x Abu Dhabi, UAEFriday 19 January 2018

Abu Dhabi in delicate dance over oil

Oil 2014: Western oil companies such as ExxonMobil and Shell have reason to put on a good showing at the summit.

Opposite Abu Dhabi National Oil Company's (Adnoc) two-storey pavilion at the emirate's biggest energy gathering, an ExxonMobil economist entertains local school children who are out on a field trip.

Next door, Shell's display at the World Future Energy Summit (WFES) greets those arriving at the entrance of the conference hall and, a few exhibits down, Total executives hover around white cushioned seats.

The foreign companies are also all partners with Adnoc on its biggest concession, a contract for a 1.4 million barrel per day (bpd) onshore block due to expire in 2014, and showing face at the WFES is all part of a negotiating process.

The so-called supermajors have reason to put on a good showing. They have been partners alongside BP and Portugal's Partex in Abu Dhabi's oil production industry since before the Second World War, but the emirate is increasingly sending signals it is willing to invite new partners - particularly from the East.

For Abu Dhabi, selecting the right partners is critical as it aims for an increase in production capacity from 2.8 million to 3.5 million bpd, an output boost that would deliver more revenue and bolster the UAE's status in Opec.

With the onshore concession expiring in two years and an offshore one coming up in 2018, Abu Dhabi has ample opportunity to rewrite the terms of its producing fields and offer up fresh prospects.

In the past year the emirate has signed exploration deals with interests in East Asia, the heart of global growth in crude demand.

In February, Abu Dhabi extended a Japanese consortium's offshore contract by three decades and threw in the rights to an extra field. The following month, it granted the Korean National Oil Corporation the rights to undeveloped fields with at least 1 billion barrels of reserves.

This week, during a visit to the region by Wen Jiabao, the Chinese premier, Adnoc and its Chinese counterpart, China National Petroleum Corporation, agreed to collaborate on undeveloped upstream projects and oil storage.

"Asia is the growth market, while demand in Europe and North America is going to be a much less exciting story for the decades ahead," said Samuel Ciszuk, a consultant at KBC Energy Economics.

The balancing act for Abu Dhabi is how to open the doors to East Asian explorers while maintaining ties to the western supermajors, which hold much of the technology needed for the most challenging fields.

The emirate is turning to expensive and complex techniques to maximise the recovery of oil at its more mature fields.

"They've got huge fields, which have been developing for years," said Alistair Davidson, a managing director of the well consultancy SPD in Dubai. "Now they're going to have to move on to more technically challenging fields, which will probably require - and they recognise this - more assistance."

This week, Abdulla Nasser Al Suwaidi, the director general of Adnoc, said the Abu Dhabi Company for Onshore Oil Operations (Adco), the almost 75-year-old concession held by the supermajors, would be put out to tender rather than privately negotiated.

That formally opens the field to companies in waiting including Germany's Wintershall, Norway's Statoil and the Asian national oil companies.

Oil executives, many of whom have called for the terms of the Adco concession to be improved from the current US$1 per barrel payment in any renewal, greeted the news of a tender neutrally.

"Abu Dhabi should and are looking at their options," Morten Mauritzen, the president of ExxonMobil's UAE subsidiary, told Reuters.

"It will be important to underline the potential for the country by selecting the best partners."