UAE home to $7bn of global oil firms' worth

The UAE is home to $7 billion or 3 per cent of international oil companies’ (IOC) remaining value in the Middle East, making it the sixth biggest location of IOC value in the region, after Qatar, Oman, Iraq, Israel and Yemen, figures from Wood Mackenzie show.

Findings from its September Upstream Insight show that majority of IOC value remains in Qatar ($130.8bn) were several LNG mega-trains and the Pearl GTL plant are coming on stream or ramping up production over the next 12 months. About 13 per cent are in Oman ($28.1bn), Iraq ($15.1bn) and Yemen ($15bn) contain 7 per cent each and Israel ($10.6bn), 5 per cent.

Value in Syria is slated at $6.9bn while the Saudi-Kuwait partitioned zone is estimated to hold $2.6bn. IOC value in Iran remains low at $1.5bn as US, UN and EU sanctions prevent many IOCs from progressing any major new projects.

The remaining IOC value from the Middle East upstream LNG and GTL projects has increased 26 per cent from $175bn in March 2009 to nearly $220bn in August 2010, the report said.

The growth is related to an increase in price assumption and timing as capital expenditure on some very large projects is coming to an end this year, and these developments are now moving into positive cash territory.

Of the estimated $220bn IOC value in the region, some 80 per cent is held by the top 10 IOCs in the region, namely Shell, ExxonMobil, Total, Maersk, Occidental, ConocoPhillips, BP, Mubadala Development, CNPC and Mitsui.

One of the notable change in Wood Mackenzie’s rankings since its last report in March 2009 is that Shell has overtaken ExxonMobil as the leading IOC in the Middle East in terms of remaining value. For most of the top-ten players, the Middle East ranks highly in their global portfolios with the exception of ConocoPhillips and BP.

The report said investment and interest in the UAE remain very high but this is not reflected in an IOC value of only 3 per cent. This is primarily due to the perceived shift of strategy from concessionary agreements to a service-oriented model.

According to the Baker Institute for Public Policy, the hydrocarbon power has now shifted to the national oil companies (NOCs).

The seven major Western oil companies currently have only 10 per cent of the world's oil and gas resource base.

About 77 per cent of the world proven oil reserves (1.1 trillion barrels) are owned and controlled by NOCs and that is without equity participation by big international oil companies. The remaining 13 per cent of the reserves are the subject of joint exploitation by IOCs and NOCs.

Moreover, 14 NOCs or newly privatised NOCs comprise the world's top 20 oil producers in terms of reserves, production and sales volumes. Five of those are from the exporting countries of the Middle East and North Africa.

Going forward, negotiations between NOCs and IOCs are likely to be more centred on cash flows rather than ownership or shares of physical barrels going forward, according to Morgan Stanley.

The renegotiation of contracts with Abu Dhabi for the Abu Dhabi Company for Onshore Oil Operations (Adco) onshore and Abu Dhabi Marine Operating Company (Adma-Opco) offshore concessions, which are due to expire in 2014 and 2018 respectively, is therefore seen as a watershed.

These concessions were initially awarded as far back as 1939 for Adco, which contains some of Abu Dhabi's largest oilfields, including Bab and Bu Hasa, and 1958 for Adma-Opco, which contains the large offshore Zakum field.

Production from these concessions is significant for BP, for example, with net production of 130,000 barrels of oil equivalent per day (boepd) from Adco and 80,000 boepd from Adma.

“Not only are the IOC high-volume projects governed by relatively low, fixed-rate margin contracts, our figures assume the end of the large Adco and Adma oil contracts in 2014 and 2018, respectively” Wood Mackenzie said.

“BP, ExxonMobil, Shell and Total participate in either one or both of these developments and it is unclear whether Abu Dhabi will renew the existing concession, maintain the current shareholding or bring in new partners,” it added.

Top 5 IOC value holders in the Middle East

1 -  Shell

Wood Mackenzie put Shell’s remaining commercial value at $$56bn. Most of Shell’s value comes from the Pearl GTL project in Qatar where it is the sole participant.

  Its significant increase in remaining value from $17bn in March 2009 to $32bn is mainly a function of timing, with price assumptions accounting for some of the increase, Wood Mackenzie said.

“The majority of the project’s $19 billion capital costs have now been spent and with our January 2011 discount date, there is a large increase in the project’s remaining value as Shell brings the plant onstream and project cash flow turns positive,” it said.

