VZCZCXRO2054
PP RUEHDE RUEHDIR
DE RUEHAD #0490/01 0810712
ZNR UUUUU ZZH
P 220712Z MAR 07
FM AMEMBASSY ABU DHABI
TO RUEHC/SECSTATE WASHDC PRIORITY 8604
INFO RHEHNSC/NSC WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEHAAA/WHITE HOUSE WASHDC PRIORITY
RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE

UNCLAS SECTION 01 OF 03 ABU DHABI 000490 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR NEA/ARP, EEB/ESC/IEC/EPS, EEB/CBA 
ENERGY FOR SENIOR FOREIGN POLICY ADVISOR MOLLY WILLIAMSON 
OVP FOR O'DONOVAN 
6000/ITA/TD/AS/AC/CJAMES 
3004/ITA/TD/AS/AC 
 
E.O. 12958: N/A 
TAGS: EPET ENRG EINV AE
SUBJECT: EXXON REQUEST FOR ADVOCACY ON SOUR GAS 
 
REF: 06 ABU DHABI 3026 
 
 ¶1. (SBU) Summary: On March 18, Exxon Al-Khaleej President 
Kemnetz presented Ambassador with suggested advocacy points 
on ADNOC's sour gas tender.  The tender is for gas reservoirs 
beneath two on-shore oil fields.  Reserves of gas in each 
field are estimated to be extensive (around seven trillion 
cubic feet per field), but there is significant uncertainty 
about the figure.  In addition, the gas is sour (20%-35% 
Hydogen Sulfide) and the reservoir is technically 
challenging.  Exxon officials believe that they have he most 
experience with this technically challening project.  They 
noted that this would be the irst time that a foreign 
company participated ingas exploration and production.  The 
tender submissions are due on April 15. Chevron and 
Occidenta Petroleum are two other U.S. companies interested 
in the project.  End Summary. 
 
¶2. (SBU) On March 18, Exxon Al-Khaleej President Frank 
Kemnetz, Vice President Michael Perry, and Marco Rossi, Vice 
President for Upstream energy Research met with Ambassador, 
Econchief, and Commercial Counselor to discuss Exxon's 
request for advocacy on ADNOC's sour gas tender. 
 
Background 
---------- 
 
¶3. (SBU) Strong economic growth in the UAE in general, and in 
the Emirate of Abu Dhabi in particular, is driving an 
increase in the emirate's demand for natural gas.  Currently 
ADNOC is projecting a three billion cubic feet per day 
shortfall in gas beyond 2010, even with imports from Qatar 
(the Dolphin Project).  Currently ADNOC supplies about one 
billion cubic feet per day to ADWEA and would be looking to 
double that figure. 
 
¶4. (SBU) Abu Dhabi has significant undeveloped gas reserves, 
primarily in sour gas fields.  ADNOC's sour gas tender is for 
the development of the Bab and Shah sour gas fields 
(onshore).  Both fields are currently active oil producers: 
Bab is Abu Dhabi's largest onshore field producing 400,000 
barrels per day of crude and condensates and Shah (by the 
Saudi border) producing 50,000 barrels per day. 
 
¶5. (SBU) The reservoirs being tendered are the Arab fields, 
located below the oil reservoirs.  Estimated reserves are 
large -- in the range of seven trillion cubic feet of gas per 
field -- but there is significant uncertainty about the real 
reserves in both fields.  Exxon notes that the range in the 
resource size is  /- 50%, with additional appraisal drilling 
required.  The reservoirs have low permeability .01-10 md and 
the gas is sour, with Hydrogen Sulfide levels of 20-35% and 
CO2 levels of 10%.  Bab is dry gas, while Shah has 
condensates. 
 
¶6. (SBU) Exxon officials explained the toxic nature of 
Hydrogen Sulfide and the need for flawless operations to 
ensure safe production.  They noted that ExxonMobil has 
demonstrated experience and capabilities in managing sour gas 
projects, including Labarge (U.S.) and RasGas.  They noted 
that this sour gas development could be the world's largest 
acid gas injection project (both in terms of volume of flow 
and in injection pressure).  In addition, the complexity of 
the reservoir and the scale of the project require 
significant expertise, they noted. Expertise that Exxon has. 
 
Who is Competing? 
----------------- 
 
¶7. (SBU) According to Exxon, ADNOC has tendered to 10 IOCs. 
In response to Ambassador's question about competitors, 
Kemnetz said that the strongest competitor was likely to be 
Shell.  Stressing that he was working from second hand 
sources, he said that he understood Shell, BP, Total, Exxon, 
Conoco, Occidental Petroleum, and the Japan Oil Development 
Co (JODCO) were all competing.  He said that he understood 
that Chevron, BG, and Marathon had all dropped out. 
Initially, he noted Chinese and Indian firms were also 
interested. 
 
