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ADNOC awards first offshore concession stake to Indian consortium

Dubai (Platts)--10 Feb 2018 1122 pm EST/422 GMT


State-owned Abu Dhabi National Oil Company signed its first international partner for one of its prized offshore concessions, awarding a 10% stake to an Indian consortium led by ONGC Videsh.

The 40-year deal was signed by ADNOC CEO Sultan al-Jaber and Shashi Shanker, chairman of ONGC Group. Overseeing the ceremony late on Saturday were Abu Dhabi Crown Prince Mohammed bin Zayed along with Indian Prime Minister Narendra Modi. The deal will not only help to deepen UAE-India energy ties, but it will also help the Middle eastern company to expand its presence in Asia.

OVL, along with Indian Oil Corp. and Bharat PetroResources, were awarded a 10% stake in the new Lower Zakum concession, after agreeing to pay Dirham 2.2 billion ($599 million). Effective from March 9, the deal is the first time any Indian oil and gas companies have been given a stake in Abu Dhabi's hydrocarbon resources.

The announcement follows months of discussions between ADNOC and more than a dozen potential international partners for the emirate's main offshore oil concession which expires March 8 this year.

"We are hopeful that this historic agreement will lead to further opportunities for Indian oil and gas companies to participate in the UAE's energy sector," Shanker said. ADMA CONCESSION BROKEN IN THREE

International stakeholders in the ADMA concession until now were BP with 14.67%, Total with 13.33% and Inpex subsidiary Japan Oil Development Co. with 12%.

With so many companies eager to take a slice of the offshore fields, the award finally sheds light on how Abu Dhabi plans to divide the concession, located in the shallow waters of the Persian Gulf. In total it produces around 700,000 b/d, about a quarter of the UAE's total oil output and half its crude oil production from offshore fields.

The Indian group was given a 10% stake in Lower Zakum, the first of the three new concessions being spun off. The others cover the Umm Shaif and Nasr fields, and another for the Umm Lulu and Satah al-Razboot fields. All three will be operated by ADNOC Offshore, a new subsidiary, and ADNOC maintains the controlling 60% stakes.

ADNOC said the restructuring of concessions is aimed at maximizing commercial value, broadening the partner base, expanding technical expertise, and enabling greater market access. This is while it attempts to boost total production capacity to 3.5 million b/d by the end of 2018, as well as drastically raising its downstream capacity, doubling gasoline production and tripling petrochemicals output by 2025.

Further announcements are expected in the coming weeks as ADNOC tries to complete the concession awards before the March 8 expiry, forging partnerships with international companies willing to share technology, provide ADNOC with international marketing advantages or help finance large projects.

CAPTURING ASIAN DEMAND

Jaber visited both China and Japan earlier this month, meeting with senior officials and top oil executives. Many UAE oil watchers had expected an announcement from the visits. The granting of a 10% stake to the Indian companies adds a new dimension to the UAE's tilt to its main demand source for its oil and petrochemicals in Asia.

It follows a similar pattern to the onshore concession awards which were completed last February, and confirms what UAE energy minister Suhail al-Mazrouei said last April, that "extending those ties with China, Korea, India, Japan is imperative."

ADNOC retained only two legacy shareholders Total and BP, with 10% each in the onshore concession, while adding participation from new Asian entrants: China's CNPC and CEFC with a combined 12%, Japan's Inpex with 5%, and South Korea's GS Energy with 3%.

Speaking at the signing, Modi said India's relationship with the UAE and India had progressed from buyer-seller to one of "mutual investments in the oil and gas sector."

"The offshore concession in favor of the Indian consortium has taken our bilateral engagement in the oil and gas sector to a new level, which befits the comprehensive strategic partnership between our two countries," Modi said. "I am happy to note that we have progressed from a buyer-seller relationship to an era of mutual investments in the oil and gas sector."

"This mutually beneficial partnership will help India meet its growing demand for energy and refined products, create opportunities for ADNOC to increase its market share in a key growth market, and build a solid foundation as ADNOC explores potential international investments, particularly focused on downstream opportunities," Jaber said in the statement.

In a sign of how important India had become, last March ADNOC gave up its crude storage lease in South Korea, choosing instead to sign a deal with the Indian Strategic Petroleum Reserve Ltd. The agreement covers storage for 5.86 million barrels of crude in India's Karnataka state. That's more than half the total capacity of the underground facility.

ADNOC and ISPRL reaffirmed the commitment Saturday, agreeing to implement the Karnataka storage deal which was initially announced in January 2017 during a visit to India by the Abu Dhabi crown prince. This will not only help the UAE expand its sales in the South Asian nation, but also gives Indian refiners quick access to cargoes which could potentially lower their costs.

--Adal Mirza, adal.mirza@spglobal.com

--Ratnajyoti Dutta, newsdesk@spglobal.com

--Sambit Mohanty, sambit.mohanty@spglobal.com

--Edited by Irene Tang, newsdesk@spglobal.com




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