CNPC enters Abu Dhabi offshore blocks
Thursday, Mar 22, 2018
China National Petroleum Corp. (CNPC) has agreed to pay state-owned Abu Dhabi National Oil Co. (ADNOC) US$1.17 billion for 10% stakes in two of the emirate’s offshore oil and gas concessions.

CNPC chairman Wang Yilin and ADNOC CEO Sultan Ahmed al-Jaber met in Abu Dhabi on March 21 to sign the agreements, which will run for 40 years and are backdated to March 9. Under the terms of the deals, CNPC’s majority-owned unit PetroChina will pay 2.1 billion dirhams (US$571.8 million) to enter Umm Shaif & Nasr and 2.2 billion dirhams (US$599 million) to participate in Lower Zakum.

ADNOC Offshore will operate both concessions, with a 60% stake in each. Eni and Total hold 10% and 20% of Umm Shaif & Nasr respectively, while an ONGC Videsh Ltd (OVL) led consortium and Inpex each own 10% of Lower Zakum, with Eni and Total splitting the remaining 10% equally.
 
Mutual benefit
Umm Shaif & Nasr and Lower Zakum were part of the former ADMA offshore concession, which expired on March 8 and was split into three areas. In February, Cepsa agreed to pay US$1.5 billion for a 20% stake in SARB & Umm al Lulu; the remaining 20% interest has not been awarded.

ADNOC opted to divide the larger concession into three parts in an effort to boost overall output. Lower Zakum’s partners will work to raise production capacity from 300,000 bpd to 450,000 bpd over the 10 years.

ADNOC wants to produce 460,000 bpd and 500 mmcf (14.16 mcm) per day of gas from Umm Shaif & Nasr, the only one of three concessions that contains gas. The producer also wants to produce 215,000 bpd from SARB & Umm al Lulu.

Al-Jaber said his company’s collaboration with CNPC would further deepen the strategic and economic relationship between the two countries. His comments were echoed by Wang, who added that the deals would “to meet China’s rising demand for energy and contribute to asset portfolio optimisation and profitability enhancement of PetroChina”.

ADNOC is increasingly looking towards the Chinese market to soak up anticipated increases in crude oil production. Al-Jaber visited China in January to bolster bilateral ties with the world’s biggest crude oil importer, saying at the time he wanted to boost his company’s petrochemicals, energy and technology partnerships with China.

The CEO predicted that China’s crude import dependency would climb to more than 70% this year from 67.4% in 2017. Days after his prediction, the Asian economic giant revealed that it had imported a record-breaking 40.64 million tonnes (9.61 million bpd) in January.
 
Filling the gap
Chinese production is in a state of managed decline as developers shut in costly fields, leaving state companies to look for reliable overseas production assets to offset some of China’s growing energy security risks.
Securing producing assets in the UAE holds a fraction of the risk of a greenfield offshore development, given UAE oil and gas output is already amongst the lowest-cost in the world.

In November 2017, ADNOC and CNPC signed a framework agreement covering various areas of potential collaboration, including offshore opportunities and sour gas development projects.

In February 2017, CNPC was awarded an 8% interest in Abu Dhabi’s onshore concession, operated by ADNOC Onshore. It has also acquired a 40% stake in the Al Yasat concession.

Abu Dhabi holds around 90% of the oil reserves in the UAE, which produced 2.8 million bpd in February. This was down from 2.85 million bpd in January in line with OPEC’s pledged production cuts.

“China and India are not only the fastest-growing oil markets, but also bracing for a spike in their crude imports, given limited or declining domestic production and rising refining capacity,” Abu Dhabi daily The National quoted the head of Singaporean energy consultancy Vanda Insights, Vandana Hari, as saying this week.
 
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