First Foreign Participation in Gas 
---------------------------------- 
 
ABU DHABI 00000490  002 OF 003 
 
 
 
¶8. (SBU) Currently, there is no foreign participation in 
either on-shore or offshore gas development and production. 
Foreign equity partners hold equity interest in producing gas 
liquids.  The Abu Dhabi Gas Liquefaction Company (ADGAS) 
currently processes around 1.2 billion cubic feet per day 
from offshore fields.  ADNOC holds a 70% stake in ADGAS. 
Three foreign partners hold the other 30% (Mitsui - 15%, BP - 
10%, and Total 5%)  Liquid production is around 180,000 
barrels of oil equivalent per day.   The Abu Dhabi Gas 
Industries Company (GASCO) processes about 4.6 billion cubic 
feet per day of gas from onshore fields.  Associated gas 
liquids production is around 80,000 barrels of oil equivalent 
per day.  ADNOC has a 68% stake in GASCO, foreign partners 
the rest (Total - 15%, Shell 15%, Partex 2%). 
 
¶9. (SBU) Kemnetz noted that, if the project were done 
correctly, Abu Dhabi would want a company with capabilities 
that meet the Emirate's needs.  He would expect the project 
to involve some sort of equity participation, with ADNOC as 
the majority stakeholder. Although the commercial terms 
remain to be negotiated, he said that he hoped ADNOC would be 
flexible on the Joint Venture.  The project, he noted would 
be very expensive (over $5 billion). 
 
Timeline and Details 
-------------------- 
 
¶10. (U) ADNOC has hired Sherman and Sterling to provide legal 
advice and Rider Scott for technical advice on the tender. 
These companies worked on the Upper Zakum tender. 
 
¶11. (U) ADNOC first requested expressions of interest to 
tender for sour gas fields in April 2006.  In July, companies 
submitted their experience package to ADNOC as part of the 
tender prequalification.  Also in July ADNOC announced the 
initial tender for the Arab reservoirs of Bab and Shah and 
released data on the reservoirs.  In December, ADNOC released 
the tender terms of reference. 
 
¶12. (SBU) Tender submissions are due to ADNOC on April 15, 
¶2007.  In mid-2007, ADNOC is expected to select tendering 
companies for negotiations.  During the second half of 2007, 
ADNOC is expected to negotiate the technical and commercial 
terms with the selected IOC with a goal of awarding the 
tender and signing the agreement during the first quarter of 
¶2008.  (Comment:  Based on our experience with the awarding 
of a concession for Upper Zakum, this appears to be an 
ambitious timetable. End Comment.) 
 
¶13. (SBU) Exxon Suggested Advocacy Message 
 
-- Emphasize fairness and transparency in decision-making, 
facts on current participating interests, and benefits of 
technology and know-how from American companies. 
 
-- We applaud Abu Dhabi,s ongoing emphasis on fairness and 
transparency in decision-making, and we fully support 
decisions based on the technical and commercial merits of 
bids.  We recognize that Abu Dhabi government might also 
consider other factors in the sour gas award.  If other 
factors are considered( 
 
 
Tier I messages to emphasize: 
------------------------------ 
-- We hope that some consideration will be given to the 
current level of participation.  At present, only European 
and Japanese companies participate in the processing of Abu 
Dhabi,s gas resources.  There are no American companies.  We 
hope that Abu Dhabi will also consider the value of U.S. 
company participation. 
 
-- Abu Dhabi would benefit from application of American 
technology to ensure safe and economic recovery of its gas 
resources.  Certain American companies are widely recognized 
for their technology, and some particularly for their 
advanced technology and expertise with sour gas. 
 
-- An equally important consideration is excellence in 
project execution, especially critical in as challenging a 
project as the development of these resources.  There are 
 
ABU DHABI 00000490  003 OF 003 
 
 
American companies that have repeatedly demonstrated the 
ability to complete multi-billion dollar projects on time and 
on budget. 
 
 
Tier II message to also convey as opportunity presents: 
 
Another strength of American companies is their training and 
development programs to develop the talents and capabilities 
of the UAE nationals. 
 
Greater participation of American companies in Abu Dhabi gas 
industry would benefit Abu Dhabi in the development of the 
Emirate,s resources and in the development of UAE nationals. 
SISON