Tokyo oil group nears renewal of concession

A Japanese oil consortium is on track to become the first foreign enterprise to have an Abu Dhabi oil concession renewed, as it is planning to develop a new offshore oilfield. The Abu Dhabi Oil Company (ADOC), a unit of Japan's Cosmo Oil, said it had agreed to the main terms and conditions for renewing its concession. Discussions with the emirate's Supreme Petroleum Council were continuing, it said.

"The new concession agreement will be a 30-year contract effective as of December 6, 2012, after the expiration of the current concession agreement. The new concession area, located adjacent to ADOC's operating fields, covers an undeveloped structure," it said. The proposed 30-year contract extension is a substantial increase over the renewal term being considered early last year by the Supreme Petroleum Council, which is Abu Dhabi's highest decision making body for oil.

The council's secretary general Yousef Omair bin Yousef, who is also the chief executive of the government-owned Abu Dhabi National Oil Company (ADNOC), said in January last year that a 20-year renewal term was being discussed as part of a deal aimed at bolstering relations between Abu Dhabi and one of its biggest oil markets. ADOC, whose other main partner is Japan Energy, has operated the Mubarraz offshore oilfield since 1973 and the subsequently discovered Umm al Anbar and Neewat al Ghalan oilfields in 1989 and 1995, respectively. The consortium, which holds 100 per cent of the development licences for those fields, has made at least one other oil discovery since then, but has yet to determine whether it is commercially viable.

"After the new concession area is granted, ADOC will conduct evaluation works including drilling appraisal wells," the group said. All the fields operated by ADOC are considered minor compared to Abu Dhabi's main offshore oilfields of Umm Shaif, Zakum and Upper Zakum. Those fields are being exploited by partnerships controlled by ADNOC that include some of the world's biggest international oil companies.

The concessions for the Umm Shaif and Zakum fields expire in 2018, while similarly structured concessions for Abu Dhabi's biggest onshore oilfields expire in 2014. So far, the mostly European-based partners in those concessions, including BP and Royal Dutch Shell, have been left to wonder about renewal terms. Meanwhile, ADNOC has said it plans to target smaller untapped oil and gas deposits as part of its master plan to boost Abu Dhabi's production capacity.

A number of European oil producers that are not among the current concession holders are understood to be in negotiations with Abu Dhabi over upstream oil and gas development. The latest is Germany's Wintershall, which last week signed a memorandum of understanding with the emirate on the possible development of an unidentified gas and condensate deposit. ADOC's original 45-year concession to operate the Mubarraz field, which produces about 18,000 barrel per day of crude, was the first that Abu Dhabi granted after deciding to open its oil sector to Japan in 1967. The group's 63-per-cent shareholder Cosmo, Japan's fourth-largest oil refiner, is also in a joint venture with Japan Energy and Mitsui Oil Exploration to develop Abu Dhabi's Bunduq offshore oilfield.

Abu Dhabi has sought to maintain a strategic partnership with Japan in energy. The emirate's International Petroleum Investment Company acquired 20 per cent of Cosmo in 2007. More recently, ADNOC struck an agreement with Tokyo over storing crude in Japan and marketing it to other Asia Pacific countries. [e-mail]