Competition to presalt: "meeting and maintaining the output target won't be an easy task...Things are getting harder"
Compared to other world regions such as Alaska, Brazil or West Africa, where oil reservoirs are often located deep offshore and the crude is heavy, the cost of extracting oil in Abu Dhabi is still low.
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Oil Production Gets Tougher
Abu Dhabi, the emirate that holds almost all of the United Arab Emirates' oil reserves, has ambitious plans to boost oil-production capacity to 3.5 million barrels a day by 2017 from about 2.8 million barrels now. But meeting and maintaining the output target won't be an easy task.
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See the complete Gulf-U.A.E. report .WSJ.com/Mideast: News, video, graphics The crude reservoirs that are easiest to access have already dwindled. Extracting the remaining reserves is becoming more complicated and expensive.
As existing fields mature and deplete, Abu Dhabi will have to rely on enhanced oil-recovery techniques that can boost production from aging oil fields. This is done by injecting steam, gas, water or carbon dioxide into the oil-bearing stratum, forcing crude into pipes and up to the surface. At present, state-run Abu Dhabi National Oil Co., known as Adnoc, injects at least a third of all natural gas consumed domestically into oil fields to sustain or raise production.
To achieve its future output targets, the emirate's main operating companies—Abu Dhabi Co. for Onshore Oil Explorations and Abu Dhabi Marine Operating Co., known as Adco and Adma—will also need to develop marginal oil fields, whose feasibility depends on economic conditions and the availability of certain technologies.
"Things are getting harder, there's no doubt about that," says Colin Lothian, senior analyst for the Middle East at Edinburgh-based oil consultancy Wood Mackenzie. "Fields, both offshore and onshore, have been producing for many decades now and Adco and Adma have to implement various enhanced oil-recovery schemes and also to develop marginal fields to increase production."
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It's getting harder to extract oil in Abu Dhabi.
While technologically more challenging, the methods are also more costly, driving up the cost of developing and producing every barrel of oil. "It is no longer valid when they say it costs $4 to $6 to produce a barrel of oil," says Kamel Al Harami, an independent oil analyst based in Kuwait.
Indeed, the cost of developing some of Abu Dhabi's marginal fields may be double that in the future. According to Abdel Munim Saif Al Kindi, general manager of Adco, which is 60%-owned by Adnoc, the unit technical cost could be $10 a barrel or more. Compared to other world regions such as Alaska, Brazil or West Africa, where oil reservoirs are often located deep offshore and the crude is heavy, the cost of extracting oil in Abu Dhabi is still low.
Mr. Lothian says: "In terms of global development cost they're still among the lowest (in Abu Dhabi). But there's no doubt that costs are rising because of the more technical and complex nature of the fields that are being developed."
Abu Dhabi's plans could mean a more prominent role in the local upstream oil industry for international oil companies—a rare opportunity to gain access in the Middle East.
"You cannot do it alone," Mr. Al Harami says. "You need the experience and equipment of international oil companies."
However, there is uncertainty over what any future foreign oil firm involvement will look like. Both Adco and Adma are partially owned by international oil companies but their concessions will expire in 2014 and 2018, respectively, and it is uncertain whether the contracts will be renegotiated, retendered or opened up and restructured.
Royal Dutch Shell PLC, BP PLC, ExxonMobil Corp. and Total SA each hold 9.5% stakes in Adco, and Partex Oil & Gas owns 2%. Adma, which is also 60%-owned by Adnoc, is 14.67%-owned by BP, with Total holding a 13.33% stake and Japan's Jodco 12%.
But the way the concessions are structured doesn't promote the use of cutting-edge technologies and practices. Mr. Lothian says: "The respective partners are not going to apply their very latest, leading-edge technology and share it with the peers they compete with in the global industry.
"One of the considerations may be that it is better to split these assets up and have a single operator on operatorship and development, rather than the current partnering structure," Mr. Lothian says.
— Mr. Klaus is assistant managing editor, Middle East, for Dow Jones Newswires in Dubai. He can be reached at oliver.klaus@dowjones.com. |
