January 8, 2014 6:48 pm

UAE takes over oilfields as foreign groups pull out

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The United Arab Emirates’ national oil company will take full control of the country’s largest oilfields over the weekend for the first time, as a decades-old arrangement with international companies comes to an end.

BP, Royal Dutch Shell, Total, ExxonMobil and Partex of Portugal will all exit the Abu Dhabi Company for Onshore Oil Operations (ADCO), a venture set up between the government and international companies, as the government of the oil rich emirate labours over the process of selecting new partners to run the fields.

The international oil companies will allow staff on secondment to ADCO to remain with the company, meaning production from one of the world’s major oil projects is unlikely to be disrupted, according to people familiar with the plans. But analysts said the move could still complicate the UAE’s ambitious plans to raise its oil output over the rest of the decade.

“The UAE has one of the most ambitious production growth targets within Opec [the oil producers’ cartel] ... and it is hard to make long-term decisions while in limbo,” said Robin Mills, head of consulting at Dubai-based Manaar Energy.

ADCO pumps about 1.5m barrels a day – more than half of the UAE’s total output. The government plans to increase its production capacity to 3.5m b/d by 2020, from about 2.9m b/d, with the lion’s share of growth expected to come from the ADCO fields. The production growth target has already been put back several years.

The foreign majors, which have until now shared ownership of the oilfields with Abu Dhabi’s national oil company, have been wary of making the large investments required to grow production significantly, fearing they would not be able to recover their costs before their contracts expired.

Abu Dhabi invited companies to tender to run the fields late last year, and attracted interest from many western majors. Chinese and Korean state oil companies have also entered the fray as Asian countries, which buy most of the UAE’s oil exports, seek a greater role in the country’s oil industry.

But negotiations are likely to take many months, with international companies seeking better terms. Under the existing decades old contracts, foreign companies receive a fee of $1 per barrel of oil produced by ADCO, according to people familiar with the arrangements.

“When oil prices were $20 per barrel that made sense, but with oil above $100 per barrel the contract is no longer right,” said one of those people.

Mr Mills said ADNOC – the state oil company – was likely to operate the field for a year or more, as the government seeks to put a new concession in place.

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