Remaining bidders weigh tough terms for stake in Abu Dhabi’s prime oilfields

The remaining bidders for a stake in Abu Dhabi’s prime onshore oilfields are weighing whether to stay in the running on tough terms following the award last week of the first and best of the fields on offer to France’s Total.

Last Thursday Abu Dhabi National Oil Company, known as Adnoc, and Total announced that the French company had been the first of 11 bidders chosen by the country's Supreme Petroleum Council for a hotly contested stake in Adco, the name of the operating company for Abu Dhabi's 15 onshore oilfields that currently produce about 1.6 million barrels per day, or more than half the emirate's output.

Total will have a 10 per cent shareholding in the company and will be the “asset leader” – the main operator and developer – of fields which account for two-thirds of Adco’s production, including Bu Hasa, the biggest single field. The remaining bidders have been left to consider proposals that require them to accept terms similar to Total.

The other bidders include BP and Royal Dutch Shell, which had been shareholders in the old Adco concession which expired at the start of last year, as well as Statoil, Occidental Petroleum, Eni, Rosneft, PetroChina, Korea National Oil Company and Inpex.

A Royal Dutch Shell spokesman in Dubai said: “We have received a proposal from Adnoc which we are currently studying.” The others either did not comment or were not reachable.

The terms of Total’s deal for Adco were not disclosed, but the head of one of the bidding companies in Abu Dhabi said: “It is not easy to see how Total will make much margin on it. It is an extremely high price to pay.”

In the old Adco concession, the producers – which included ExxonMobil, which was not a bidder for the new concession – were paid a fee of US$1 per barrel, which is very low by industry standards, even though the oil is relatively easy to access. Some of those involved in the bidding suggested the new margin was not much more than that, but they did not elaborate.

The initial reaction from stock analysts was mostly positive for Total, although they were assuming that the fees for the company were about $2.85 a barrel – in line with what Exxon negotiated for its participation in Abu Dhabi’s Upper Zakum offshore field last year – and that Total has terms that allow it to improve that margin.

In London, Jon Rigby at UBS said the deal increases his forecast for Total’s 2015 production by 7 per cent, or 160,000 bpd (10 per cent of current Adco production). “The new concession agreement also features an enhanced fee structure, with additional fees to Total for being the asset leader” on the fields it was awarded, Mr Rigby’s note to investors said.

Other analysts noted the potential to improve the operating performance at the fields through advanced reservoir management techniques, a major factor in winning the deal for Total and meeting (or beating) targets on the fields can improve Total’s margin.

"This is very easy oil onshore the Middle East, so the cost should be low, although it will require injection wells and enhanced oil recovery techniques," Mehdi Ennebati, an analyst at Société Générale in Paris, said.

“Historically, Total has paid about $2 a barrel for its resource acquisition – this one should be materially cheaper in light of its location.”

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