Abu Dhabi National Oil to Award $2 Billion Construction Contracts by End 2009

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Researched by Industrial Info Resources (Sugar Land, Texas)--State-controlled Abu Dhabi National Oil Company (ADNOC) (Abu Dhabi, United Arab Emirates) is expected to award construction and expansion contracts worth $2 billion before the end of the year. The decision comes despite the economic slowdown, which has resulted in declining construction and input costs globally. Bids for projects in the energy sector have dropped by almost 50% since the onset of the financial crisis. Major oil producers in the Gulf region have been negotiating with engineering and construction companies to lower project costs as a result of the slump in the prices of raw materials.

ADNOC will award contracts for work in the Qusuweira, Bab and Beda Qamzan oil fields in the United Arab Emirates. These projects will assist Abu Dhabi Company for Onshore Oil Operations (ADCO) (Abu Dhabi), a subsidiary of ADNOC, to augment its capacity by 200,000 barrels per day (BBL/d) to 1.6 million BBL/d by 2012 and further to 1.8 million BBL/d by 2016. ADNOC holds a 60% stake in ADCO. Royal Dutch Shell Plc (NYSE:RDS.A) (The Hague, The Netherlands), Total SA (NYSE:TOT) (Paris), ExxonMobil Corporation (NYSE:XOM) (Irving, Texas), and BP Plc (NYSE:BP) (London), each hold a 9.5% stake, and Partex Oil and Gas (Lisbon, Portugal) holds the remainder.

One of the deals signed by ADCO is the $818 million gas compressor contract with South Korea's SK Engineering and Construction (SKEC) (Seoul, South Korea). Three gas compressors will be installed at the Bab oil and gas field to boost gas extraction capacity to 2.5 trillion cubic feet by 2030. The excess gas extracted will be sent to a processing facility at Habshan. The project, which is SKEC's first in the United Arab Emirates, is critical and of strategic value, as it will extend the life of maturing oil wells and ensure sustained energy supply to the United Arab Emirates. The gas compressors will be positioned in an area known as Tamama C in the Bab oil field, which is estimated to hold 1.5 trillion cubic feet of gas. The initial project cost was more than $1.5 billion, but the economic slump worked in ADCO's favor, resulting in deals at much lower prices. Construction projects in the energy sector skyrocketed last year when the price of oil peaked at $147 per barrel.

In January, ADCO signed deals for $3.5 billion with Petrofac Limited (LSE:PFC) (London), and a consortium of Tecnicas Reunidas SA (MCE:TRE) (Madrid, Spain), and Consolidated Contractors Company (Athens, Greece). Although the bids were much higher, ADCO was able to bring down project costs and save $1 billion on these contracts. Petrofac won a $2.3 billion deal to develop the onshore oil field in Asab. The scope of the contract, which is to be executed in 44 months, includes capacity enhancement to handle larger crude volume from the Shah, Sahil and other southeastern fields. The project will also simultaneously increase allied infrastructure and water management facilities. ADCO signed a $1.2 billion engineering, procurement and construction agreement with Tecnicas Reunidas and Consolidated Contractors to develop the Shah and Sahil fields. The Shah, Ahav and Sahil oil fields are part of the SAS development project, which will add 60,000 BBL/d to ADCO's current capacity of 1.4 million BBL/d.

ADNOC, which is the United Arab Emirates' largest energy enterprise, has access to more than 90% of the country's oil and gas reserves. The company takes part in the entire oil and gas production lifecycle through its 11 subsidiaries. In 2008, ADNOC received federal contracts from the U.S. worth $918 million.

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