VZCZCXRO3607
PP RUEHDE
DE RUEHAD #0470/01 0421128
ZNY CCCCC ZZH
P 111128Z FEB 06
FM AMEMBASSY ABU DHABI
TO RUEHC/SECSTATE WASHDC PRIORITY 3520
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHDC
RHEHAAA/THE WHITE HOUSE WASHINGTON DC
RHEHNSC/NSC WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 000470 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR NEA/ARPI, EB/ESC/IEC/EPC 
NSC FOR HUTTO 
ENERGY FOR SENIOR FOREIGN POLICY ADVISOR MOLLY WILLIAMSON, 
AND DAS BRODMAN 
OVP FOR KEVIN O'DONOVAN 
 
E.O. 12958: DECL: 02/11/2016 
TAGS: EPET ENRG AE
SUBJECT: ADNOC DEPUTY CEO ON ADNOC EXPANSION PLANS 
 
 
Classified By: (U) Classified by Ambassador Michele J. Sison for reason 
s 1.4 (B) and (D). 
 
 This cable contains business proprietary information. 
 
¶1. (C) Summary: On February 7, ADNOC Deputy CEO Abdulla 
Nasser Al-Suwaidi (protect) told econchief that Abu Dhabi's 
Supreme Petroleum Council (SPC) had approved Exxon/Mobil's 
bid for a 28% stake in the Upper Zakum field and was offering 
Exxon/Mobil a 20 year concession on the field.  He noted that 
ADNOC was thinking about splitting up its onshore concession 
into multiple concessions and/or opening it up for bid when 
it expired in 2014.  Al-Suwaidi said that onshore production 
capacity was on target to increase to 1.4 million b/d by 
early 2006 (with 100,000 b/d added in 2005 and around another 
100,000 in early 2006).  He also noted that ADNOC had 
identified another 200,000 b/d onshore and 400,000 offshore 
that could be brought on-board by around 2010, if it began to 
invest immediately.  He said that Exxon/Mobil had presented a 
plan to bring production from the Upper Zakum field to 
750,000 b/d in around seven years.  End Summary. 
 
SPC Picks Exxon/Mobil for Upper Zakum 
------------------------------------- 
 
¶2. (C) On February 7, Abu Dhabi National Oil Company (ADNOC) 
Deputy CEO Abdulla Nasser Al-Suwaidi told econchief that the 
SPC had approved Exxon/Mobil's bid for the 28% stake in the 
Upper Zakum oil field.  He said that he anticipated that 
ADNOC and Exxon/Mobil would be able to sign the contract 
shortly after any final details had been worked out.  He 
explained that the decision would not be made public until 
both parties decided on a date for signature, and asked that 
the matter be treated confidentially.  In a separate 
conversation with Exxon Al-Khaleej President Frank Kemnetz 
(protect) he confirmed the deal and the fact that Exxon/Mobil 
would not publicly disclose the deal ahead of ADNOC. 
Al-Suwaidi acknowledged that the information would get out 
through the rumor mill, but noted official confirmation was a 
different matter.  Al-Suwaidi told econchief that 
Exxon/Mobil's concession in Upper Zakum would run until 2026, 
solidifying the company's presence in Abu Dhabi.  He added 
that ADNOC had extended the Japan Oil development Company's 
(JODCO) 12% concession in the field for the same amount of 
time.  Al-Suwaidi confirmed that there had originally been 
interest in splitting the 28% stake among several investors, 
but that he had argued that this would not serve the UAE's 
best interest.  He explained that the complicated nature of 
Upper Zakum required high-end technology, which was 
proprietary to the individual oil companies.  Under a sharing 
arrangement, companies would be reluctant to share their 
technology. 
 
¶3. (C) Al-Suwaidi said that Exxon/Mobil had presented ADNOC a 
plan to bring Upper Zakum capacity from its current level of 
520,000-550,000 barrels per day (b/d) to 750,000 b/d in 
around seven years.  The first 3 years, Exxon/Mobil would 
need to "study" the fields, and would then begin to develop 
the asset.  Al-Suwaidi said that some in the SPC were 
concerned about the lead time for the study and asked "what 
if Exxon/Mobil can't bring the field to 750,000."  He said 
that ADNOC had assured them that the 750,000 represented an 
IOC consensus on the field's production capacity, and that 
Upper Zakum had already reached production of 600,000 b/d but 
ADNOC had reduced production out of concerns for the 
reservoir.  He noted that given the size of the field, 
750,000 b/d shouldn't be a problem and that ideally ADNOC was 
interested in seeing if the field could eventually produce 1 
million b/d. 
 
