Cosmo Oil wins capital crude contract

Japanese consortium to explore for oil above Abu Dhabi's offshore Hail sour gas field.

Abu Dhabi's Supreme Petroleum Council has awarded a Japanese oil company an expanded 30-year concession to produce crude oil and explore for more off Abu Dhabi's coast.

It is the latest sign that the Government is intent on expanding its oil production capacity by renewing concessions, some of which date back 75 years.

Abu Dhabi Oil Company (Adoc), which is led by the Japanese refiner Cosmo Oil, has been pumping oil from the Mubarraz, Umm al Anbar and Neewat al Ghalan oilfields under a 45-year agreement due to expire next year. The new concession includes these three reservoirs and adds the nearby Hail field to its portfolio.

"The new concession agreement symbolises the excellent bilateral relations between the UAE and Japan," Cosmo Oil said.

"Adoc will commence exploration activities in the Hail field, which will include drilling appraisal wells, and will develop and produce crude oil in a highly efficient and cost-effective manner through full utilisation of Adoc's existing facilities, taking into high consideration the protection of the environment in the area," it said.

The new 30-year contract is to take effect on the expiry of the original concession on December 6 next year.

The fields are considered minor compared with Abu Dhabi's main offshore oilfields - Umm Shaif, Zakum and Upper Zakum. The current output from Mubarraz is about 18,000 barrels per day (bpd), compared with more than 550,000 bpd pumped from Upper Zakum. Nevertheless, the combined output from several undeveloped oil reservoirs within the Hail field could peak at a level matching Adoc's existing production, the group said.

Abu Dhabi National Oil Company (Adnoc) has already established the presence of a deep gasfield in rock formations below the Hail oil pools, but the gas contains a high concentration of hydrogen sulphide.

The presence of the toxic and corrosive impurity makes the Hail gas technically challenging to produce. Any gas leak could pose a serious threat to public health given the field's proximity to coastal settlements.

Abu Dhabi Gas Liquefaction Company (Adgas), an operating subsidiary of the government-owned Adnoc, launched a study of the feasibility of developing Hail gas in 2008, but no contracts were awarded for the project.

The inclusion of the Hail area in the new Adoc concession suggests the proposed sour gas development has been permanently shelved.

Like other oil pumped in Abu Dhabi, Hail's crude is also likely to contain hydrogen sulphide, although at a much lower concentration than in the underlying gas. This highlights the importance of Adoc's commitment to develop the oil in an environmentally responsible manner.

"Adoc's experience of more than 40 years in Abu Dhabi and the various environmental protection activities carried out by the company utilising advanced technology such as zero gas-flaring and sour gas injection into reservoirs are all important factors that will continue to further the bilateral relations between both countries," the group said.

Eliminating "gas flaring", or the burning of gas produced with oil, prevents acid gas emissions from contaminating the environment while also cutting carbon emissions. Sour gas injection is a process in which dissolved hydrogen sulphide and carbon dioxide are recovered from produced oil and pumped back underground. The gases help to push out more crude and are eventually stored permanently in the depleted oilfield.

Adoc's two biggest partners are Cosmo, with 63 per cent, and JX Nippon Oil& Gas Exploration with 31.5 per cent. Three Japanese power companies hold much smaller stakes.

Japan is the biggest importer of Abu Dhabi crude, buying about 40 per cent of the emirate's petroleum exports.

In 2009, Adnoc signed a deal to store oil in Japan for marketing in the wider Asia-Pacific region.

In a separate development regarding Abu Dhabi's offshore oilfields yesterday, Bloomberg reported that ExxonMobil, which holds 22 per cent of a joint venture with Adnoc for the Upper Zakum concession, would invite bids on US$6 billion (Dh22.03bn) of contracts to boost output from Abu Dhabi's largest offshore oilfield to 750,000 bpd by 2015.