The Middle East is Shell’s biggest region by asset value and Pearl GTL alone is Shell’s biggest asset worldwide, making up 13 per cent of the value of its global portfolio. Shell also has LNG interests in Qatar (Qatargas-4, due to start up later in 2010), a sizeable upstream and LNG position in Oman, interests in UAE, Syria and gas exploration acreage in Saudi Arabia.

  This year also saw its entry into Iraq.

2 - ExxonMobil

ExxonMobil has $47bn remaining commercial value. ExxonMobil’s Middle Eastern portfolio accounts for just less than 20 per cent of the company’s global upstream and LNG asset value, making the region the single biggest value contributor to the company.

 This is mainly down to the huge value of ExxonMobil’s assets in Qatar – by far its number one country by value - where the company has stakes in 12 LNG trains and domestic supply projects.

While ExxonMobil may have lost top spot to Shell on value, it remains by far the largest commercial reserves holder.

ExxonMobil has commercial assets in Iraq, Qatar, UAE and Yemen.

Having been unsuccessful in its bids for three projects in Iraq’s first licensing round, an ExxonMobil-led consortia was invited to negotiate on the West Qurna One project, and was subsequently awarded the development under the terms of the maximum remuneration fee set by the Ministry.

3 - Total

Total has remaining commercial value of $19bn. For Total, the Middle East ranks as its third most important region behind Africa and Europe, contributing 14 per cent of its commercial asset value.

Total has a more geographically diverse portfolio than both Shell and ExxonMobil, with assets in seven Middle Eastern countries, but again, its biggest country by value is Qatar.

 Although its Qatari assets – which includes Qatargas I & II and Dolphin - collectively add most value, Total’s stake in Yemen LNG remains its biggest value asset in the region.

Total secured entry into Iraq through its 18.75 per cent interest in the consortium that won the Halfaya development contract in the second licensing round in late 2009.

 The scale of the project, together with Total’s relatively low equity means that Iraq is Total’s lowest value country in the Middle East.

4 - Maersk Oil

Maersk, with $14bn remaining commercial value, ranks as the fourth largest IOC value holder in the Middle East.

All of its regional value - nearly $15bn – comes from its 100 per cent ownership of just one asset - the Al Shaheen oil field in Qatar.

Maersk’s interest in this field makes up nearly 60 per cent of the upstream value of the company.

Al Shaheen is in its third development phase, which involves bringing gross field production to over 500,000 bpd by 2013, which will be a significant challenge.

Maersk attempted to expand its commercial interests in the region when it bid for the Bahrain redevelopment project in early 2009, which was subsequently awarded to Occidental and Mubadala.

5 - Occidental

Occidental has $10bn remaining commercial value and is the most prominent Large Cap company in the Middle East, with one of the most geographically diverse portfolios of any IOC in the region.

The six Middle Eastern countries where it participates – Bahrain, Iraq, Oman, Qatar, UAE and Yemen - account for just under a quarter of the company’s global upstream asset value and the region is the second most important value generator for the company after the US.

Oxy has recovered from the 2008 setback of failing to secure the development contract for the Abu Dhabi Shah sour gas field.

The outlook is now much improved, following a number of contract awards since October 2008.

These include a concession contract for development of two oil and gas fields in Abu Dhabi, the Bahrain field redevelopment contract against competing bids from ExxonMobil and Maersk, a gas exploration and production contract in Oman and a stake in the Eni-led consortium that won the Zubair service contract in Iraq.

While the Iraq deal provides little in the way of value, the deal gives Oxy commercial reserves volumes and has secured early entry into Iraq where it could position itself for further discovered resource opportunities, which has been its primary strategic growth driver in the region.

Key success factors include a proven track record of unlocking value through large- scale EOR operations and strong regional relationships, with CEO Ray Irani playing a key role in both enabling and negotiating deals.

Another key feature of Occidental in the Middle East is its partnering strategy.

Oxy has a long-standing partnership in the region with Mubadala Development Company, an investment arm of the Abu Dhabi Government. The companies participate together in major projects in Oman, Qatar and Bahrain and it was expected that Mubadala would farm into some of Oxy’s equity in the Zubair development in Iraq.

A relationship with one of Abu Dhabi’s most influential players may give Occidental an advantage when in comes to bidding on new contracts in the UAE.

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