x Abu Dhabi, UAESaturday 20 January 2018

End of Abu Dhabi’s oil concession nigh but partners to stay on behind the scenes

The four majors – ExxonMobil, Royal Dutch Shell, BP and Total – will retain staff as secondees in the fields’ operating company, the Abu Dhabi Company for Onshore Oil Operations

Abu Dhabi’s oldest oilfield concession expires on Friday, but the departing foreign shareholders will stay on behind the scenes as de facto partners.

The prized constellation of onshore oilfields, held since the Second World War by a consortium of companies from western countries, is to have Abu Dhabi National Oil Company (Adnoc) as its sole shareholder until new partners are selected in what is expected to be a year’s time.

The four majors – ExxonMobil, Royal Dutch Shell, BP and Total – will retain staff as secondees in the fields’ operating company, the Abu Dhabi Company for Onshore Oil Operations, and will continue to offtake the same crude volumes as before through a special sales agreement.

A contract finalised late last year allows the companies to buy Murban crude, the onshore blend, at 11 cents more per barrel than the official selling price starting on Saturday. Adnoc typically sells its volumes to consumers in Asia through long-term contracts, rather than the destination-free cargoes that will be sold to the majors.

The strategy of keeping the old shareholders on board helps to ensure that the Opec producer will not sway from ambitious production expansion to 3.5 million barrels per day (bpd) by 2019 from 3 million bpd today. The onshore fields, which currently produce 1.6 million bpd, are to contribute 200,000 bpd of that increase.

“There’s a lot of effort being put into thinking out what will Adco look like in the next 25 to 40 years,” said Christopher Gunson, a lawyer at the American law firm Pillsbury. “It’s understandable, given what goes into restructuring the operation, that you do an interim plan for the rest of year. No one’s interested in ending what works now.”

In the coming months, Adnoc hopes to complete a three to four-month evaluation of bids from about 10 companies invited to the auction, including Russia’s Rosneft, Italy’s Eni, Norway’s Statoil, Korea National Oil Corporation, China National Petroleum Company, and Occidental of the United States.

“It’s created opportunities for the IOCs [international oil companies], particularly the IOCs from Asia, to have an opportunity at a premier asset,” said Sean Korney, an energy lawyer at Baker Botts. “For an oil concession of this size in a stable jurisdiction for a 40-year term – for a concession not a service contract – it’s definitely an opportunity not to be ignored.”

The departing stakeholders, including the smaller Partex of Portugal, attended a ceremony marking the concession’s end where Abdulla Nasser Al Suwaidi, the director general of Adnoc, “expressed his sincere gratitude to the international companies for their contribution in developing onshore oil fields”, according to a press release Adnoc published on the Government news agency website Wam on Wednesday.

Adnoc’s recommendation, which would come in February or March according to Mr Al Suwaidi’s estimate in November, will require approval by the Supreme Petroleum Council, the emirate’s highest oil policy body that includes members of the ruling family. It has gone against Adnoc’s more technically-based recommendations at least twice while awarding the rights to the Shah gasfield, the gas deposit that lies parallel to the Shah field operated by Adco.

Early last year the council struck down a proposal by Adnoc to formally extend the concession for one year to allow enough time for the bidding process.

“Anything that keeps the existing players involved, I’m sure it helps the existing players for the future,” said Mr Gunson. “There’s no scenario you can envision where the existing four supermajors are asked by Abu Dhabi to stay involved and any of those supermajors decline the opportunity.”