New Normal in the UAE: Operational Efficiency
Despite being in a region where the average lifting cost is estimated to be around USD 27 and high underground pressure forces crude oil to literally gush out of the ground, not even the UAE cannot afford to ignore the ‘new normal’ of USD 50 oil.
ADNOC remains committed to its 2013 plan to increase production from 2.8 million to 3.5 million bpd by 2018, with a commitment to sink USD 100 billion (almost a quarter of annual GDP) into infrastructure and capacity.
With the social compact of Gulf petrostates premised on the role of the state as the chief distributor of wealth, the International Monetary Fund (IMF) estimates the UAE’s breakeven price – needed to meet overall government expenditure – at USD 73. While the UAE has sufficient fiscal buffer to withstand USD 50 oil for nearly thirty decades, it also needs to contend with the various challenges of its maturing oilfields, most of which have been operational for decades. Little wonder, then, that new ADNOC CEO, H.E. Dr. Sultan Al Jaber, announced upon his appointment a program of modernization and restructuring centered on the concept of ‘operational efficiency’ “to drive efficiency, performance and profitability,” signaling a paradigm shift in mentality.
Furthermore, ADNOC remains committed to its 2013 plan to increase production from 2.8 million barrels per day (bpd) to 3.5 million bpd by 2018, with a commitment to sink USD 100 billion (almost a quarter of annual GDP) into infrastructure and capacity during those five years. With the low oil price grinding E&P activity to a halt, ADNOC is counting on maximizing production from existing fields, having set the daunting/ambitious target of achieving an Enhanced Oil Recovery (EOR) rate of 70 percent. This entails technical requirements and challenges for which the UAE may not yet be ready. Musabbeh Al Kaabi, CEO of Mubadala Petroleum, Abu Dhabi’s international E&P company, admits that “we still need to address certain technology gaps in EOR and unconventionals”.
In a beleaguered global market, IOCs and the big OFS companies are understandably eager to assist ADNOC – who controls 95 percent of the UAE’s oil and 92 percent of the UAE’s gas in its goals. Total MD Hatem Nuseibeh speaks about how his company is pulling out all the stops to realize Abu Dhabi’s lofty ambitions. “I view the 70 percent target as highly achievable…In the Emirati spirit of dreaming big, why not even 80 percent one day?” he muses.Halliburton meanwhile, in addition to already make itself dual-headquartered in Dubai, has also resolved to “concentrate its global mature fields solutions in Abu Dhabi,” according to Senior Vice President Ahmed Kenawi.
EPC companies also view ample opportunity in the UAE’s stated targets. Amec Foster Wheeler Regional Operations Director Ross Gibson points out, “We have seen a reduction in capital expenditure (Capex) from our customers, which is understandable. However, operating expenditure (Opex) have increased”. Industry estimates put total fall in E&P investment worldwide in excess of USD 400 billion. To meet clients’ Opex needs, companies are rolling out new service lines, as Expro VP (MENA) Riccardo Muttoni outlines: “we recently launched four new business streams, including production optimisation and well abandonment, which reflect the changing needs of our industry.”