BP has acquired 10 percent of the Abu Dhabi Company for Onshore Petroleum Operation’s (ADCO) oil concessions in a $2.2 billion shares swap deal with the Abu-Dhabi emirate. BP will pay for its stake by transferring 2 percent of its share capital to the Abu Dhabi government, as multiple media sources reported on Saturday when the deal was announced.
As part of the deal, BP will become the concession holder of the Bab Bu Hasa, Shah and Asab oilfields, which it will operate over the next 40 years. The aforementioned oil fields account for as much as 30 billion barrels of oil equivalent over the 40 years, Bloomberg reported.
As BP CEO Bod Dudley told Bloomberg “this deal will provide an output of 160,000 barrels a day, in addition to the 95,000 barrels BP now produces in Abu Dhabi”.
BP has been conducting operations in Abu Dhabi oilfields since 1939 and held a 9.5 percent stake in ADCO’s onshore fields since the 1970s. The concession expired in 2014, and since then Abu Dhabi has been negotiating and selecting foreign oil companies for partnerships again, although the low oil-prices have been slowing down the concession awards process, as low payment terms per barrel discouraged commitment to long-term investment contracts.
However, since the onset of the oil prices slump, the government of the UAE, which is the fifth largest OPEC producer, has been looking for ways to maximize their oilfields’ recovery rates, boosting them from 40 percent to as high as 70 percent, which could bring an influx of extra revenue worth billions of dollars over the lives of the fields.
According to The National, an Abu-Dhabi based newspaper, the decision by the Abu-Dhabi Supreme Petrol Council to award concessions to potential ADCO stakeholders ultimately came down to the bidding companies’ proposals on enhanced oil recovery expertise and usage of advanced technology for this process, where BP apparently had a competitive advantage.
The BP global field experience has allowed Abu-Dhabi to develop the deep expertise and innovative technologies needed to increase recovery factors and extend the field life of the mature on-shore fields by introducing EOR (enhanced oil recovery) techniques such as low salinity water injection LoSal® EOR and Brightwater™. In 2014, BP introduced a new piece of EOR technology called robotic core flooding system.
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As Sultan Al Jaber, the chief executive of Abu Dhabi National Oil Company (Adnoc) and Minister of State, shared with press: "This agreement marks a milestone in our efforts to forge new partnership models that bring technology, expertise and financing aimed at maximizing the value of our resources and supporting the transfer of knowledge."
According to the BP CEO, the signed concession agreement will also give the UK oil giant access to significant and competitive resources that they already have a deep knowledge of.
"We will bring our people, cutting-edge technology and experience of managing mature giant fields around the world to help maximize recovery from these assets,” said Dudley.
The specific compensation details of the deal have not been disclosed by ADCO or BP so far, but BP’s chief financial officer, Brian Gilvary pointed at the low-cost characteristics of the concession’s onshore conventional brownfields as being pivotal in generating higher earnings and cash flow, while giving BP another asset base for long term growth.
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According to some Industry estimates, the compensation for the concession stakeholders is less than $2 per barrel, but statements by Total executives, which also owns a 10 percent stake in the Abu Dhabi onshore concessions, suggest that the deal offers incentives for exceeded targets on the oilfield developments, and it leaves room for potential improvement of terms for trading the oil they receive.
Abu Dhabi’s 2 percent stake will make it one of BP’s biggest shareholders. Kuwait, which is OPEC’s fourth largest oil producer, owns 1.7 percent of BP.
BP also holds a 14.67 percent stake in the Abu Dhabi Marine Operating Company (Adma-Opco) offshore concession, and 10 percent interests in both the Abu Dhabi Gas Liquefaction Company (Adgas) and the National Gas Shipping Company (Ngsco).
By Ekaterina Pokrovskaya for Oilprice.com
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