Adnoc awards China’s CNPC 8 per cent of Adco concession

Abu Dhabi’s onshore concession is operated by the Abu Dhabi Company for Onshore Petroleum Operations, in which Adnoc has a 60 per cent stake. Courtesy Adco

The Abu Dhabi National Oil Company, Adnoc, has awarded an 8 per cent stake in the emirate's prized onshore oilfield concession to state-owned China National Petroleum Corporation (CNPC) in a US$1.77 billion deal.

“This will be a mutually beneficial partnership that will enable us to maintain strong production levels as, together, we maximise the returns from what is a very attractive, long-term and sustainable opportunity in our onshore oilfields,” said Sultan Al Jaber, Adnoc’s chief executive.

The 40-year onshore concession covers 15 oilfields, including the Bab, Asab and Bu Hasa, collectively responsible for more than half of the emirate’s production of 3.1 million barrels of oil per day. The Abu Dhabi Company for Onshore Petroleum Operations (Adco), in which Adnoc has a 60 per cent stake, will be the concession operator.

The Chinese company joins Adco partners France’s Total, BP, Inpex of Japan and South Korea’s GS Energy.

Adnoc, meanwhile, said it will continue to explore opportunities for the remaining 4 per cent of the 40 per cent stake allocated to foreign oil and gas companies.

CNPC’s chairman, Wang Yilin, said that the agreement would enable optimal, efficient and sustainable development of the assets. “CNPC will play an active role in defining and developing technology applications in mature oilfields by planning to establish a tailor-made technology hub in Adco,” he said.

The hunt for new stakeholders has been a slow process since the original 75-year rights expired at the end of 2013. Previous holders of the Adco concession included western supermajors BP, ExxonMobil, Royal Dutch Shell and Total.

At the start of 2015, Total agreed to pay about $2.2bn for its 10 per cent stake and in December BP acquired its 10 per cent stake by issuing new ordinary shares representing about 2 per cent of its issued share capital, to be held on behalf of the Abu Dhabi Government. The latter deal was an unusual structure.

“The price amounts that any bidder would pay is only a small challenge,” said Pierre-Louis Brenac, the managing partner and Middle East head of the Paris-based consultancy Sia Partners. “While European oil companies will excel at bringing top-notch technology to the deal, a Chinese oil giant could bring fresh cash, hence the share premium, and could facilitate labour supply, for example.”

A key factor for Abu Dhabi’s Supreme Petroleum Council, which ultimately decides on the concession holders, is technology and knowledge transfer around enhanced oil recovery (EOR). The global standard of EOR is about 40 per cent of a field’s estimated reserve, but Abu Dhabi wants as much as 70 per cent to maximise the output and lives of its assets.

An industry executive, who did not want to be named, said investments relating to the required knowledge transfer over the contract’s duration could eventually exceed the price paid to join the concession.

“Over 40 years, so much money will be spent by the successful bidders in executing that part of the agreement that it almost overshadows the amount of money that was paid to join the share,” he said.

This includes technology that has not even been invented yet, giving Abu Dhabi access to future intellectual property.

“China might be one of the most stable partners for decades to come when compared to other parts of the world in unprobable 2017’s geopolitics,” Mr Brenac said.

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More Abu Dhabi oil coverage

Christopher Pike / The National

■ Adnoc chief Al Jaber: We are just getting started after steering unprecedented year of change

■ Chinese companies top Abu Dhabi list for stake in Adco

■ Total backs Adnoc on production increases at Bab onshore field

■ Adnoc combines its two largest offshore units

■ Japan to finance Abu Dhabi's Hail offshore oilfield development

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