Onshore Concession renewal to open for bid? 
------------------------------------------- 
 
¶4. (C) Al-Suwaidi said that the Abu Dhabi Company for Onshore 
Operations' (ADCO) oil concession would expire in 2014 and 
that ADNOC was looking at how to renew it.  He confided that 
Abu Dhabi was considering splitting the concession and/or 
opening it up for bid rather than just negotiating with the 
foreign shareholders on a renewal of their 40% stake in the 
company, citing the Upper Zakum bid as a possible model.  He 
said that "the Sheikhs" were concerned that ADCO's 
international shareholders were not pushing to expand 
production capacity as rapidly as Abu Dhabi might wish. 
Al-Suwaidi said that he understood the international 
 
ABU DHABI 00000470  002 OF 002 
 
 
shareholders' position as OPEC quotas normally capped ADNOC's 
production and that fiscal terms of one dollar per barrel 
meant that the international partners didn't benefit from the 
current price rises.  He acknowledged that the current 
arrangement had served Abu Dhabi well, but that more 
competition could enable Abu Dhabi to get the best possible 
deal for its oil and gas.  Al-Suwaidi stressed that the 
incumbents would still be able to bid on the concessions, but 
that they might not be able to count on an automatic renewal. 
 
 
Increases in Onshore Production Capacity 
---------------------------------------- 
 
¶5. (C) Al-Suwaidi stated that ADCO was on track to a 
sustainable production capacity of 1.4 million b/d by early 
2006, confirming that it had added 100,000 b/d capacity in 
2005 and would be bringing on another 100,000 by early 2006. 
He described his efforts in the late 1990s to encourage 
ADCO's international shareholders to develop three fields in 
Northeastern Abu Dhabi (Al-Dabbiya, Rumaitha, and Shanayal), 
adding that he had obtained agreement in 2000 to develop 
those fields, which collectively contain an estimated eight 
billion barrels of oil.  These 3 fields would collectively be 
able to produce 110,000 b/d in early 2006 (accounting for the 
additional 100,000 b/d that ADCO publicly announced, on 
February 5, that it would add).  Al-Suwaidi said that ADCO 
treated the three fields as one project, since the oil would 
be collected at one or two gathering stations and that 
production capacity had already reached the halfway point of 
about 50,000 b/d. 
 
¶6. (C) Al-Suwaidi confirmed press reports that ADCO had added 
100,000 b/d production to the Bab field in 2005, bringing its 
total surface capacity to 350,000.  He noted that ADNOC had 
identified another 200,000 b/d in capacity that it could 
bring on line by around 2010, if it started investing now. 
He noted, wryly, that his problem would be to try and 
convince the foreign shareholders to make the investment, 
especially since the concession would be running out shortly. 
 
 
Offshore Production Increases 
----------------------------- 
 
¶7. (C) Al-Suwaidi briefly turned the discussion to plans to 
increase production at the Abu Dhabi Marine Operating 
Committee's offshore concession, (which expires in 2018).  He 
said that a program was on track to bring sustainable 
production in ADMA/OPCO to 600,000 b/d.  Currently, he noted 
that ADMA/OPCO's sustainable production capacity was 577,000 
b/d.  He added that ADNOC had identified another potential 
400,000 b/d in new production capacity that could be brought 
on line by around 2010 if investment started now -- this 
would include another 100,000 from Lower Zakum and 300,000 
from new fields (including one named Umm Lulu -- the mother 
of the pearl). 
 
Gas injection 
------------- 
 
¶8. (SBU) In a January 29 conversation between econoff and 
ADNOC's managers for onshore and offshore production, they 
discussed Abu Dhabi's use of gas injection for reservoir 
management.  They noted that increasing oil production at the 
Upper Zakum field would definitely require gas reinjection, 
which would likely come from offshore fields.  They commented 
that Abu Dhabi needed to use much of its gas for reservoir 
management, adding that the Dolphin project (to bring natural 
gas to the UAE from Qatar) would complement Abu Dhabi's plans 
to expand gas production and would hopefully bring gas to 
market in a "cheaper, safer" manner.  They mentioned that 
ADNOC was studying using CO2 for injection, and that -- if 
the new process were successful -- it would capture CO2 from 
power plants rather than using subsurface CO2.  Al-Suwaidi 
told econchief that the Japanese had some new CO2 recovery 
technology that ADNOC was evaluating.  He stressed that 
ADNOC's evaluations were still preliminary, noting that he 
was, by nature, cautious about the claims of any particular 
engineering firm, assuming that they would say anything to 
"get a contract." 
SISON