The end of an incredible oil-powered era

The original concession deal for Abu Dhabi’s oilfields runs out on Friday. Signed in 1939, it heralded a new dawn for the emirate and helped to fuel the formation of the UAE. But in the early days, there were no guarantees and a few disappointments along the way

Geologists car bogged down in Sabkhah from author David Heard book titled From Pearls to Oil. Photo Courtesy ADCO
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At midnight on Friday an era in the modern history of the emirate of Abu Dhabi will come quietly to an end.

January 10 marks the expiry of the 75-year concession that covers the oilfields run by the Abu Dhabi Company for Onshore Oil Operations (Adco).

The company will continue to operate, but for the first time the oil being pumped from its 11 fields and the reserves will belong wholly, through the Abu Dhabi National Oil Company (Adnoc), to the Government. There will no longer be any foreign shareholding.

That may change later, once decisions are made about which foreign companies are invited to enter new joint-venture partnership agreements with Adnoc. For now, Abu Dhabi’s oil industry takes on a new shape.

It is an appropriate moment to cast an eye back over the developments of the past 75 years, during which Abu Dhabi and, since its formation in 1971, the UAE, have joined the ranks of the world’s major oil producers.

The search for oil began in the 1920s with the first visits by geologists from the Anglo-Persian Oil Company, which later became British Petroleum and then BP.

More surveys took place in the mid-1930s, with the oil company teams accompanied around the desert by a young man who later played a crucial role in the country’s development, first as the Ruler’s Representative in the Eastern Region of Abu Dhabi, then as Ruler of Abu Dhabi and President, the late Sheikh Zayed.

The results of those surveys were promising and a consortium of foreign oil companies approached the then Ruler, Sheikh Shakhbut, to negotiate a concession agreement. Valid for 75 years, it was signed on January 11, 1939.

The consortium, which included companies that after mergers and changes of name are now known as BP, Shell, ExxonMobil, Total and Partex, was already working further up the Arabian Gulf, under the name of Iraq Petroleum.

They established a subsidiary, Petroleum Concessions, which set up another subsidiary, Petroleum Development (Trucial Coast), which took on the concession.

The outbreak of the Second World War a few months later delayed exploration. It was not until after the end of the war that work began to determine where the first oil well could be drilled.

It was eventually spudded in 1950 at Ras Sadr, north-east of Abu Dhabi town.

It reached a depth of 13,001 feet – the deepest well that had ever been drilled in the Middle East, in the first of many technical records that were set – but was a dry hole with no trace of oil and gas.

Over the next few years, more wells were drilled, some of which were dry. But the Murban-1 well on a geological structure about 100 kilometres west of Abu Dhabi, drilled in 1953, found traces of hydrocarbons. Initial hopes of quick discoveries faded.

In 1958, however, work on a second well on the Murban structure confirmed the presence of oil and gas, and in December 1959 work on the Murban-3 well began.

Completed in May 1960, it produced crude oil at a rate of 3,764 barrels a day from the Thamama Formation. On October 27, 1960, Petroleum Development formally advised Sheikh Shakhbut that the discovery, renamed the Bab field, was commercially viable.

The era of oil production was about to begin.

It took another three years of drilling more wells, laying a 112km pipeline across tough terrain and construction of an export terminal at Jebel Dhanna before exports could begin.

The first tanker to carry a cargo of crude oil from Abu Dhabi’s onshore fields was eventually loaded on December 14, 1963.

By that time, Petroleum Development had changed its name to the Abu Dhabi Petroleum Company (ADPC) and two more fields had been found – the giant Bu Hasa, west of Bab, which commenced production in 1965, and Bida Al Qemzan, a smaller field that began production early last year.

More fields quickly followed, including Asab in 1965, Shah in 1966 and Sahil in 1967, all of which were later developed.

Government revenues from oil production grew rapidly, providing the revenues that enabled Sheikh Zayed, who became Ruler of Abu Dhabi in August 1966, to set in motion the programme of rapid development that has continued ever since.

For years, though, the development company had been providing training and employment opportunities to young Emiratis in the what was the beginning of today’s Emiratisation programme.

Many were sent abroad for further studies after passing through the ADPC Training School. A good number of senior Adco employees began their careers this way, with some having spent 30 or 40 years with the company.

As Abu Dhabi’s oil production grew, the time came for ownership of the oil reserves to be reviewed.

Adnoc was established in 1971, and over the next few years agreements were signed with ADPC shareholders that gave Adnoc first a 25 per cent, then a 60 per cent share in ownership of the reserves.

The original concession agreement covered only oil, so all gas reserves that were discovered belonged to the Government.

In early 1979, the responsibility for operating the onshore oilfields was transferred from ADPC to a new company, Adco, which was 60 per cent owned by Adnoc and 40 per cent by ADPC shareholders.

It is that successful partnership, operating at first under the directions of Abu Dhabi’s Department of Petroleum, and since 1988 the Supreme Petroleum Council, that has overseen the emergence of the world-class company of today.

The council has been chaired since its inception by Sheikh Khalifa, first as Crown Prince of Abu Dhabi and then as President and the emirate’s Ruler.

New fields have been brought into production, including the North-East Bab group of Dabb’iya, Rumaitha and Shanayel, while full-field development schemes have been implemented in the older fields at a cost of billions of dollars.

When Bab commenced production in 1963, ADPC was producing about 120,000 barrels a day. Now, the production capacity from Adco’s 11 fields is about 1.6 million barrels a day, with further expansion projects under way, and Adco is one of the world’s top 10 oil-producing companies.

As has been the case since that first well at Ras Sadr was drilled in 1950, technical innovation and expertise has been at the forefront of Adco’s achievements.

Horizontal drilling has become common – sometimes for as much as 10,000 feet – thousands of feet underground.

The introduction of a “smart” field system allows for individual wells to be controlled by computer from head office.

Groundbreaking initiatives, such as the pilot scheme for carbon-dioxide injection in the Rumaitha field, are being developed that will not only increase total production but will allow for a greater percentage of the reserves to be recovered.

The workforce has risen from a few dozen at the time the Ras Sadr well was drilled, to surpass 7,000, more than half of whom are Emirati.

Among those are a growing number of Emirati women, many in head office but some of whom can be found working alongside the men in the oilfields.

As one would expect, a history that stretches back 75 years is full of achievements and impressive statistics.

More than 20,000 tankers have sailed from Jebel Dhanna, with others now leaving from the Adco-operated Fujairah terminal that came into service in mid-2012.

Hundreds of millions of man-hours have been expended. Billions of barrels of oil have been produced. Tens of billions of dollars have been spent, and hundreds of billions of dollars in revenues have been earned.

Emiratis and expatriates of many nationalities, government officials and their Adnoc colleagues, and foreign shareholders who first took the risk of drilling for oil in the harsh and unpromising deserts of Abu Dhabi – all of these have played their part in the Adco story over the decades.

It is a crucial part, too, of the story of the development of the modern UAE.