Abu Dhabi deepens international ties with partnerships in offshore concessions

During 2018 Abu Dhabi National Oil Company (ADNOC) has been working to restructure the offshore concessions once operated by Abu Dhabi Marine Operating Company (ADMA). The ADMA assets have been divided into three groups: Lower Zakum, Umm Shaif and Nasr, and Sateh Al Razboot (SARB) and Umm Lulu. A 40% interest in each concession has been awarded to a variety of outside partners, which include rapidly growing emerging market players, long-standing international partners and a subsidiary of the Abu Dhabi government’s investment vehicle for strategic development – Mubadala Investment Company. The aim of the restructuring is to optimise commercial value from the blocks, broaden ADNOC’s partner base, expand the technical expertise brought by investors and secure greater market access for Abu Dhabi’s hydrocarbons.

Enter India

In February 2018 a consortium led by ONGC Videsh, a wholly owned subsidiary of the stateowned Oil and Natural Gas Corporation, became the first investor from India to be awarded a stake in Abu Dhabi’s hydrocarbons market. ONGC Videsh and its partners – the Indian Oil Corporation and Bharat Petro Resources – agreed to take a 10% interest in the Lower Zakum concession. The deal entailed a participation fee of Dh2.2bn ($598.8m) and has a duration of 40 years.

Sultan Al Jaber, UAE Minister of State and group CEO of ADNOC, said the agreement would help India meet its growing demand for energy and refined products, while securing ADNOC the opportunity to increase its market share in a key growth market.

Indeed, energy demand in the world’s sixth-biggest economy is expected to grow at a faster rate than in any other country until 2040, according to the International Energy Agency. It is also expected to see the largest absolute growth in oil consumption, globally. At present, India imports 79% of its crude oil needs, with 8% of that supplied by the UAE.

Closer Connection with Japan

A few days after the India deal, a further 10% of the Lower Zakum concession was awarded to Japan’s Inpex via its wholly-owned subsidiary JODCO Lower Zakum Limited, which will hold and manage the interest on Inpex’s behalf. Inpex, which has been involved in Lower Zakum since the 1970s, paid a participation fee of Dh2.2bn ($598.8m) for the new agreement, which came into effect in March 2018 and has a duration of 40 years. The long-term involvement of Inpex is indicative of the confidence the Japanese investor has in Abu Dhabi’s long-term outlook, as well as ADNOC’s own focus on the continuing development of its hydrocarbons resources.

Accessing China

But perhaps the most eye-catching offshore deal was made in March 2018, when ADNOC announced that it had awarded PetroChina, a majority-owned subsidiary of China National Petroleum Corporation (CNPC), 10% stakes in both the Umm Shaif and Nasr, and Lower Zakum concessions.

PetroChina paid a Dh2.1bn ($571.6m) participation fee for the Umm Shaif and Nasr interest, and Dh2.2bn ($598.8m) for the Lower Zakum concession. The agreements grant the Chinese partner a 40-year term on both concessions. The Umm Shaif field has one of the largest gas caps in the region, with reserves high in condensates, while the Nasr field has a crude oil production capacity of 65,000 barrels per day (bpd). ADNOC aims to produce 500m standard cu feet of gas per day from Umm Shaif, helping to meet Abu Dhabi’s growing domestic needs, while the condensates will be refined for use in a range of petrochemical applications, boosting the value obtained from the resources.

In a statement to OBG, ADNOC said that the deal “expands ADNOC’s collaboration and fast-growing partnership with CNPC, further strengthening and deepening the strategic and economic relationship between the UAE and China, the second-largest economy worldwide”. China is the world’s top oil importer, with its overall consumption expected to grow to 12m bpd by 2020. Demand for petrochemicals and plastics is expected to double by 2040. As its domestic refining capacity increases, the country is increasingly seeking new sources of crude oil, giving the UAE the opportunity to increase its standing from 10th-largest supplier.

European Players

In March 2018 two major European companies also took interests in the Umm Shaif and Nasr, and Lower Zakum concessions. France’s Total was awarded a 20% stake in Umm Shaif and Nasr, and 5% in Lower Zakum, while Italy’s Eni won a 10% interest in Umm Shaif and Nasr, and 5% in Lower Zakum. The agreements all have terms of 40 years.

Total has been present in Abu Dhabi’s oil and gas sector since 1939, and is active across the value chain from exploration to shipping. It was previously a partner in the ADMA offshore concession from 1953. The French supermajor paid participation fees of Dh4.2bn ($1.1bn) and Dh1.1bn ($299.4m) for its interests in the Umm Shaif and Nasr, and Lower Zakum concessions, respectively. The partners said that they hoped the new deals would help them create greater value and higher returns across their joint activities.

Total has been appointed asset lead for the Umm Shaif and Nasr fields. ADNOC said in a statement the oil major’s deep knowledge and understanding of Abu Dhabi’s oil and gas fields, and specialist expertise and technology would help accelerate the development of the large-scale Umm Shaif gas cap.

Italian Entrant

Eni is the first Italian company to be awarded concession rights in Abu Dhabi’s oil and gas sector. The supermajor paid Dh2.1bn ($571.6m) for its interest in the Umm Shaif and Nasr concession, and Dh1.1bn ($299.4m) to enter the Lower Zakum partnership. Eni is active in around 73 countries across the world, and the company’s CEO, Claudio Descalzi, said he believed there was scope for further collaboration in the emirate’s downstream segment. Meanwhile, ADNOC sees Eni as a partner well placed to help increase production capacity cost-effectively, including through the use of enhanced oil recovery techniques to sustain production on existing assets.

Umm Lulu & SARB

In September 2018 Austrian energy company OMV announced that it had started oil production at the SARB and Umm Lulu fields. In April of that year the company signed a $1.5bn deal for a 20% stake in the concession. The other 20% was awarded to Cepsa, a wholly owned subsidiary of Mubadala Investment Company. The Cepsa award is another sector milestone, indicative of Abu Dhabi’s efforts to retain more value and financial return of its oil and gas resources within the emirate. It is also expected to pave the way for Cepsa to play a larger role in downstream activities.

The Umm Lulu and SARB fields have an initial capacity of 50,000 bpd, which was expected to accelerate to 129,000 bpd by the end of 2018. OMV and Cepsa each have an estimated share of 450m barrels in the two fields’ reserves, which lie in shallow waters. OMV expects to invest approximately $2bn over the course of the 40-year concession period, spending around $150m each year in the first five years of operation alone.