Abu Dhabi National Oil Company is combining its two largest offshore operations, part of its broader effort to streamline management and operations and drive an entrepreneurial culture in what is expected to be a prolonged low oil price environment.
The two companies that are being combined – the Zakum Development Company (Zadco) and the Abu Dhabi Marine Operating Company (Adma-Opco) – account for the bulk of Abu Dhabi’s offshore oil production, which is expected to reach 1.7 million barrels per day by sometime next year.
Overall Abu Dhabi production is currently about 3.1m bpd.
The reorganisation will mean that the two companies will be dissolved and their ownership combined into one “NewCo” under Yasser Saeed Al Mazrouei, the current chief executive of Adma-Opco.
“The consolidation of Adma-Opco and Zadco is a logical step … [given] Adnoc’s recent focus on driving efficiency, performance and profitability,” said Sultan Al Jaber, Adnoc’s chief executive and a UAE Minister of State.
Since he took over earlier this year, Mr Al Jaber has made sweeping changes to the state oil company, starting with the top layer of management, where he named Abdul Munim Saif Al Kindy as director of exploration development and production.
Most of the chiefs of the 18 operating companies also were changed, with some long–overdue retirements as well as promotions for a new generation. Further consolidation within the organisation is expected.
The combination of the main offshore operations into one unit will not effect the shares or fiscal terms of the partners in the concession, Adnoc said. It owns 60 per cent of both Zadco and Adma-Opco. Following the combination, Adnoc will own 100 per cent of the new company and have separate operating agreements with the concession holders.
ExxonMobil currently has a 28 per cent stake in Zadco, with Japan Oil Developing Co (Jodco) holding 12 per cent. BP owns just under 15 per cent of Adma-Opco, with Total of France owning just under 14 per cent and Jodco also owning 12 per cent.
The offshore development programmes to lift production to 1.7m bpd from 1.4m bpd was put at US$25 billion when it was announced three years ago, though costs throughout the industry have been dropping sharply since oil prices collapsed by 70 per cent over the last two years. The increase in offshore production is part of a programme to lift overall output capacity to 3.5m bpd.
“This [decision] won’t impact any of the production targets that have been set,” said an Adnoc spokesman. “We don’t want to disrupt the ongoing operations or capex plans or production plans that will fall under the NewCo.”
Mr Al Jaber said: “The consolidation will facilitate enhanced operational performance while providing strategic benefits for future growth and advanced technology integration … It will [also] unite our offshore experience, streamline governance and decision-making, and give management a better line of sight.”
Zadco’s largest project is the Upper Zakum field, which is the second largest offshore field in the world, with 50 billion barrels of reserves. The field lies about 84 kilometres north–west of Abu Dhabi city and it’s development project will lift production to 750,000 bpd from 640,000 bpd in two phases, costing a total of around $10bn.
Adma-Opco operates two major fields, Umm Shaif and Lower Zakum, which lie 150 and 63 kilometres north-west of Abu Dhabi, respectively.
It has also been developing the Umm Lulu and Nasr fields, which have been undergoing a $3bn project development over the past two years, including laying hundreds of kilometres of pipeline to move oil and gas to the export facility at Das Island, which Adma-Opco also operates.
The second phase of development of Umm Lulu, due for completion in 2018, should lift oil production above 100,000 bpd.
Adnoc officials would not put a dollar amount on the synergies and efficiencies expected by combination of the operations, but indicated that it would be of the order of hundreds of millions of dollars on an annual basis.
The creation of two separate operating companies historically was because the Japanese partner, initially, was the only one interested to develop the Upper Zakum project.
The offshore development in Abu Dhabi’s relatively shallow waters has been unique in the construction of a network of man made islands.
“The two separate companies currently don’t use each other’s islands, but working together they can consolidate use of those and future expansion can leverage the common infrastructure,” an Adnoc spokesman explained.
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