US embassy cable - 05ABUDHABI3580

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