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ADNOC awards first offshore concession stake to Indian consortium

Dubai — State-owned Abu Dhabi National Oil Company signed its first internationalpartner for one of its prized offshore concessions, awarding a 10% staketo an Indian consortium led by ONGC Videsh.

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The 40-year deal was signed by ADNOC CEO Sultan al-Jaber and ShashiShanker, chairman of ONGC Group. Overseeing the ceremony late on Saturdaywere Abu Dhabi Crown Prince Mohammed bin Zayed along with Indian PrimeMinister Narendra Modi. The deal will not only help to deepen UAE-Indiaenergy ties, but it will also help the Middle eastern company to expandits presence in Asia.

OVL, along with Indian Oil Corp. and Bharat PetroResources, were awardeda 10% stake in the new Lower Zakum concession, after agreeing to payDirham 2.2 billion ($599 million). Effective from March 9, the deal isthe first time any Indian oil and gas companies have been given a stakein Abu Dhabi's hydrocarbon resources.

The announcement follows months of discussions between ADNOC and morethan a dozen potential international partners for the emirate's mainoffshore oil concession which expires March 8 this year.

"We are hopeful that this historic agreement will lead to furtheropportunities for Indian oil and gas companies to participate in theUAE's energy sector," Shanker said. ADMA CONCESSION BROKEN IN THREE

International stakeholders in the ADMA concession until now were BP with14.67%, Total with 13.33% and Inpex subsidiary Japan Oil Development Co.with 12%.

With so many companies eager to take a slice of the offshore fields, theaward finally sheds light on how Abu Dhabi plans to divide theconcession, located in the shallow waters of the Persian Gulf. In totalit produces around 700,000 b/d, about a quarter of the UAE's total oiloutput and half its crude oil production from offshore fields.

The Indian group was given a 10% stake in Lower Zakum, the first of thethree new concessions being spun off. The others cover the Umm Shaif andNasr fields, and another for the Umm Lulu and Satah al-Razboot fields.All three will be operated by ADNOC Offshore, a new subsidiary, and ADNOCmaintains the controlling 60% stakes.

ADNOC said the restructuring of concessions is aimed at maximizingcommercial value, broadening the partner base, expanding technicalexpertise, and enabling greater market access. This is while it attemptsto boost total production capacity to 3.5 million b/d by the end of 2018,as well as drastically raising its downstream capacity, doubling gasolineproduction and tripling petrochemicals output by 2025.

Further announcements are expected in the coming weeks as ADNOC tries tocomplete the concession awards before the March 8 expiry, forgingpartnerships with international companies willing to share technology,provide ADNOC with international marketing advantages or help financelarge projects.

CAPTURING ASIAN DEMAND

Jaber visited both China and Japan earlier this month, meeting withsenior officials and top oil executives. Many UAE oil watchers hadexpected an announcement from the visits. The granting of a 10% stake tothe Indian companies adds a new dimension to the UAE's tilt to its maindemand source for its oil and petrochemicals in Asia.

It follows a similar pattern to the onshore concession awards which werecompleted last February, and confirms what UAE energy minister Suhailal-Mazrouei said last April, that "extending those ties with China,Korea, India, Japan is imperative."

ADNOC retained only two legacy shareholders Total and BP, with 10% eachin the onshore concession, while adding participation from new Asianentrants: China's CNPC and CEFC with a combined 12%, Japan's Inpex with5%, and South Korea's GS Energy with 3%.

Speaking at the signing, Modi said India's relationship with the UAE andIndia had progressed from buyer-seller to one of "mutual investments inthe oil and gas sector."

"The offshore concession in favor of the Indian consortium has taken ourbilateral engagement in the oil and gas sector to a new level, whichbefits the comprehensive strategic partnership between our twocountries," Modi said. "I am happy to note that we have progressed from abuyer-seller relationship to an era of mutual investments in the oil andgas sector."

"This mutually beneficial partnership will help India meet its growingdemand for energy and refined products, create opportunities for ADNOC toincrease its market share in a key growth market, and build a solidfoundation as ADNOC explores potential international investments,particularly focused on downstream opportunities," Jaber said in thestatement.

In a sign of how important India had become, last March ADNOC gave up itscrude storage lease in South Korea, choosing instead to sign a deal withthe Indian Strategic Petroleum Reserve Ltd. The agreement covers storagefor 5.86 million barrels of crude in India's Karnataka state. That's morethan half the total capacity of the underground facility.

ADNOC and ISPRL reaffirmed the commitment Saturday, agreeing to implementthe Karnataka storage deal which was initially announced in January 2017during a visit to India by the Abu Dhabi crown prince. This will not onlyhelp the UAE expand its sales in the South Asian nation, but also givesIndian refiners quick access to cargoes which could potentially lowertheir costs.

--Adal Mirza, adal.mirza@spglobal.com

--Ratnajyoti Dutta, newsdesk@spglobal.com

--Sambit Mohanty, sambit.mohanty@spglobal.com

--Edited by Irene Tang, newsdesk@spglobal.com