Exxon to BP Said to Pay More for U.A.E. Oil as 75-Year Pact Ends

Jan 09, 2014 9:27 am ET

Jan. 9 (Bloomberg) -- The largest U.S. and European oil companies will pay more for Abu Dhabi crude when the end of a 75-year partnership reduces their direct stakes in the emirate’s output, according to two people with knowledge of the matter.

Exxon Mobil Corp., BP Plc, Royal Dutch Shell Plc and Total SA lose their rights as shareholders in the company operating Abu Dhabi’s onshore oil fields after their joint venture expires this week. The international companies will then start paying a premium of 11 cents a barrel over Abu Dhabi’s official selling price for Murban grade crude, the two people said, declining to be identified because the contract terms are private.

“As long as their crude price is reasonably competitive and they’re feeding their trading arms, it’s something they can deal with,” Robin Mills, head of consulting at Manaar Energy Consulting and Project Management, said by telephone from Dubai today. “The companies will be betting that they can trade the crude to add more than 11 cents of value.”

The end of an accord accounting for more than half of the output from OPEC’s fourth-largest supplier further weakens, at least temporarily, the role of international companies in the group, as member nations seek to retain more oil wealth. Abu Dhabi holds most of the reserves in the United Arab Emirates, which pumped 2.76 million barrels a day in December, or 9.2 percent of all oil supplied by the Organization of Petroleum Exporting Countries, according to data compiled by Bloomberg.

Murban Pricing

The expiring partnership between the international companies and state-run Abu Dhabi National Oil Co., or Adnoc, accounts for about 1.5 million barrels a day of Murban crude, the U.A.E.’s main blend. Murban for December costs $113.85 a barrel under Abu Dhabi’s retroactive monthly pricing system.

Adnoc will take full control of the unit operating the fields while completing a bidding process to award new concessions, according to a statement from the producer yesterday. Until a new concession agreement is reached, Exxon, Shell, BP and Total will buy Murban crude from Adnoc under six- month contracts that will replace some of the oil they would have taken as equity partners, the people said.

Abu Dhabi has pumped oil from its onshore fields under concession deals with Exxon, Shell, Total, BP and Portugal’s Partex Oil & Gas, or their predecessors, that have been in effect since January 1939. Adnoc became a partner in the 1970s, forming Abu Dhabi Co. for Onshore Oil Operations, or ADCO, in which the five foreign partners held a 40 percent stake.

Production Loss

“BP, Shell, Total and Exxon, each of whom held a 9.5 percent interest, will see an end to some 150,000 barrels a day of annual production and the loss of about $50 million of annual fixed income,” Deutsche Bank AG analyst Lucas Herrmann wrote in a note today. “More surprising is that at this stage there has been no temporary extension and that Adnoc, the state oil company, has taken full control of the fields.”

The four companies, which retain some stakes in Abu Dhabi’s offshore production, are among 11 from the U.S., Europe and Asia that submitted bids in October for new production agreements in the Persian Gulf emirate. Partex, the smallest partner in ADCO with a 2 percent stake, wasn’t invited to bid. Adnoc may take until January 2015 to choose new partners, Abdulla Nasser Al Suwaidi, the company’s director general, said in November.

Interim Agreements

Adnoc at first considered signing yearlong oil supply contracts with BP, Exxon, Shell and Total, the people with knowledge of the matter said. By signing six-month agreements instead, the state producer will have greater flexibility in the event concession agreements are reached earlier than next January, they said.

Spokesmen at BP, Exxon and Shell declined to comment. Total media representatives didn’t immediately comment when contacted by phone. An Adnoc spokesman declined to provide additional comment beyond what the company said in the statement yesterday.

Korea National Oil Corp. and Italy’s Eni SpA have said they’re bidding for the new concessions. The remaining bidders are Japan Oil Development Co., China National Petroleum Corp., Norway’s Statoil ASA, Occidental Petroleum Corp. of the U.S. and Russia’s OAO Rosneft, according to Energy Intelligence Group.

--With assistance from Tara Patel in Paris, Eduard Gismatullin and Brian Swint in London, Alessandra Migliaccio in Rome and Joe Carroll in Chicago. Editors: Bruce Stanley, Alaric Nightingale