ABU DHABI NATIONAL OIL COMPANY (ADNOC): TOUGH NUT

C O N F I D E N T I A L ABU DHABI 001138 SIPDIS DEPT FOR NEA/RA, NEA/ARP, INR/EC, EB/IEP, EB/CBA USDOE FOR INT'L AFFAIRS - COBURN, ALSO CALIENDO USDOC FOR 1000/OC/ USDOC FOR 4520/ITA/IEP/ONE USDOC FOR 4530/ITA/MAC/ONE/DGUGLIELMI 4500/ITA/MAC/DAS/WILLIAMSON 3131/CS/OIO/ANESA E.O. 12958: DECL 03/10/08 TAGS: EPET PGOV BEXP ENRG ECON EINV TC SUBJECT: ABU DHABI NATIONAL OIL COMPANY (ADNOC): TOUGH NUT TO CRACK ¶1. (U) Classified by DCM Richard Albright, for reasons 1.5 (B) and (D). 2.(C) Summary and comment: Aspiring participants in the UAE oil market -- including American oil companies -- continue to find it difficult to get a foot in the door at ADNOC, the Abu Dhabi National Oil Company. ADNOC officials continue to favor their existing equity partners (the "Big Four" ExxonMobil, BP, Shell and TotalFina Elf) over outsiders, based in part on the close business and personal relationships the Big Four have established over time with the Abu Dhabi leadership. ADNOC recently has sought out contact with smaller American firms, but its continued preference to partner with the oil majors on larger projects indicates that UAE oil officials are comfortable with the familiar, and wary of newcomers. Although other American companies often bring cutting-edge technology, managerial expertise, and plenty of money to the table, across the board they are finding that "business development" in the UAE oil sector is an arduous task. End summary and comment. 3.(C) Occidental Petroleum, a medium-sized American oil company that is already an equity partner with the UAEG (but not ADNOC) on a major gas project, is taking concrete steps to make a name for itself in Abu Dhabi's upstream oil sector. Oxy recently established a permanent office in Abu Dhabi, symbolizing to ADNOC its commitment to doing business here. According to its representative in Abu Dhabi, the company is trying to partner with ADNOC on smaller projects -- deep gas extraction projects to help Abu Dhabi meet its short-term gas demand, for example -- and has agreed to fund a study with ADNOC's Petroleum Institute on the feasibility of carbon dioxide injection techniques. While the company representative (please protect) hopes that this goodwill eventually will translate into upstream oil contracts, he implied to Econchief that he has not been able to make inroads with key decisionmakers at ADNOC and the Supreme Petroleum Council -- and, he conceded it is in oil, not gas, where the real money lies. 4.(C) Another American oil company, Chevron-Texaco, was invited by ADNOC last year to bid on a 26 percent equity stake in ZADCO -- the joint venture company that operates the mammoth Lower Zakum oil field. This project is both technologically complex and commercially lucrative (the field holds an approximate 40-50 billion barrels of oil; half of Abu Dhabi's reserves),and both US and Middle East- based Chevron execs have visited the UAE on several occasions to lobby ADNOC CEO Yousef bin Omeir. Yet ADNOC, which invited Chevron-Texaco to bid on ZADCO, has since had little good to say regarding the firm's prospects -- ADNOC Deputy CEO Abdullah Bin Nasser Al-Suweidi has told us, "it is hard for outsiders to submit winning bids because they don't know us," and both he and the ADNOC CEO, while privately volunteering good things about ExxonMobile's ZADCO bid, have generally refrained from mentioning Chevron-Texaco at all, hardly a good sign. 5.(C) Even in the oilfield services sector, ADNOC officials prefer to deal with established players in the UAE. Most recently, ADNOC Deputy CEO surprised Econchief and Econoff by asking for recommendations of smaller American companies -- as an alternative to majors Halliburton and Schlumberger, which have both had long and profitable relationships with ADNOC -- to participate in a joint venture with the Al-Fahim Group (Abu Dhabi) for cased holed logging and wireline perforating services. Although Econoff, working with FCS, passed ADNOC officials a list of U.S. companies that specialized in this technology, ADNOC signed a joint venture agreement in January with major oilfield services company Halliburton. Wahba