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Adnoc hunting large discoveries to build output

As Abu Dhabi renews decades-old contracts with IOCs, the state firm plans to build up its output capacity

Founded to capture the country’s bonanza of oil in 1971, Abu Dhabi National Oil Company (Adnoc) has since grown into one of the largest energy companies in the world.

It operates 15 subsidiaries across the oil, gas and petrochemical sectors and dominates the country’s energy industry, thanks to Abu Dhabi’s control of around 94% of the UAE’s 97.8 billion barrels of oil reserves. While the IMF says hydrocarbons receipts accounted for 29% of the country’s GDP in 2012 – making it one of the Gulf’s less oil-dependent states – Adnoc’s profitability remains crucial to the country’s economic health.

Although the UAE is a major producer – last year output stood at just over 1.2bn barrels, making the country the sixth-largest global oil producer - it has not made any significant new discoveries in recent years. Despite this, the government wants to increase the country’s oil production to 3.5m barrels a day (b/d) over the next few years, up from 3.3m b/d last year.

Enhanced oil recovery

Adnoc has been using enhanced oil recovery (EOR) techniques, such as gas injection, to increase oil and condensate recovery levels from producing fields. Using these techniques has helped Abu Dhabi to nearly double its proved oil reserves over the past decade, according to the US Energy Information Administration (EIA).

The recovery of oil prices following the global financial crisis has helped to maintain the commercial viability of EOR operations, which are usually several magnitudes more expensive than conventional production.

Adnoc has also set ambitious targets to discover 500m barrels of oil equivalent (boe) of hydrocarbons every year. It said it will focus on the hunt for large discoveries, and plans to leave smaller deposits undeveloped until some of its larger producing fields are moving into decline. These smaller finds will help offset lost output until larger discoveries can be brought on stream.

The company is targeting discoveries with more than 1.5bn boe in place. It is carrying out extensive 3-D seismic surveys and is reprocessing data already available covering a number of prospective areas.

However, while analysts don’t discount Adnoc making new discoveries, they aren’t likely to be giant fields.

Renewing concessions

That makes renewal of the existing contracts with international oil companies (IOCs) operating in Abu Dhabi crucial. Adnoc holds a minority stake in these long-term, production-sharing agreements with majors such as BP, Shell and Total. 

Many of these 75-year old oil concessions for onshore fields, which make up around half of the UAE’s total crude production, are due to expire in January 2014. IOCs are trying to position themselves as potential partners or new entrants for the concessions. Foreign companies are expected to submit their bids by October.

The Adco concession, which covers six deposits, is the largest in the country with the capacity to produce about 1.5m b/d. The Upper Zakum field, which is run by Adnoc (68%) ExxonMobil (28%) and the Japan Oil Development Company (12%), produces around 550,000 b/d. Adnoc wants to increase capacity at Upper Zakum to 750,000 b/d by 2016. Recent signs point towards a shake-up in Abu Dhabi’s upstream, with Adnoc believed to be encouraging Asian national oil companies (NOCs) to compete for the IOC-held oil concessions.

Earlier this year, BP seemed destined to lose its stake. After heavy lobbying from the British government, including a trip to the UAE by prime minister David Cameron and assurances that recent British press coverage of dissidents was not engineered by the UK government, it now seems likely to renew its contract, believe analysts.

Nonetheless, what was once one of the friendlies relationships between an NOC and Western partners is changing. Sanctions on Iran have helping push Asian consumer NOCs closer to Arab Gulf resource holders.

In February, the Japan Bank for International Cooperation extended a $3bn loan to Adnoc in what was seen as a bid to firm oil supply arrangements between the oil-hungry Asian consumer and the Gulf state. 

Table 1: Adnoc by the numbers
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