Exxon Walks Away From Abu Dhabi Onshore

Exxon Mobil is not participating in the bidding for Abu Dhabi's onshore oil fields, PIW is told, willingly dropping out of the race to retain a stake in giant conventional oil fields in which it has held a position for 75 years, and breaking rank with rival international oil companies which are eager to stay. The decision represents a serious blow for Abu Dhabi, which prides itself on attracting the best companies in the business, despite offering some of the industry's least attractive terms. The US supermajor declined to submit a compliant bid by last year's Oct. 22 deadline, but Exxon and Abu Dhabi have managed to keep the news under wraps for months, despite a growing body of evidence that Exxon's interest in participating in the new 40-year onshore partnership for the 1.6 million barrel per day fields was waning (PIW Jan.20'14). Exxon told PIW it does not comment on commercial matters, but its actions in the last year speak volumes. It raised eyebrows when it was the only firm to skip a group meeting with state Abu Dhabi National Oil Co. (Adnoc) last year on the technical and commercial parameters of the bidding process. More recently, while the other 10 bidders have all confirmed their interest, Exxon has stayed quiet. And when the 75-year concession held by Abu Dhabi Co. for Onshore Oil Operations (Adco) expired on Jan. 11, Exxon pulled its people out, in contrast to partners BP, Royal Dutch Shell and Total, which agreed to keep some staff working until a new venture was agreed. The writing was in fact on the wall years ago, when Exxon publicly aired its distaste for a partnership scenario where it had to share cutting-edge proprietary technology with its biggest competitors (PIW Nov.8'10). Exxon's message is that low-cost barrels, even those that will be a mainstay on its balance sheet for decades, are not worth the risks that forced partnerships pose to the value of proprietary technology, especially if the returns on offer are poor. The other main legacy partners in the Abu Dhabi onshore, BP, Royal Dutch Shell and Total, have clearly arrived at the opposite judgement, but Exxon's bold stance has been made easier by its success in renegotiating its deal for the Upper Zakum concession. All four former Adco partners took a hit to production in the first quarter from the loss of their 9.5% equity share of Abu Dhabi's onshore barrels, and a much smaller hit to earnings from the loss of the miserly $1 per barrel margin the Adco partners had hitherto been paid. The new onshore venture will offer around $2.85/bbl, but that is not why Shell, BP and Total are keen to stay -- the real attraction is the chance to lock in, with an important historical partner, cheap and reliable production that will last for decades. Exxon, though, has already secured its future in Abu Dhabi, agreeing last year the same new $2.85/bbl margin for Upper Zakum -- which it operates without its rivals -- and extending the concession out to 2041. Few in Abu Dhabi had anticipated Exxon's withdrawal, but it has not disrupted the onshore bidding process too much, PIW is told -- indeed, it may in some ways make the selections easier. State-owned Abu Dhabi National Oil Co. is due to make its recommendations to the Supreme Petroleum Council (SPC) shortly, although it is unclear if the senior oil body will be happy to proceed without Exxon. With only three legacy partners in the race for the 40% stake on offer, Abu Dhabi could logically award each of them 10% equity, leaving two 5% stakes between the three Asian hopefuls -- China National Petroleum Corp., Japan's Inpex and Korea National Oil Corp. Of the other bidders, Occidental's bungled Mideast sale plan would seem to have wrecked its chances (PIW Mar.31'14). Adnoc has completed all the technical evaluations in the past few months, including visits to the bidders' headquarters in the US, Europe, Japan, China and South Korea by senior Adnoc due diligence teams, PIW understands. There is a chance winners could be announced before the holy month of Ramadan starts in mid-June, but post-summer looks more likely. And there remains the possibility that the politically-minded SPC will insist Exxon has to be involved in the process and instruct Adnoc to find a way to get the US supermajor back on board.