council of Energy.

A consortium will be created to oversee the front-end engineering and design (feed), greenfield project financing and process flow management for the scheme.

The only refining operation in Dubai at present is the 120,000 b/d Jebel Ali condensate refinery, with most UAE downstream capacity located in Abu Dhabi. Some commentators have questioned the need for a new refinery in Dubai, with the emirate unable to provide significant crude or cheap energy to feed the facility.

The UAE already has three other refineries and its main downstream company. Abu Dhabi Refining Company (Takreer) is working on doubling the capacity of its largest refinery in Ruwais to more than 800,000 b/d.

Key fact

Abu Dhabi plans to invest $1bn in three oil fields to expand its onshore crude production by 143,000 barrels a day

Source: MEED