Abu Dhabi Said to Improve Oil-Investor Returns With New Terms

(Bloomberg) -- Abu Dhabi’s state energy producer, which is seeking more partners to develop its fields, improved some terms in an oil-production partnership to offer greater returns to international companies such as BP Plc and Total SA, according to people with knowledge of the matter.

Abu Dhabi National Oil Co. improved terms related to taxation and depreciation for companies in the venture, known as Abu Dhabi Co. for Onshore Petroleum Operations, or ADCO, said the people, who asked not to be identified because the negotiations were private. The provisions were changed when BP joined in December, they said.

The United Arab Emirates, of which Abu Dhabi is the capital, is boosting its production capacity even as it diversifies away from oil to build new industries and create jobs. Adnoc is partnering with European and American companies that have pumped oil in the Middle East for more than a century as well as with comparative newcomers to the region from Asia to contribute technology needed to extend the life of its oil and natural gas reserves.

Total and BP each hold 10 percent stakes in ADCO, while Japan’s Inpex Corp. owns 5 percent and GS Energy of South Korea 3 percent. Adnoc, which aims to retain 60 percent of the venture, is seeking partners for the remaining 12 percent of ADCO.

The ADCO concession terms, which remain fundamentally unchanged, apply to all existing and future partners, an Adnoc media official said, asking not to be identified by name, in line with company policy.

Boosting Capacity

ADCO pumps about half of Abu Dhabi’s roughly 3 million barrels of daily crude output. The emirate, with about 6 percent of global oil reserves, is seeking to boost its production capacity to 3.5 million barrels a day by 2018.

BP has worked in Abu Dhabi since 1939 and was a partner in the emirate’s previous onshore oil concession, which expired in 2014 after 75 years. Total was the first company to sign a new contract to continue developing the fields; the Paris-based company agreed in January 2015 to pay a $2.2 billion signing bonus to Adnoc.

BP sought a stake in the renewed concession before plunging crude prices and damages related to the Deepwater Horizon oil spill in the Gulf of Mexico forced the company to break off talks. 

“It just took us a while to work through the point where we could make this great investment with Abu Dhabi,” BP Chief Executive Officer Bob Dudley said in December. “The key element there is we’ve used BP shares,” he said. The company issued about $2.2 billion in stock and transferred it to Abu Dhabi for its stake in the ADCO venture.

Gulf crude producers have pressed on with major investment projects, even amid the slump in prices, to maintain their share of global markets and head off supply shortages in coming years. U.A.E. Energy Minister Suhail Al-Mazrouei has warned that reduced spending on new projects over the last three years could lead to a supply shortfall.

BP, Total and Inpex are also partners with Adnoc in an offshore production venture, which expires next year.

To contact the reporter on this story: Anthony DiPaola in Dubai at adipaola@bloomberg.net To contact the editors responsible for this story: Nayla Razzouk at nrazzouk2@bloomberg.net Bruce Stanley