Market focus: Abu Dhabi moves offshore

19 February 2010

The emirate’s offshore operating companies are pursuing different development strategies as they seek to boost production and hold down costs

Abu Dhabi National Oil Company (Adnoc) may have dominated headlines in 2009 with a series of high-profile projects to boost its onshore oil and gas production capacity, but 2010 is set to be the year of the company’s often overlooked offshore operating companies.

Although Abu Dhabi relies on offshore oil and gas fields for about 20 per cent of its hydrocarbons output, it has not developed a major new field away from the mainland since it started production at the Zakum field in 1966.

Offshore oilfields in Abu Dhabi

Offshore oilfields in Abu Dhabi

The onshore Asab, Bab, Bu Hasa, Sahil and Shah fields have consistently provided ample production capacity in the intervening period and, although plans to develop new offshore reservoirs have been mooted since the late 1990s, nothing has yet come to fruition.

In numbers
  • 30 per cent - Projected increase in Abu Dhabi’s oil production capacity over next eight years 
  • $40bn - Adnoc’s planned spend on onshore projects between January 2010 and March 2010
  • $24bn - Adnoc’s estimated spend on boosting -offshore production over the next six years

Sources close to Adnoc say that until now the relative expense and technical complexity of developing new offshore acreage has put the state energy giant off developing fields out at sea, many of which were discovered decades ago.

Between January 2009 and March 2010, Adnoc plans to have awarded about $40bn worth of deals to boost onshore oil and gas production across a series of projects, including the $10bn Shah gas development of 1 billion cubic feet a day of sour (sulphur-rich) gas supplies and the $3bn-plus scheme to boost onshore oil output to 1.8 million barrels a day (b/d).

Abu Dhabi is pushing to increase its total oil production capacity from current levels of around 2.7 million b/d to 3.5 million b/d by 2018, but it has become clear that the emirate cannot rely solely on its ageing giant onshore oilfields to achieve this target.

As a result, Adnoc has commissioned a range of ambitious new projects to add 650,000 b/d of offshore oil production by 2016, bringing its total offshore capacity to 1.75 million b/d. By MEED estimates, the six-year programme will cost about $24bn.

In charge of developing these offshore projects are two Adnoc subsidiaries, Abu Dhabi Marine Operating Company (Adma-Opco) and Zakum Development Company (Zadco). Both firms were created in 1977, with Zadco taking charge of the giant Upper Zakum reservoir and Adma-Opco the Lower Zakum reservoir and Umm Shaif oilfield. The companies were set up as exploration and production firms, and in the intervening years they have added to their responsibilities.

Zadco’s remit now covers the Satah, Umm al-Dalkh and Upper Zakum fields, and the company runs its operations from two islands, Zirku and Arzanah. Adma-Opco meanwhile, controls the Ghasha, Butini, West Mubarraz, Umm al-Lulu, Nasr and Saath al-Ras Boot (Sarb) fields and runs its operations from Das Island.

By 2015, Zadco will have added 250,000 b/d of production to its fields, bringing its total output to 750,000 b/d, while Adma-Opco has been set the target of raising its production by 400,000 b/d to produce 1 million b/d by 2015.

The companies have similarly ambitious targets and deadlines, but their approach to meeting them are very different, says one senior engineering executive who has worked closely with both companies. “Perhaps because they both have different shareholdings, they are run as very different beasts,” he says. “Adma-Opco is taking more of a traditional offshore approach, while Zadco is planning something really radical to hit its targets.”

Both were set up as joint ventures of Adnoc and international oil companies (IOCs). In Zadco’s case, the current shareholder configuration is Adnoc with a 60 per cent stake, the US’ ExxonMobil with a 28 per cent shareholding and Japan Oil Development Company (Jodco) holding the remaining 12 per cent.

Different approaches

Adnoc also owns 60 per cent of Adma-Opco, with France’s Total and the UK’s BP holding 13.33 per cent and 14.67 per cent respectively and Jodco owning the remaining 12 per cent.

A lot of oil firms are not hitting their targets. With the agility our scheme gives us we could exceed ours

Senior executive, Zadco

“BP and Total seem quite conservative in their approach to developing new production,” says the executive. “ExxonMobil in particular is interested in making the development of Upper Zakum really different.”

While Adma-Opco will use traditional offshore oil rigs to add new production capacity, the executive explains, Zadco plans to build a series of offshore islands to act as both drilling rigs and facilities sites.

Speaking at the MEED Abu Dhabi Projects conference in October, Salah al-Bufalah, major projects manager at Zadco, unveiled the strategy behind the company’s plan to boost production at Upper Zakum.

