Abu Dhabi has encouraged co-ordination among its three energy investment firms, Mubadala Development, Taqa and International Petroleum Investment Company, to each develop their own specific business areas with distinct approaches.
Teaming up to score energy goals
Most nations with government-controlled oil and gas sectors rely on a single corporate entity to represent their interests abroad. While China and Abu Dhabi are notable exceptions, with each having several, the two states have very different ideas about how those firms should interact. Beijing, which oversees the world's second-largest energy consuming nation, encourages its oil sector companies to compete with each other head-on, generating a fierce rivalry among a group that have become the world's most aggressive at securing access to global resources. That was the case recently in Iraq, where the China National Oil Corporation, China National Offshore Oil Corporation and Sinopec joined rival consortiums to bid on contracts to develop some of the country's biggest oilfields.
Abu Dhabi, a major oil exporter, has taken a different approach by encouraging its three government-owned energy investment firms - Mubadala Development, the International Petroleum Investment Company (IPIC) and Abu Dhabi National Energy Company, or Taqa - to stake out exclusive turf. "We have very strong co-ordination with Taqa and IPIC. It's not by accident that we don't compete," said Maurizio La Noce, the chief executive of Mubadala Oil and Gas.
The difference between the Mubadala energy strategy and those of Taqa and IPIC is becoming clearer following a Mubadala decision last year to work towards greater transparency, which was demonstrated by the publication of its first annual report. A conference presentation by Mr La Noce earlier this month also helped. Mubadala Oil and Gas seeks out investment opportunities east of Suez, predominantly in the Middle East, the Caspian region of Central Asia and in South East Asia.
Just as significantly, Mubadala has emerged as the only one of the troika with significant involvement in high-potential exploration. A joint venture in Kazakhstan with the US oil company ConocoPhillips is its outstanding enterprise in this category. Mr La Noce estimates that the partners' oil and gas concession covering Caspian Sea exploration blocks could yield as much as 3 billion barrels of new reserves over the next three to four years.
Reserves of that magnitude would certainly help Mubadala towards its ultimate goal of ensuring that Abu Dhabi maintains its market share of global oil and gas production, reducing the emirate's exposure to a drop in government revenue as output from its maturing oilfields dwindles. That is not likely to happen overnight. The emirate's domestic oil producer, the Abu Dhabi National Oil Company (ADNOC), is planning to boost capacity by about 30 per cent to 3.5 million barrels per day within a decade.
Another theme for Mubadala Oil and Gas is strategic partnerships with international energy companies. The aim, according to Mr La Noce, is to develop the technical expertise to operate globally through close collaboration with some of the best in the world. One of Mubadala's oldest and closest partners in the energy sector is Occidental Petroleum, the US oil, gas and chemicals company. Along with France's Total, Occidental was part of the first Mubadala international energy venture, Dolphin Energy, which produces and transports gas from Qatar to the UAE and Oman.
The enterprise has been hugely successful, profiting in roughly equal parts from marketing about 2 billion cubic feet or gas per day and from international sales of gas liquids. "It was the Dolphin project that enabled us to start the industrialisation and diversification of Abu Dhabi's economy," Mr La Noce said. Building on that experience, Mubadala and Occidental subsequently teamed up to squeeze more crude from challenging "tight" oil reservoirs in Oman and on a project to boost output from Bahrain's only onshore oilfield. Bahrain finalised that contract last week.
The partners may next venture into Iraq, said Ray Irani, the Occidental chief executive, although that has not been confirmed by Mubadala. Such an alliance could open the door for Mubadala to gain access to even richer exploration prospects than in Kazakhstan. In a related vein, Mubadala Development has also established two Dubai oilfield services joint ventures, one with the London-based Petrofac and the other with the Scottish firm Production Services Network.
A third plank in the Mubadala energy strategy is its commitment to renewable and clean energy development through its wholly owned Masdar subsidiary. While most Masdar projects are in Abu Dhabi, the company also invests overseas to gain exposure to cutting edge technology. Through Masdar, Mubadala is committed to billion of dollars of direct investment in alternative energy and to forging partnerships to reel in tens of billions of dollars of additional investment.
The sheer size of the initiative sets Mubadala apart from the other two Abu Dhabi investment vehicles. Taqa has stakes in wind power and hydroelectric developments, but nothing approaching the scale of Masdar's projects. In terms of oil and gas operations, Taqa is very different from Mubadala. Its production assets in those sectors are strictly in the western hemisphere, concentrated in the North Sea and western Canada, and it has not taken on risky exploration ventures. Eschewing the higher reward potential of underexplored oil and gas prospects, Taqa has confined itself to acquiring mature assets.
The company may have swapped geological and political uncertainty for technological risk in that regard, as it is seldom easy to squeeze more production from such fields. Taqa has also tended to act alone, taking partners on a project-by-project basis, rather than forming long-term alliances. Its biggest distinguishing characteristic, however, is its parallel focus on "midstream" gas assets including pipeline and storage facilities, and on its roots in power generation. The company has electricity assets spread across four continents, from the Caribbean to India.
Taqa's plan under Peter Barker-Homek, the former chief executive, was to develop an integrated energy company, a strategy often hard to recognise among such widely dispersed assets. One place it did become apparent was in the cluster of oil and gasfields, production platforms and pipelines that Taqa acquired in the North Sea. Taqa is developing a gas storage facility in the Netherlands related to its North Sea operations, which will be among the largest in western Europe.
The company focus has shifted under Carl Sheldon, Mr Barker-Homek's replacement, who has said he would concentrate on further development and consolidation of existing operations rather than spending lavishly on new assets. IPIC also has a distinctive character with an energy focus on oil refining and petrochemicals. It is also involved in a liquefied natural gas (LNG) project in Papua New Guinea.
Its holdings in the upstream oil and gas sector are indirectly held through stakes in integrated firms such as OMV, an Austrian oil and chemicals group, and Oil Search, a Papua New Guinean firm with a large stake in the LNG project. Investment in the Japanese oil refiner Cosmo has even brought IPIC an indirect stake in an oil concession off the coast of Abu Dhabi, usually the strict preserve of ADNOC.
Still, the company has shown little inclination to expand its upstream asset portfolio, although OMV, a long-standing investment partner in refining and petrochemicals developments, has suggested it would also like to pursue oil production joint ventures with IPIC. As Mubadala and Taqa have minimal involvement in the refining and chemicals industries, IPIC has developed a global suite of downstream assets spanning North America, Europe, the Middle East and Asia. Recent acquisitions include the Canadian plastics producer Nova Chemicals. IPIC has also revived a plan to build an oil refinery in Pakistan and is considering further refinery projects in Vietnam and Oman.
The company has also invested in oil tankers and energy services. Khadem al Qubaisi, the managing director, said earlier this month he would consider buying stakes in oilfield services and drilling companies. IPIC's most unusual asset is a partially completed UAE pipeline that will transport oil from Abu Dhabi's biggest onshore oilfield to an export terminal in Fujairah, bypassing the maritime chokepoint at the Strait of Hormuz.
If part of the Abu Dhabi strategy is to develop substantial additional oil and gas revenues, as Mr La Noce has suggested, then the companies have a long way to go. Their combined oil and gas output, including indirect interests, is about 490,000 barrels of oil equivalent per day, roughly 350,000 from Mubadala, at least 112,000 from Taqa and about 30,000 from IPIC. By comparison, China National Petroleum produces 2.4 million barrels of oil and 5.1 billion cubic feet of gas per day, which approximately matches the total UAE oil and gas production capacity.