Russian President Vladimir Putin met with Abu Dhabi Crown Prince Mohammed bin Zayed Al Nahyan on April 20 at the Kremlin.

Olga Mikhaylova

Economic and military cooperation between Russia and the UAE has intensified over the last several years, with the current meeting with Al-Nahyan being Putin’s seventh since he was elected President in 2012 (see insert).

Cooperation between Russia and the UAE has focused on exporting Russian hitech products to the UAE, tourism, joint investment projects and counterterrorism. Working together has allowed both sides to strengthen their respective positions in the Middle East, a region that plays a critical role in global military and energy security.

An important player

According to the Oil & Gas Journal, the UAE holds the seventh-largest proven reserves of oil in the world and produces 2.9 million barrels per day (b/d). Most of that (1.7 million b/d) is produced by the Abu Dhabi Company for Onshore Oil Operations (ADCO), which does onshore development. Sixty percent of ADCO belongs to the state-owned Abu Dhabi National Oil Company (ADNOC), while the remainder is held by various foreign investors, including BP (10%), Total (10%), CNPC (8%), INPEX (5%), CEFC (4%) and GS Energy (3%).

The country’s largest offshore oil system, Zakum, is currently being developed by two consortiums. One is called ZADCO and consists of ADNOC (60%), ExxonMobil (28%) and the Japan Oil Development Company (12%). The other is known as ADMA-OPCO and consists of ADNOC (60%), BP (15%), Total (13%) and the Japan Oil Development Company (12%).

Suhail Al Mazrouei, the UAE Minister of Energy:

“Russia is our strategic partner and we welcome all our partners, including those from Russia, to projects on the territory of the UAE”

Sources of growth

The UAE plans to increase crude oil production to 3.5 million b/d in 2020, but with limited prospects for major discoveries, production increases in the UAE will come almost exclusively from maximizing output in Abu Dhabi’s existing onshore oil fields and further offshore work.

In a bid to attract more investment into its oil sector, the UAE’s government has not only improved the terms of existing contracts, but is seeking to expand its circle of potential investors. In extending contracts during 2015-17, foreign stakeholders received $2.85 per barrel instead of the previous $1. One of the most highly anticipated oil-related events of 2018 in the UAE will be the offshore development tender for when the ADMA-OPCO concession expires.

Consolidation

Last year ADNOC announced its intention to integrate the operations of the Abu Dhabi Marine Operating Company, ADMAOPCO, and the Zakum Development Company, ZADCO, into a single new company to enable synergies across the multiple ADMA-OPCO and ZADCO offshore concessions and fields. The process is scheduled for completion at the beginning of 2018 when Mr. Yaser Al-Mazrouei, Executive Director of ADMA-OPCO, will be appointed Head of the new entity. Existing shareholders of both concessions will continue monitoring the consolidation process and ensuring the company’s efficiency during the transition phase.

Commenting on the consolidation, Dr. Sultan bin Ahmad Sultan Al Jaber, Minister of State and CEO of the ADNOC Group, said “Creating a single operator will allow us to integrate the offshore experience we’ve acquired, simplify the decision-making process and make the company more transparent.”

New Players

The structure of stakeholders in the new consortium will only be known after the tender is complete; however it’s already clear that ADNOC, together with its foreign partners, will continue to increase offshore production to 1.4 million b/d from the current one million.

New offshore fields (such as SARB, NASR and Umm Lulu) will play an important role in this process.