Adnoc awards $850m concession agreements to Japan's Inpex

The Japanese firm picked up a 10 per cent stake in Lower Zakum, and existing partnerships were extended on Satah and Umm Al Dalkh

Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, and Toshiaki Kitamura, President and CEO of Inpex. Mohamed Al Hammadi/Crown Prince CShow more

Abu Dhabi National Oil Company (Adnoc) awarded Japan's Inpex operating stakes in an offshore concession and extended existing partnerships on two others in agreements worth around $850 million.

Inpex, whose president and CEO is Toshiaki Kitamura, picked up a 10 per cent 40-year stake in the offshore Lower Zakum concession area valued at $600m and had its concession agreements on the Satah and Umm Al Dalkh fields extended for 25 years for a fee of $250m, Adnoc said in a statement on Monday.

The Japanese firm, which last year signed an agreement with Exxon Mobil to boost production capacity from Upper Zakum to a million barrels per day (bpd) by 2024, saw its stake in the Umm Al Dalkh concession increased to 40 per cent from 12 per cent, Adnoc said.

The Inpex deals come amid a flurry of upstream concession awards by Adnoc as the state oil firm looks to lock in partnerships before they expire in March.

"As we accelerate delivery of our 2030 smart growth strategy, Adnoc aims to seize new opportunities from increasing energy demand in Asia's expanding economies," Dr Sultan Al Jaber, Minister of State and Adnoc group chief executive said.

Adnoc is engaging more Asian firms across its various concessions as part of the oil company's pivot to bringing in new partners. Earlier this month, the company awarded a 10 per cent stake in the Lower Zakum area to an Indian consortium led by state-owned ONGC's international arm for $600m. Cepsa, the Spanish oil and gas company owned by Abu Dhabi's strategic firm Mubadala, meanwhile, picked up a 20 per cent stake in offshore concession areas of SARB and Umm Lulu for $1.5bn.

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Forging long-term upstream alliances with Asian companies can be one way for Mideast oil producers to secure markets for their output, said Vandana Hari, founder and chief executive of energy advisory firm Vanda Insights.

"Though oil prices have been recovering since last year, they have not yet given producers enough confidence to put E&P [exploration and production] funding back on the table," she said. "In such an environment it makes sense to attract upstream investment in oil and gas by giving investors the security of a long-term agreement."

Such agreements give security in a uncertain environment to oil producers as energy demand, particularly in Asia, is poised to be increasingly met through renewable sources with electric and autonomous vehicles likely to play a big role in over the next decade.

Strengthening footholds in Asia will be increasingly important for Middle East producers, particularly as US crude exports continue to increase and gain market share making such long-term deals “increasingly attractive", added Spencer Welch, director for oil markets and downstream at London-based IHS Markit.

The award to Inpex will be effective from March 9 and follows Adnoc's announcement last year that it would split its Adma-Opco concession – now known as Adnoc Offshore – into three smaller parts operated in partnership with international oil and gas companies, with the state firm retaining a 60 per cent stake.

The Lower Zakum concession, from where Adnoc is targeting production of 450,000 bpd over an unspecified period of time, has another 20 per cent stake up for grabs before the pact's expiry in March.

Umm Shaif and Nasr oil and gas fields, where production capacities of 460,000 bpd and 500 million cubic feet per day of gas are being considered, has yet to find international partners to take on 40 per cent of the operating stake.

The remaining 20 per cent of SARB and Umm Lulu - awarded to Cepsa last week - is set to find stakeholders soon, the company noted. Adnoc is targetting production of around 215,000 bpd from these offshore fields.

The award to Inpex comes after state visits and discussions between Adnoc and Japanese companies since the Abu Dhabi-headquartered firm revealed it partnership model in July.

Japan, the world's fourth-largest oil consuming nation after the US, China and India, according to the BP Statistical Review of World Energy, has been an early stakeholder in Abu Dhabi's oil field development.

Adnoc first partnered with Japan Oil Development Company (Jodco), wholly owned by Inpex, to develop Upper Zakum in 1977. The offshore field, discovered the same year, is the second-largest in Abu Dhabi and the fourth-largest in the world. US oil major Exxon Mobil joined Adnoc and Jodco to develop the field in 2006, when plans were drawn up to boost production capacity to 750,000 bpd from 500,000 bpd.

Last October Adnoc announced it was holding advanced discussions with Japanese firms to renew expiring offshore concessions. Jodco has held stakes in the Satah and Umm Al Dalkh fields since the eighties. The Japanese firm also holds a 12 per cent stake in the offshore Nasr field, which began production in 2015.