Energy & Mining

Oil & Gas Concessions in Abu Dhabi

Oil & Gas

The end of the onshore concession marks a turning point in Abu Dhabi's history, as it is now in complete control of its oil reserves and can make the decisions that will shape the next stage of oil and gas production.

The search for oil in Abu Dhabi dates back to the 1920s, when BP began surveying the Emirate. However, it wasn’t until the 1930s when people had a clearer idea of how matters might pan out. The surveys looked promising, and a group of foreign companies decided to approach the ruler, HH Sheikh Shakhbut, to come up with a deal. On January 11, 1939, BP, Shell, ExxonMobil, Total, and Partex signed a 75-year concession agreement to help extract oil from the UAE. The consortium set up a company, Petroleum Development, with the task of extracting oil from Abu Dhabi. And while the Second World War delayed the start of work, it soon got rolling in the 1950s with the first well sunk in Ras Sadr. This was followed by many more through the 1950s and 1960s; however, it wasn’t until the late Sheikh Zayed bin Sultan Al Nahyan came to power in 1966 that the development of the entire Emirate and its people really began to gather momentum. As new wells began to flow, thegovernment received more revenues allowing the UAE to embark on its path of Emiratization with the Abu Dhabi Petroleum Company’s (ADPC’s)—formally Petroleum Development—training schools, which is where many of the senior management of ADPC come from today. After the Emirates’ independence in 1971, it also renegotiated the share of the oil fields whereby ADNOC would receive the first 25% share and subsequently a 60% share in the ownership of the reserves, which in turn yielded the government larger revenues. When first set up in 1963, ADPC was producing around 120,000 barrels per day (bbl/d); however, production has increased dramatically and it regularly produces 1.5 million bbl/d, with the number most likely to increase in the future, thereby ranking ADPC among the top 10 oil producing companies in the world.

While January 10 marked the end of the consortium’s participation in the concession, the original members were invited—apart from Partex—to bid again for new concessions that are likely to be decided by late 2014. An agreement was also struck whereby the old consortium would still be able to purchase the same amount of oil as previously; however, it will be priced slightly higher as ADNOC typically sells its oil to Asian countries on a long-term contract basis. Keeping the old partners on board and happy is a wise decision as the UAE has grander targets of producing 3.5 million barrels a day by 2017, which would be considerably more difficult without the help of the major oil companies. Industry experts have suggested that it would be quite difficult, if not unrealistic, for ADNOC to meet its targets unless it enlists the help of the major oil companies.

Interest in the new concession is high, mainly because of Abu Dhabi’s massive oil reserves, which stood at 97.8 billion barrels in 2013. Over the first quarter of 2014, ADNOC will consider bids from around 10 companies, including BP, Total, ExxonMobil, Shell, Statoil, Inpex, Rosneft, Eni, Korea National Oil Corporation, China National Petroleum Company, and Occidental. The concession is of particular interest to certain Asian companies, representing as it does a prime opportunity to get a long-term stake in a premium oil asset. At the moment, it looks as though the contract will last for 40 years, which would provide considerable stability and prestige were it to go to one of Asia’s emerging energy companies.