“We plan to build four artificial islands and increase our production [at Zakum] by about 20 per cent,” he said. “In 20 years’ time, Zadco will be an onshore production company rather than an offshore one. And this approach has already created a 20 per cent saving for us.”

Al-Bufalah explained that the company had originally planned to use traditional steel platforms to drill 23 wells at a cost of more than $18bn. Fellow Adnoc subsidiary Abu Dhabi Company for Onshore Oil Operations (Adco) used land reclamation to extend its drilling operations on the Bab field, and Adnoc suggested that this concept be rolled out to create individual islands for the Zakum project. A Zadco study showed that this would cut the cost of the development to $15bn.

In September 2008, Zadco awarded its biggest ever project management consultancy (PMC) deal, worth $75m over five years, to the UK’s Amec to oversee its Zakum capacity push.

In November 2009, the local National Marine Drilling Company was awarded the $625m contract to build the islands at 6-14 metre depths, and covering an area of 2.6 kilometres by 2km. Zadco’s next move will be to select international engineering firms to design and build two phases of production facilities.

Ancillary infrastructure

The company plans to issue a tender in the next few weeks for the engineering, procurement and construction (EPC) work to build the first phase for early production. The winning bidder will construct production facilities to produce an additional 100,000 b/d of oil – the award is expected in the third quarter of this year. Paris-based Technip completed the front-end engineering and design (Feed) in late 2009.

Zadco will then tender a second contract, covering the Feed for the second phase of production, with a contract award likely in early 2011. The EPC deal for the second phase, which will take the additional production up to about 250,000 b/d, will be awarded in late 2012.

A further advantage of the islands is that they can easily be adapted to house ancillary infrastructure, which would otherwise require additional standalone platforms. Zadco has put several other tenders on hold, including one for a planned $400m gas treatment plant, while it studies the potential cost savings of locating these associated facilities on the islands.

“Over the next 10-20 years they can save -billions all over again, with fewer of the decommissioning problems associated with traditional drilling platforms,” says the engineering executive. “It really is a great concept.”

Zadco also plans to boost production at the Satah and Umm al-Dalkh fields using the islands, another senior source at Zadco tells MEED, with their combined potential output reaching 25,000-50,000 b/d. The company has set a challenging timeline for the tenders, expecting to award about $4bn of contracts by 2011. “A lot of oil firms are not hitting their targets at the moment,” says the source. “With the agility this scheme gives us, we could exceed ours.”

Adnoc has also raised the possibility of using the artificial island concept to develop the Adma-Opco fields. “Adnoc has suggested to Adma-Opco that it looks at this option for Sarb and Umm al-Lulu,” Al-Bufalah told MEED on the sidelines of the October conference. “The cost savings are very large. An offshore rig costs almost double that of an onshore one.”

But for now Adma-Opco still intends to take a more conventional route, according to engineering executives who are in talks with the company over a series of potential deals.

In January 2009, Netherlands-based Tebodin completed a Feed contract for traditional production facilities at the undeveloped Umm al-Lulu field, while France’s Technip won a similar deal for the Nasr field on 7 August.

Contractors expect Adma-Opco to award EPC contracts worth more than $3bn to develop the two fields by the end of 2010. The fields will add 90,000 b/d of production by 2015 and 165,000 b/d by 2018, according to contractors close to the schemes.

An equally important part of both companies’ operations is maintaining reservoir pressure and oil output through existing production facilities. This aspect of their work is as technically demanding as bringing new fields onstream. According to Rod Westwood, senior analyst at UK energy consultancy Douglas Westwood, careful management of offshore oil wells is “critical” to maintaining output.

To this end, Adma-Opco is currently in the process of tendering a series of contracts on projects including a $200m-300m seawater injection scheme at the Lower Zakum field and a five-year PMC deal to oversee the upgrade of the company’s ageing infrastructure, parts of which are more than 40 years old.

Zadco is also planning a series of projects at its Zirku Island processing facilities, in preparation for the increase in oil and gas production. The company plans to tender an estimated $300m construction deal to ease the bottleneck at the Zirku facilities by the end of 2010.

In total, the two offshore operating companies plan to have awarded $24bn of contracts by 2015, just as Adnoc’s onshore tendering programme begins to wind down.

Executives at Adma-Opco and Zadco say that after years in the shadows, it is their turn to take the limelight over the next five years, adding more offshore production than any state in the region with the exception of neighbouring Saudi Arabia.

“These projects are really crucial to what Adnoc is doing,” says one executive. “Without them, the 3.5 million b/d target would just be pie in the sky.”

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