Abu Dhabi Plans to Award Oilfield Contracts in $10 Billion Onshore Program

Abu Dhabi National Oil Co., the United Arab Emirates’ state-owned crude producer, will award onshore oilfield service contracts in 2012 as part of a $10 billion program to boost output 30 percent by 2017.

Abu Dhabi Co. for Onshore Oil Operations, the onshore unit of Abu Dhabi National known as Adco, is on track to raise output by 400,000 barrels a day to 1.8 million barrels a day, according to the company’s chief executive officer.

“We hope to add 213,000 barrels a day by 2012, which will come from new reservoirs and new fields,” Abdul Munim Saif al- Kindy said in an Oct. 19 telephone interview from Abu Dhabi. “The rest, some 200,000 barrels a day, will come from increasing production from existing fields of Bab, Asab and Qusahwira, for which we plan to award related projects starting 2012.”

The U.A.E. is going ahead with its plans to boost onshore output even after the financial crisis reduced oil demand in 2008 and 2009, the first two consecutive years of declining consumption since the 1980s, which forced the Organization of Petroleum Exporting Countries to make a record output cut to support prices.

During 2008 and 2009, global oil demand fell by a combined 1.7 million barrels a day, or about 2 percent, according to the October monthly market report from the International Energy Agency. By awarding contracts during the slump, Abu Dhabi saved at least 30 percent in equipment costs, al-Kindy said.

Capacity Increase

Abu Dhabi, which holds more than 90 percent of the country’s oil reserves, aims to boost total capacity to 3.5 million barrels a day from about 2.8 million now by developing offshore fields operated by other units of Abu Dhabi National, which owns 60 percent of Adco. Royal Dutch Shell Plc, Total SA, Exxon Mobil Corp., BP Plc and Partex hold the rest.

Abu Dhabi National expects to spend about $50 billion to $60 billion in the next decade as more capacity is developed, al-Kindy said. The new oil capacity will require more drilling and exploration to sustain that level, leading to a growth in rigs and other oilfield services, and the additional gas produced in association with oil will lead to expansions in petrochemical and fertilizer plants, he said.

‘Bound’ to Rise

Crude, which fell from near $150 a barrel to below $40 a barrel in 2008, closed last week on the New York Mercantile Exchange at $81.69 a barrel.

“Oil prices are bound to stabilize and go higher, as we’ve seen historically, because oil and gas are the dominant fuels for growth,” al-Kindy said. “If you measure crude against the equivalent energy from solar or wind, you’re talking about $250- $300 a barrel. At current prices there is no viable alternative to oil.”

Once onshore capacity reaches 1.8 million barrels a day, the challenge will be how to sustain it, either through new reservoirs, exploration efforts, or by developing smaller, tighter new reservoirs, al-Kindy said. Adco is shooting seismic surveys and plans to explore some wells in 2011, he said.

“The average cost of production for the additional capacity will range between $6 and $7 a barrel and up to $30 for the smaller, more capital intensive fields,” said al-Kindy, who is also chairing the Abu Dhabi International Petroleum Exhibition and Conference starting next week. “We have a 25- year plateau period for big reservoirs. About 60 percent of our prospects are in the southeast, in smaller fields, and for these smaller reservoirs, we need to work out optimum plateau periods that are economic.”

Enhanced Oil Recovery

Adco is also looking at ways to reduce its use of as much as 40 percent of the 5 billion cubic feet of natural gas produced daily in the U.A.E., and has started a pilot project to replace it with carbon dioxide. Gas is used for enhanced oil recovery, or EOR, increasing pressure inside reservoirs to push more crude out.

The company is in talks with Masdar, Abu Dhabi’s government-backed renewable energy company, to capture CO2 from pollutant sources such as power plants, transporting it and injecting it into oilfields. Masdar plans to capture 5 million metric tons of carbon emissions annually starting between 2012 and 2014, it said in January.

“We have started a pilot at Rumaitha. Should we succeed in proving the value of using CO2 as an EOR medium, in this pilot, this would replace gas,” al-Kindy said. “We currently inject about 150 million cubic feet a day of gas in that field, which could be released or partly released into the grid. We can target releasing 300 million cubic feet a day from the northeastern fields.”

The U.A.E. is the third-largest member of OPEC, which supplies about 40 percent of the world’s oil. It imports natural gas from neighboring Qatar and is building nuclear plants to meet power demand that is expected to double by 2020.

To contact the reporter on this story: Ayesha Daya in Dubai at adaya1@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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