ABU DHABI'S OFFSHORE PRODUCTION

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 003580

SIPDIS

STATE FOR NEA/ARPI, EB/ESC/IEC/EPC
WHITEHOUSE FOR OVP- KEVIN O'DONOVAN
ENERGY FOR MOLLY WILLIAMSON

E.O. 12958: DECL: 08/20/2015
TAGS: EPET ENRG ECON TC
SUBJECT: ABU DHABI'S OFFSHORE PRODUCTION

Classified By: CLASSIFIED BY AMBASSADOR MICHELE J. SISON
FOR REASONS 1.4 (B & D).

THIS CONTAINS BUSINESS PROPRIETARY INFORMATION.


1. (C) Summary: Abu Dhabi Marine Operating Company
(ADMA/OPCO) GM Bud Fackrell (protect) told Econchief August
16 that ADMA/OPCO had taken several steps to increase oil
production over the last year and had a project to bring
sustainable oil production capacity to 600,000 barrels per
day bp/d by 2008. ADMA/OPCO is also developing a plan to
increase production by a further 200,000 bp/d, using
undeveloped fields. Fackrell noted that developing new
offshore fields was expensive. The international oil
companies that own 40% of ADMA/OPCO would want to renegotiate
the terms of their agreements with Abu Dhabi's state owned
oil company ADNOC, he added. Fackrell briefly discussed the
possibility that planned gas production and imports from
Qatar would be insufficient to meet the UAE's rapidly growing
energy demand. He also said that the Abu Dhabi leadership's
attention to securing the offshore oil facilities -- which
had increased during the invasion of Iraq then diminished --
appeared to be on the upswing. Exxon Al-Khalij's president
Frank Kemnetz (protect) told us August 13 that negotiations
over the 28% stake in the Upper Zakum field were moving along
"slowly." End Summary.


2. (C) Econchief met with ADMA/OPCO (one of two companies
responsible for Abu Dhabi's offshore oil production) General
Manager Bud Fackrell (protect) on August 16 to discuss
current production and his plans to increase production over
the medium term. (Note: Fackrell is an AMCIT employee of BP,
seconded to ADMA/OPCO.) On August 13, DCM and Econchief
briefly discussed the status of the Upper Zakum negotiations
with Exxon Al-Khalij President Frank Kemnetz (AMCIT president
of Exxon/Mobil's local operation).

Current Production
--------------


3. (C) Fackrell said that he, and ADNOC in general, was under
pressure to produce as much oil as possible. Fackrell added
that ADMA/OPCO needed to balance increasing current
production with its longer term goal of increasing production
capacity. According to Fackrell, ADMA/OPCO has undertaken a
number of projects over the last year to remove bottlenecks
and improve coordination with the Abu Dhabi Gas Liquefaction
Company (ADGAS),which produces LNG and LPG from the gas
produced offshore. (Note: ADNOC has a strict no-flare
policy, which means that some of the production constraints
are driven by limits in how much gas Abu Dhabi's gas plants
can absorb.)


4. (C) Fackrell explained that years of spare capacity had
conditioned the Emiratis to operating with more redundancy
in their operation than the international oil companies
(IOCs). With no spare capacity, ADNOC needed to make a "mind
shift" in ensuring that the operations "run at over 90%
efficiency" the way oil companies elsewhere need to operate.
Fortunately, the Emiratis were learning this new lesson, he
noted.

Planned Increases
--------------


5. (C) Fackrell explained that he had a program to raise
sustainable production capacity by 150,000 bp/d to 600,000
bp/d by 2008. He said "I can produce at 600,000 bp/d now,
but I can't sustain it" for the long term. (Note: We
understand that ADMA/OPCO is currently producing between
500,000 and 600,000 barrels per day, which would be close to
the top of its rated capacity.) Abu Dhabi will build a
pipeline from ADMA/OPCO's offshore facilities on Das Island
to Abu Dhabi's onshore gas processing facilities. Currently,
there is no way to pipe excess gas onshore to meet the UAE's
power generation needs. With the pipeline and some upgrades,
Fackrell said, he would have no problem producing at 600,000
bp/d for the next 25 years.


6. (C) ADMA/OPCO is developing a plan for Abu Dhabi's Supreme
Petroleum Council's (SPC) approval to increase production by
a further 200,000 barrels per day. Fackrell explained that
the production increase would come from ADMA/OPCO's
undeveloped fields. He admitted that the undeveloped fields
were not the size of the Zakum or Umm Shaif reservoirs, but
noted that the undeveloped fields were as large as the fields
that BP is aggressively developing in "deep water Gulf of
Mexico." Fackrell also noted that both Zakum and Umm Shaif
would continue producing for years to come.

7. (C) Fackrell explained that developing new offshore fields
is costly. The IOCs that own 40% of ADMA/OPCO operate under
fixed cost contracts that have not allowed them to benefit
from the "windfall" high oil prices, which go to ADNOC. He
said that he suspected the IOCs would want to renegotiate the
terms of any new development contract before investing large
sums of money. Although he noted that Abu Dhabi's SPC and
ADNOC were tough bargainers, he was confident that Abu Dhabi
would come to an agreement that would give the IOCs "enough"
to keep them interested in developing new projects. He added
that Exxon/Mobil was discovering just how tough the SPC was
as a bargaining partner. (Note: Exxon/Mobil beat BP and
Shell to final negotiations with ADNOC to develop a 28% stake
in the Upper Zakum Field. Kemnetz told DCM and Econchief
that the negotiations were moving forward, but slowly. He
added that "obviously Abu Dhabi was interested in more than
just price (i.e., technology) otherwise we wouldn't be where
we are today," but noted that ADNOC and the SPC were still
pushing for the best price possible. End Note.)

Gas and the UAE's Energy Demands
--------------


8. (C) Fackrell explained that while the UAE's offshore gas
reserves are large, most of the gas is "associated" and
needed for reservoir management. He said that the major
Khuff gas reservoir is a deep non-associated gas reservoir
that lies below the Umm Shaif oil field. It is expensive to
produce this gas, as ADMA/OPCO needs to segregate the gas
from the oil (which is at a lower pressure) in the field
above.


9. (C) Fackrell said that ADNOC had recently asked him to
provide his gas supply and demand projections for the next
few years, adding that he thought ADNOC was looking at gas
available to meet the UAE's rapidly growing demand for power.
He told Econchief that he did not know the exact reason for
the request, since his immediate boss (ADNOC Deputy CEO
Abdullah Nasser Al-Suwaidi) was out of the country, but he
suspected that ADNOC was worried about potential supply
shortages. He added that he had heard that there were
(unspecified) problems with the Dolphin project to bring
natural gas from Qatar to the UAE. Fackrell explained that
he had told his planners to develop a range of estimates,
noting that he would need to reinject more gas into the
reservoirs as he increased oil production. He added that the
plans to sharply increase production at the Upper Zakum field
would also need gas from ADMA/OPCO's fields.

Security of the Facilities
--------------


10. (C) In response to econchief's question, Fackrell
admitted that security of the offshore oil facilities could
be improved. He said that the UAEG paid a "flurry" of
attention to the issue after the invasion of Iraq, but then
the level of attention dropped. He added, however, that
security appeared to be gaining attention again. ADNOC
security had approached him about raising his personal
security awareness (while staying "low profile") and noted
that he is already varying his times and routes of travel.
He added that security was an issue of discussion between
ADNOC's CEO and Minister of Interior Sheikh Saif bin Zayed
AL-Nahyan. ADMA/OPCO had hired a security consultant to help
identify the specific priorities that the UAEG needs to
address with regard to improving security.
SISON