ADNOC CUTS PRODUCTION TO MEET OPEC QUOTA

C O N F I D E N T I A L ABU DHABI 000013

NOFORN
SIPDIS

DEPARTMENT FOR NEA/ARP (BMASILKO) AND EEB/ESC/IEC/EPC (MMCMANUS)

E.O. 12958: DECL: 01/05/2019
TAGS: EPET ENRG PGOV AE
SUBJECT: ADNOC CUTS PRODUCTION TO MEET OPEC QUOTA

Classified by Ambassador Richard Olson for reasons 1.4 (b and d).


1. (C/NF) During a January 5 discussion with EconOff, Abu Dhabi
National Oil Company (ADNOC) Offshore Division Manager Ali al Shamsi
confirmed press reports that ADNOC will cut production in 2009 to
meet the UAE's OPEC quota. Al Shamsi, highlighting that the UAE was
the first to publicly announce its cuts, said that UAE production
would decline from 2.346 million barrels per day (bpd) in January
2009, to 2.189 million bpd in February, and 2.2 million bpd in March.
Most of the cuts would be taken at ADNOC's smaller offshore fields,
e.g., Umm Shaif and Lower Zakum, although the larger onshore
production of Murban crude would also decline. Al Shamsi said ADNOC
expects to resume production of 2.223 million bpd (its pre-December
quota) in April 2009.


2. (C/NF) ADNOC informed customers of the cuts on December 25,
following a December 24 meeting of the Supreme Petroleum Council
(SPC). Al Shamsi said that ADNOC, which produces 60 percent of the
UAE's total oil production, usually assumes responsibility for OPEC
production cuts. Al Shamsi explained that ADNOC advised its foreign
shareholders and other UAE petroleum producers of its planned cuts,
but did not "interfere" with their production levels.


3. (C/NF) Al Shamsi noted that ADNOC does not usually produce at its
full capacity. However, he said that 2008 production approached the
UAE's 2.6 million bpd capacity in response to high demand (and high
prices). ADNOC will reduce 2009 output by performing scheduled
maintenance, filling existing tank farms, and reducing production at
the wellhead.


4. (C/NF) Comment. ADNOC, whose production costs are about USD 7 per
barrel, does not need higher prices to be profitable or to fund
planned expansion. UAE President, Ruler of Abu Dhabi, and SPC
Chairman Sheikh Khalifa Bin Zayed Al Nahyan said in a recent
interview that investment in the petroleum sector would continue
despite the economic downturn and low oil prices, as long-term demand
is strong. However, ADNOC officials hope that prices will stabilize
closer to USD 40-50, which will ensure the UAE's 2009 budget is not
in deficit. ADNOC Deputy CEO and SPC member Abdallah Nasser Al
Sowaidi joked to EconOff in November that if prices fell to USD 20
per barrel, "we'd stop producing." End Comment.
OLSON