Abu Dhabi National Oil Company's proposal to delay a bid for onshore rights could affect the emirate's ambitious production plans.
Adnoc has recommended extending the emirate's historic Abu Dhabi Company for Onshore Oil Operations (Adco) concession by one year to January 2015, according to industry sources.
The proposed extension, first reported by the trade publication Energy Intelligence last week, grants extra time for Adnoc to announce the terms of its expected tender for the prized family of oilfields and review bids from companies.
Although the extension has yet to be approved by the Supreme Petroleum Council, the emirate's decision-making body, some industry executives consider the delay a fait accompli, since the concession is now set to expire in 10 months without any sign of geological data for new bidders, a shortlist, or, of course, any winners.
"It's very obvious that if they haven't started the bidding, they won't be able to finish by the end of the year," says an oil executive.
One reason for the delay may be ongoing negotiations with ExxonMobil over a separate offshore concession, reported the trade magazine Petroleum Intelligence Weekly.
The American major, which operates the Upper Zakum field, is looking to raise its current per-barrel fee from US$1 - the same as the Adco rate - and has reportedly reached a compromise with Adnoc of $2.85 a barrel. Although a much better rate, it is still less than half the average for other fields in the region that bear more exploration or security risks.
If the deal is approved by the Supreme Petroleum Council, that would be the benchmark for Adco negotiations, and well worth the wait if it allows Abu Dhabi to get a better deal onshore.
The fields coming under the Adco concession - which include Bab, Asab, Shah and Bu Hasa - account for half of the emirate's total 2.8 million barrels per day (bpd) production capacity.
Since the Second World War these fields have been run by the western majors known today as ExxonMobil, Total, BP, Royal Dutch Shell and Partex.
Among the most expansive reserves available to foreign companies in a politically stable environment, they have been doggedly pursued by the existing partners and newcomers to the international oil competition for Abu Dhabi such as China National Petroleum Corporation, Korea National Oil Corporation and Norway's Statoil.
But the concession-bidding delay comes amid a drive to expand Abu Dhabi's overall pumping capacity to 3.5 million bpd.
Over the next three years Adnoc's subsidiaries, including Adco, must double the number of pumps required to maintain pressure at older wells - upgrades that will cost an estimated $4 billion (Dh14.69bn). "Most of the fields need more investments to increase production, and no partner will make an investment unless they get a return on that investment," says Christopher Gunson, an oil and gas lawyer.
In July, Adnoc invited more than 10 companies to submit prequalification papers. But it has not had any official communication with the bidders since.
"It's not for the overall benefit for the process of getting the fields into development, because it's another year of not knowing what will be happening," says an executive vying for a concession.
Companies wanting to tender that have not been involved in the Abu Dhabi fields before are at a greater disadvantage the longer the emirate drags out the bid, say international oil executives. "The companies who are here, they have most of the data and they could always have access to their own data - but any new player will have a completely unscripted area," says one executive.
But a short-term loss in efficiency is a necessary sacrifice, say oil analysts, for the emirate's long-term production as it seeks partners for the next 30 or 40 years.
Abu Dhabi's leaders must craft an economic structure that will motivate the technically advanced majors to use their propriety technology - a prospect that will likely involve increasing the current $1 per barrel payment to foreign partners.
"One thing for sure, I think the current terms are probably not encouraging in today's world," says AbdulKarim Al Mazmi, the general manager for BP in Abu Dhabi. "It was probably acceptable in the old days, but it's probably not with the current oil price environment."
The emirate must also balance a desire to maintain partnerships with western companies against "strategic" partners from Asia, which represents the bulk of the emirate's oil consumers.
"It takes time, time, time," says one of the executives whose company is bidding for the first time in Abu Dhabi.
"It's not transparent. That's the problem. You don't know when and how. The rules of the game can change all the way up to the last day."
