Ipic seeks $4bn return for building key oil pipeline

The International Petroleum Investment Company is in talks with the Government to receive US$4 billion in cash for building a strategic oil pipeline bypassing the Strait of Hormuz.

The Abu Dhabi Crude Oil Pipeline allows the transportation of onshore crude from Habshan in Abu Dhabi to a terminal and export facilities in Fujairah. Courtesy Ipic

The International Petroleum Investment Company (Ipic) is in talks with the Government to receive US$4 billion in cash for building a strategic oil pipeline bypassing the Strait of Hormuz.

Ipic executives said in an investor call this week that the investment company expected to be reimbursed for the cost of building the pipeline in several payments over the coming year, Reuters reported.

The talks are with the Department of Finance and the Supreme Petroleum Council, the emirate's top decision-making body for energy policy.

The payments would mark the final steps in bringing online one of the emirate's most ambitious infrastructure projects. A 380-kilometre pipeline snaking through the desert and mountains from the heart of oil production at Habshan to a port in Fujairah, the Abu Dhabi Crude Oil Pipeline (Adcop) is meant to allow all of the emirate's onshore production to bypass the Strait of Hormuz, a narrow waterway that Iran has in the past threatened to block. An added benefit is a flood of investment that has come to Fujairah's oil storage, refining and petrochemicals in expectation of the crude volumes.

Abu Dhabi National Oil Company (Adnoc), which is due to lease the pipeline starting next month, expects to be able to increase pipeline capacity to 1.8 million barrels per day (bpd) from 1.5 million bpd as it ramps up production at onshore fields.

But the pipeline, originally scheduled for commissioning at the end of 2010, is not yet operating at full capacity. It was built by the primary contractor China Petroleum Engineering & Construction, a subsidiary of China National Petroleum Corporation.

The expected cash from the government will allow Ipic to repay upcoming debt maturities, including a $659 million yen-denominated facility due next month and a $2bn debt due in September.

This month Ipic reported a steep jump in profits to Dh6.4bn last year from Dh164.1m the year before, thanks to improvements in its equities portfolio. Nova Chemical, a Canadian petrochemicals producer it owns, is due to start using shale gas from North Dakota and Pennsylvania this year.