Go-ahead for $3.5bn oil projects

ADNOC awards expansion contracts. Three onshore fields to be developed to increase production capacity by 30 per cent.

Adnoc has awarded contracts worth $3.5 billion for the expansion of three onshore fields.

The Abu Dhabi National Oil Company (ADNOC) has awarded contracts worth US$3.5 billion (Dh12.85bn) for the expansion of three onshore fields. The contracts to increase production at the Sahil, Asab and Shah (SAS) fields show that ADNOC is moving ahead with its long-term plans to lift capacity by 30 per cent, to 3.5 million barrels per day (bpd), despite a recent dip in global oil demand. "We are committed to our strategic development plans," said Abdul Munim al Kindi, the general manager of the Abu Dhabi Company for Onshore Operations (ADCO), a subsidiary of ADNOC responsible for the country's onshore fields. "My directive [from the Government] is that projects really are to be executed." The Government has pushed back its target date for increasing capacity by several years. Analysts say one factor behind this has been the looming expiry of the country's largest oil concessions, some of which date to 1939. This has acted as a disincentive to investment by foreign partners, including BP and Royal Dutch Shell. Foreign companies hold 40 per cent of ADCO. The ADCO concession, which includes the SAS fields, expires in 2014. Industry sources said the foreign partners agreed to pay their share of the new investment thanks to an agreement that they would recoup it before the concession's expiry under a mechanism known as "accelerated depreciation". The Supreme Petroleum Council, headed by Sheikh Khalifa bin Zayed, President of the UAE, has yet to decide on the future of the three main concessions. Petrofac, a British oil services firm with a significant presence in Sharjah, was awarded a $2.3bn contract for engineering, procurement and construction (EPC) to expand the Asab field. A consortium of Tecnicas Reunidas, a Spanish firm, and Consolidated Contractors, based in Athens, won a $1.2bn contract for EPC work on the Sahil and Shah fields. Together, the three developments will increase production from the fields by 60,000 bpd, to 455,000 bpd, when they are commissioned in the fourth quarter of 2012. The project is the first step in a larger goal to raise ADCO's capacity by 400,000 bpd by 2016 to a total capacity of 1.8 million bpd. Contractors had originally sought $4.3bn for the work when it was tendered as a single project earlier this year, Mr al Kindi said, but ADCO saved $800 million thanks to deteriorating market conditions, which reduced demand and prices for contractors and raw materials including steel. "The market has shifted," Mr al Kindi said. "We took some time to discuss with contractors. We are fully supported to see these projects through. At the same time, we wanted to take advantage of the market development." All oil companies expect significant savings on projects as a result of the economic downturn, but have to balance that objective against the need to develop new capacity before the global economy turns up again, said Robin Mills, a Dubai-based oil economist. Other Gulf oil and gas producers have also been seeking savings on new projects. Earlier this month, Saudi Aramco told suppliers it had cut 20 per cent of development costs for the Karan gas field, previously estimated at $10bn. Shell, BP, ExxonMobil and Total each hold 9.5 per cent slices of ADCO, with another 2 per cent owned by Partex, a private firm that diverts its revenues to a charity foundation. The companies signed the 75-year concession in 1939. ADNOC owns the remaining 60 per cent of ADCO. The SAS contracts follow an announcement that the Supreme Petroleum Council would renew an oil concession held by a Japanese consortium led by Cosmo Oil. The concession covers several offshore oil fields producing 18,000 bpd, and is good for an additional 20 years when the contract expires in 2012. A spokesman for BP, Fares Gheim, said the SAS contracts were not related to the ADCO concession. "This is just part of our ongoing work in Abu Dhabi, with no strings attached," he said. Mr al Kindi said the SAS contracts were the first of several major projects to be awarded this year, as the country pursues its capacity expansion plans. The company would soon award contracts for development of two new fields, Qusahwira and Bida al Qemzan, he added. [e-mail] [e-mail]