Adnoc signs contracts for development of Bab and Upper Zakum fields

Upper Zakum capacity to rise to one million bpd, Bab to 450,000 bpd

Subcsription for Adnoc Distribution shares opened on Sunday. Courtesy Adnoc

The Abu Dhabi National Oil Company (Adnoc) is set to significantly increase its production capacity with the expansion of its offshore Upper Zakum and onshore Bab oil fields, after signing two contracts to meet planned output targets.

The company closed an agreement on Tuesday with Exxon Mobil’s Abu Dhabi subsidiary and Japan’s Inpex Corporation to increase production capacity from its offshore Upper Zakum oil field to a million barrels a day by 2024.

"ExxonMobil and Inpex, alongside our other partners, have played an important role in the development of our oil and gas assets," said Dr Sultan Al Jaber, Minister of State and Adnoc group chief executive.

"This agreement is another milestone in our efforts to forge partnerships that bring technology, expertise and capital aimed at delivering greater economic value and levels of recovery from our resources.”

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Adnoc first partnered with Japan Oil Development Company (Jodco), which is wholly owned by Inpex, to develop Upper Zakum in 1977. The offshore field, discovered the same year, is the second largest in Abu Dhabi and the fourth largest in the world. US oil major Exxon Mobil joined Adnoc and Jodco to develop the field in 2006, when plans were drawn up to boost production capacity to 750,000 bpd from 500,000 bpd.

The Upper Zakum project will involve construction of 450 wells and 90 platforms over its lifetime on four artificial islands in shallow water.

Adnoc announced in October it was holding advanced discussions with Japanese firms to renew offshore concessions that are set to expire next March. Apart from Upper Zakum, Jodco holds stakes in the offshore Satah and Umm Al Dalkh fields, which began production in the eighties. The Japanese firm holds a 12 per cent stake in the three offshore fields, as well as the offshore Nasr, which began production in 2015.

The Abu Dhabi firm also agreed an engineering, procurement and construction (EPC) contract with China Petroleum Engineering & Construction Corporation (CPECC), a subsidiary of China National Petroleum Corporation, to expand production capacity at the onshore Bab field to 450,000 bpd from its present capacity of 420,000 bpd.

While the value of the deal was not disclosed, market sources have placed it at $1.5 billion. The Chinese company won the contract after submitting the lowest bid to develop the integrated oil facilities operated by Adnoc Onshore in September.

“The decision to modernise our production infrastructure at the large Bab field is another clear signal that Adnoc is making smart investments to increase production capacity, enhance the long-term productivity and maximise the profitability of Abu Dhabi’s oil reserves, as we create a more profitable upstream business, in line with our Supreme Petroleum Council approved 2030 growth strategy,” said Dr Al Jaber.

As part of its asset upgrade at Bab, Adnoc is set to deploy cluster drilling, in which multiple oil wells will be "co-located in one place", the firm said.

The agreement with CPECC follows Adnoc’s pivot to the east, following the oil prices downturn that prompted the national oil company’s revaluation of strategy.

In February, CNPC took an eight per cent stake in Adnoc Onshore, formerly known as Adco, while China Energy took a four per cent stake in the Adnoc subsidiary that operates onshore concessions in the emirate.

As a result, Chinese interests combined account for the largest foreign holdings in the concession, which also includes France’s Total, BP, Inpex and South Korea’s GS Energy with Adnoc the major shareholder.