Oil recovery can cover cost rises for Adnoc

04 September 2009

Adnoc is currently tendering projects worth more than $20bn. Prices are beginning to rise and the projects market is getting into gear.

Abu Dhabi National Oil Company (Adnoc) has had a good year so far, saving billions of dollars by tendering major new infrastructure deals at the bottom of  the market.

The final quarter of 2009, however, may not be as good for the energy giant as the previous three. As international engineering firms start calculating the cost of the multi-billion-dollar scheme to boost oil production capacity from Abu Dhabi’s onshore oil fields, the state energy major may find that it cannot continue to award contracts on the cheap.

The Middle East’s third-largest oil producer has set a 24 November deadline for bids on two $1bn-plus contracts on its ‘1.8 million project’, to boost oil production at the emirate’s onshore oil fields by 400,000 barrels a day (b/d) to 1.8 million b/d by 2019. But commodity prices are beginning to rise and the projects market, which was at a virtual standstill at the beginning of the year, is getting back into gear.

In January, the cost of the Sahil, Asab, Shah (Sas) project to upgrade onshore oil-processing capacity was cut by $1bn to $3.5bn, while another project to overhaul the emirate’s gas-processing and distribution network, the integrated gas development, yielded similar savings in July.

When the Sas deal was awarded, oil prices were below $40 a barrel. They have subsequently recovered, topping $70 a barrel in July and August. Prices are likely to increase further before the end of the year.

Adnoc and its subsidiaries are currently tendering projects worth more than $20bn, and contractors see the local market as overheated. Having done well to capture the savings it has made so far, the company may be disappointed by the prices submitted for new tenders. The days of cheap contracts are coming to an end.

But things could be worse. With oil prices up $30 a barrel from January, the company is making $66m more a day than it was eight months ago, so any lost savings will be more than made up for by the boost to its revenues.

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