Abu Dhabi To Take ADCO Concession Renewal Decision By Year-End

Abu DhabiTo Take ADCO Concession Renewal Decision By Year-End

By the end of this year Abu Dhabi will decide if it will extend the Abu DhabiCompany for Onshore Oil Operations(ADCO) consortium’s onshore oil fields concession when it expires in January 2014, an official from a major tells MEES. The consortium’s international oil company shareholders are concerned that the Supreme Petroleum Council (SPC) will award fields to the lowest bidders, in a decision that will affect Abu Dhabi’s oil production for 30 years, Nick Wilson writes from Abu Dhabi.

The emirate may break up the consortium’s – ADNOC (60%), Shell, Total, BP and ExxonMobil (9.5% each) and Portugal’s Partex (2%) – concession, which includes most of the emirate’s major onshore fields, and allow individual firms to operate separate fields. State-owned Abu Dhabi National Oil Company (ADNOC) has made its recommendation to the SPC, which will make the final decision. “The majors are concerned that the SPC will award concessions to the lowest bidders, and will not take into account the experience and value added by ADCO’s shareholders,” the official tells MEES. “We’re expecting a tough fight.” The SPC previously ignored ADNOC’s recommendation to award Shell the Shah ultra-sour gas field. Instead it gave it to US independent Occidental,  which  unlike  Shell had no experience of the field, but put in a lower offer.

Shell had reportedly already invested up to $200mn in helping ADNOC assess the field. Oxy is now struggling to develop the technically challenging project, MEES understands. Failure would be a further blow to Oxy’s reputation in the Gulf since its costs shot from the budgeted $2bn to $9bn in its heavy oil Mukhaizna field concession in Oman. Oxy hopes to gain fields if ADCO is broken up. The majors argue that only they have the deep pockets and experience to develop the larger, more mature fields.

ADNOC’s Director General 'Abd Allah Nasir al-Suwaidi has a strong technical background unlike the other SPC members, who have finance and commerce experience. ADNOC hired four consultancies to look at the concession last year. Houston-based Ryder Scott analyzed the commercial aspect and whether breaking up the concession would be advantageous. The UK’s Tracs International studied the technical aspects such as depletion and production capacity. McKinsey assessed both consultancies’ results and gave its report to ADNOC, which took legal advice from Sherman Scott, before making its recommendation to the SPC in the summer. It then told ADCO’s partners that the final decision would be taken in mid-September.

Undeveloped Fields

ADNOC has smaller undeveloped fields it can offer to independents. It says that once onshore production has hit 1.8mn b/d by 2018-19, it will need to develop peripheral fields that are geographically remote, small, or difficult, to plateau output to 2030. ADNOC geologist Ahmed Taher, speaking at the Unconventional Gas World Middle East conference in Abu Dhabi on 3-4 October, said some of the unconventional fields looked promising. Even without stimulation a well in Area A of Diyab onshore tight oil formation produced 1,000 b/d of crude. Offshore a well at Shilaif tight formation also produced 324 b/d. “We are doing studies into fraccing [hydraulic fracturing],” he told the conference.

Once the SPC has taken the decision on ADCO, Abu Dhabi can start offering other onshore fields and start negotiations for their concessions. “There are dozens of difficult fields, both offshore and onshore, especially in the area of the Qatar/Saudi/UAE border,” an official in an independent qualified by ADNOC to develop its fields tells MEES.

Denmark’s Maersk has said it will take any difficult field ADNOC wants to give it for the chance to prove it can handle such a development. It points to its on-time, on-budget, $6bn development of Qatar’s al-Shaheen swing producing field, which has yielded up to 330,000 b/d. It involved drilling one of the world’s longest horizontal wells through a reservoir which in places is only one meter deep. Norway’s Statoil is also hoping for fields. It has invested $500-600mn in Abu Dhabi over the past five-six years, MEES understands.

Korea and China are circling Abu Dhabi’s concessions (MEES, 26 September) and are the nearest rivals to Japanese firms, which also lack the experience and technology of the majors. Japan – whose firms Jodco and Cosmo are partners in consortia that operate Abu Dhabi fields – has a lot to lose to the aggressive newcomers. Tokyo, however, is much more sophisticated at packaging finance, upstream and downstream engineering and offtake marketing agreements than China. Furthermore, the Japanese also have a good reputation in Abu Dhabi for compliance and reliability and contributing to Abu Dhabi’s economy and environment.

The decision on ADCO will also impact gas production, which the emirate is desperately short of. Abu Dhabi needs to coordinate onshore and offshore gas plans. In 2019 the contract of ADNOC’s Abu Dhabi Liquefaction Gas Company (ADGAS) offshore gas subsidiary with Japan’s power company Tepco to supply LNG ends. The Japanese want the contract to be extended and Chiyoda to build a new LNG plant to replace the oldest two of ADGAS’ three trains, MEES learns.

Abu Dhabi exports LNG to Asia Pacific at a price linked to crude prices, while importing pipeline gas from Qatar. But the emirate is desperately short of gas for its domestic market. If ADGAS ends the Tepco contract it will need to build a pipeline to bring the gas ashore and expand the GASCO-operated Habshan gas processing center, which handles ADCO’s associated gas. Further coordination is needed with Abu Dhabi’s clean energy initiative, Masdar, which plans a massive carbon capture and storage program in Abu Dhabi’s oil fields (MEES, 26 September).

Copyright MEES 2011.