Adnoc awards $805m contract to increase oil production

The Abu Dhabi National Oil Company taps a South Korean firm to help it raise production capacity at its oldest onshore oilfield.

The Abu Dhabi National Oil Company (ADNOC) has tapped a South Korean firm to help raise production capacity at its oldest onshore oilfield as it perseveres with expansion projects even as demand for oil falls. ADNOC's subsidiary, the Abu Dhabi Company for Onshore Oil Operations (ADCO), awarded an US$805 million (Dh2.95 billion) engineering, procurement and construction contract to SK Engineering to install gas compressors at the Bab field, the company said. "The project further demonstrates... that Abu Dhabi is proceeding with its strategic projects to allow the country to achieve its future production targets," it said. ADCO, which is 40 per cent owned by foreign firms and pumps about half of ADNOC's output, has emphasised it remains committed to multibillion-dollar capacity expansions despite the economic crisis and separate concerns about the looming expiry of concessions for its foreign partners. The project at Bab is part of a larger effort by ADCO to increase total production capacity from 1.4 million to 1.8 million barrels (bpd) per day by 2017. The company will achieve half that goal by 2013. The gas compressors are to be installed over 36 months, and will allow engineers to inject larger volumes of natural gas into the reservoir to squeeze out more crude. ADCO did not specify the size of the capacity boost to be generated by the new equipment, but long-term company plans leaked to a trade publication last autumn show the field eventually producing 435,000 bpd, from 350,000 bpd today. The Bab contract follows the awarding of $3.5bn worth of contracts to three firms in January for expansion of the Sahil, Asab and Shah oilfields by 60,000 bpd. Abdul Munim al Kindy, the general manager of ADCO, has said he expects to award a number of contracts this year, despite the fact the company has shut in a large proportion of existing capacity to comply with OPEC production quotas. ADCO reduced shipments of its flagship Murban crude by 10 per cent this month, and is due to deepen that cut to 15 per cent below normal volumes next month. "This project and the major investment demonstrate the country's commitment to play an active role in securing future energy supplies despite the currently available spare capacity," the company said. Foreign partners in ADCO include Shell, BP, ExxonMobil, Total and Partex, which operate under a 75-year concession that is due to expire in 2014. Analysts have warned that the expiry of concessions could lead foreign partners to defer new investments until after 2014, but the large contracts announced this year suggest ADCO has come to an understanding with its partners. Industry sources said the foreign partners agreed to pay their share of the new investment thanks to a mechanism known as "accelerated depreciation" that would allow them to recoup it before the concession's expiry. [e-mail]