Consortium of Indian oil companies pick up 10% stake in Abu Dhabi Oil Fields

Last November, the Union Minister for Petroleum and Natural Gas Dharmendra Pradhan had sent alarm bells ringing when he said that India's annual petrol consumption could jump from 30 billion litres now to 50 billion litres by 2030. And annual diesel consumption in the world's third-biggest oil consuming nation could go up by 67% to hit 150 billion litres in the same time frame. So the news that a group led by ONGC Videsh Ltd (OVL) picked up a 10% stake in a large offshore oilfield in Abu Dhabi over the weekend is a welcome one, indeed. It's also historic because this is the first time that Indian oil and gas companies have been given a stake in Abu Dhabi's hydrocarbon resources.

OVL, the overseas arm of state-owned Oil and Natural Gas Corp (ONGC) along with Indian Oil Corp (IOC) and a unit of Bharat Petroleum Corp Ltd (BPCL) have coughed up a signing amount of $600 million for the stake in Abu Dhabi National Oil Co's (ADNOC) 40-year Lower Zakum offshore concession. Incidentally, the Indian consortium is the first to acquire a stake in it. 

"The current production of this field is about 400,000 barrels of oil per day (20 million tonnes per annum) and Indian consortium's annual share shall be about 2 million tonnes," said OVL, India's largest international oil and gas company, having 39 projects in 18 countries. The field is to achieve plateau target of 450,000 barrels of oil per day by 2025. ADNOC is in the process of finalising potential partners for the remaining portion of the 40% stake earmarked for international oil and gas companies in the offshore concession, while retaining a 60% stake. The concession will be operated by ADNOC Offshore on behalf of all concession partners.

This landmark contract was signed in Abu Dhabi last evening in presence of Abu Dhabi Crown Prince Sheikh Mohamed bin Zayed al-Nahyan and Prime Minister Narendra Modi. "The offshore concession in favour of the Indian consortium has taken our bilateral engagement in the oil and gas sector to a new level, which befits the comprehensive strategic partnership between our two countries. I am happy to note that we have progressed from a buyer-seller relationship to an era of mutual investments in the oil and gas sector," said Modi on the occasion.

The concession deal, which has a term of 40 years with an effective date of March 9, 2018, "will help India meet its growing demand for energy and refined products, create opportunities for ADNOC to increase its market share in a key growth market, and build a solid foundation as ADNOC explores potential international investments, particularly focused on downstream opportunities," said ADNOC Group Chief Executive Sultan Ahmed Al Jaber, adding that "This is an attractive and strategic agreement for both parties that will deliver competitive returns and long term growth opportunities."

In a similar vein, ONGC Group Chairman Shashi Shanker said that the agreement "reflects the vision of the Prime Minister of India towards strengthening hydrocarbon linkages with the UAE on a win-win basis" and hoped that it would pave the way for further opportunities for Indian oil and gas companies to participate in the UAE's energy sector. India currently imports about 80% of its oil needs, 8% of which is reportedly supplied by the UAE.

Lower Zakum is actually a part of the ADMA-OPCO offshore oil concession, which produces around 700,000 barrels per day and is projected to reach about 1 million barrels per day 2021. To remind you, last August ADNOC had announced plans to split the latter into three areas- Umm Shaif and Nasr, Sateh Al Razboot and Umm Lulu, and Lower Zakum-with new terms to unlock greater value and increase opportunities for partnerships. Existing shareholders in ADMA-OPCO are BP plc with 14.67%, Total SA with 13.33% and Japan Oil Development Co with 12%.

This is not the first time that Indian oil companies have joined hands to acquire a stake in an overseas field. In 2016, Oil India Ltd along with IOC and BPCL reportedly picked up stakes in two separate oilfields in East Siberia. These investments, along with OVL's 26% stake in Vankor, Russia's second biggest oilfield-totalling $5.46 billion-would reportedly give India 15.18 million tonnes of oil equivalent. In comparison, over the past 50 years, a whopping $28.48 billion investment by Indian companies overseas had only given about 10 million tonnes of oil equivalent.

The latest foray into the UAE might pave the way for even more fruitful investments.

With agency inputs