You need two things to achieve change: a management decision and for management and the people to follow the decision and not resist it. This is happening in ADNOC.

Hatem NUSEIBEH President TOTAL ABU DHABI

IOCs and NOCs

May 16, 2017

Hatem Nuseibeh, president of Total Abu Dhabi, talks to TOGY about the ABK concession and development opportunities in Abu Dhabi. French super-major Total has been active in the United Arab Emirates since 1939 and in the Middle East since 1924.

French oil giant Total Exploration and Production UAE began operations in the Emirates in 1939. Total currently holds stakes of varying interests and enterprises across the oil and gas, power generation, fertilisers and renewables industries. In January 2015, Total E&P UAE signed a 40-year agreement with ADNOC to acquire a 10% interest in onshore assets owned by ADCO.

• On the Zakum field: We’ve made it very clear that we are interested in remaining in the Zakum concession post-2018.

• On BP’s stake in ADCO:
It is very good to have a partner who is an IOC, sees things the same way we do and will be able to help push forward certain points more forcefully. When you have BP and Total saying something, it has power.

• On high recovery rate targets: The question is, is it feasible to recover more oil? Yes, it is. Would it be feasible to achieve 70% recovery in the fields of Abu Dhabi? Of course it is.

Nuseibeh also discussed the industry’s adaptation to the low oil price environment, ADNOC’s restructuring and the NOC’s 70% recovery rate target. Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Hatem Nuseibeh below.

How is the Abu Dhabi National Oil Company (ADNOC) evolving in the face of low oil prices?
Oil is the main source of income for Abu Dhabi, so the low oil price has impacted the country. ADNOC has been adapting itself to be able to continue government development plans. ADNOC seems to be becoming an international oil company (IOC), and Total has said that they want to support ADNOC in becoming the most successful IOC. This is interesting because it is a fundamental change in the way they are doing business. It is definitely possible.
In any company you need two things to achieve change: a management decision and for management and the people to follow the decision and not resist it. This is happening in ADNOC. I can see the differences in the meetings that we’ve had in 2016. They are making decisions on different investments, there is a change and they are trying to look at things from an economic point of view. They are thinking about the profitability of certain projects and how we are going to develop to reach our objectives, while at the same time not spending too much money.
How are we going to move ahead? There are companies who are merging together in the hopes of gaining synergies to cut operating costs. There has been a fundamental change in the way business is being done in the oil and gas industry. In many ways, this behavioural change on the part of national oil companies (NOCs) makes dealing with them easier because in the past we had been speaking different languages when it comes to projects. Don’t forget that NOCs have national interests and have to follow the strategy handed down from the government. IOCs follow a commercial strategy. The oil and gas industry is in a transitional period and we have not reached the end. It will eventually lead to leaner and more efficient communication between NOCs and IOCs.

 

How does Total benefit from mergers and acquisitions in the industry?
We benefit from efficiency. When you are producing oil or gas you want the operations to be more efficient and to cost less so you can make more profit. It is the ABCs of our business. Mergers bring us more profit from synergies; you are spending less money to do certain things. It is simple mathematics.
All of this has to be done while respecting fundamental health, safety and environment considerations and the integrity of the installations. ADNOC considers safety as fundamental as well. I cannot foretell the price of energy in the future and I don’t think anyone can. What we can do is allow ourselves to adapt to the market price, which will make us more successful.

How will development proceed at the offshore Abu Al Bukhoosh (ABK) concession and the Zakum field?

ADNOC are the ones who have that answer. ABK has a certain emotional value for everybody in Total. Many people have passed through the project, and some of my happiest moments were there. As an engineer, there is an attachment because it is a challenging field where we were able to test and complete things we would not have been able to do otherwise.
When I was doing technical engineering I remember we executed the first horizontal wells and the first gas injection pilots there. We tried all sorts of things. This is where an engineer is really wowed. For an IOC to operate a small field here, why not? The concession will end in March 2018 and I don’t know what will happen after.
The Zakum concession will also end in March 2018. Before the end of the concession there will be a merger between ADMA and ZADCO, but this merger does not impact the concession. The operating company can operate many concessions and we do this in several countries. ADNOC has many options for what they can do, and will tell us when they decide. We’ve made it very clear that we are interested in remaining in the Zakum concession post-2018. This is very important to us. We will also do what they want in ABK.
What I really don’t know is if ADNOC has decided to merge companies together. There is a difference between a concession and operating. When you are talking about ADMA and ZADCO becoming one company, it doesn’t impact the ADNOC concessions. I don’t know what ADNOC will decide, but we have a really good relationship and history with them. When nobody else wanted to come into ADCO we did because we had given our word and we respect that. We have shown what Abu Dhabi means to us.

How does TOTAL assess BP’s recent stake in Adco?
We are very happy about it. The agreement is made in such a way that in order for a new operator to come in, the others have to sign off on it. I signed my agreement. It is in our interests and the interest of ADNOC. It is very good to have a partner who is an IOC, sees things the same way we do and will be able to help push forward certain points more forcefully. If Total is pushing for something alone then it is only Hatem being difficult, as always. When you have BP and Total saying something, it has power. It will help us.
From Abu Dhabi’s point of view, they’ve put all their eggs in the French basket for 40 years. They’d like to have somebody else, apart from the Asians, a European or American company. This deal is good for both sides.

How will OPEC’s production freeze effect Total?
We had a meeting with ADNOC and they have not decided how to plan for OPEC’s decision. The price of oil has gone up to some USD 55 per barrel. I don’t know if the shale oil producers will come back or if the traders will put the price down or not. In the end, what is important is not what the oil price is, but if you can operate what you want to keep up your investments with the current oil price. That is the fundamental change over the past few years.
Instead of looking for a USD 100-per-barrel project or a USD 80-per-barrel project, now you don’t know what the price is. The difference is huge. In an industry where you invest so much and can have such a huge difference in price, the wise thing to do is take the approach that the oil price cannot be controlled, but our costs can. I can control what I invest. This is what we are doing at Total and I’m sure other operators are as well. For me, whether the oil price goes up or down, it cannot impact too much how I make my decisions about costs.

In December 2016, ADNOC announced that it wants to triple its output of petrochemicals. Does this present an opportunity for Total?
We have discussed this with ADNOC, but there is nothing signed or being done. It is true that ADNOC would like to expand its co-operation with IOCs and is looking at different ways of increasing its value. For example, instead of selling crude oil it can sell petroleum products that will generate more profits. ADNOC has spoken to many IOCs, Total included, about possible partnerships. In Dubai, we have our lubricants business. We are partners in FERTIL, which makes urea. I don’t know if we will have other partnerships or not.

What are the challenges in producing from Abu Dhabi’s mature oilfields, such as ABK’s 70% recovery return target?

I worked for a long time for Total as a reservoir engineer. When I started working as a young engineer they used to tell me that out in the field you could recover 5-30%. I grew a little bit older and we were recovering between 25-40%. Today, we have fields that are already recovering more than that. It is all a question of costs. If you have 1,000 barrels of oil under the ground and you can take out 300 or 900 barrels, why would you want to extract 700 barrels? Why not 80% or 90%? It is all about costs and technology.
The question is, is it feasible to recover more oil? Yes, it is. Would it be feasible to achieve 70% recovery in the fields of Abu Dhabi? Of course it is, because they are huge fields. I believe that oilfield reserves in Abu Dhabi are 100 billion barrels. If you make the investment and recover even 1 billion barrels, that is less than 1% of the total. 1 billion barrels of oil is USD 50 billion. With that, you can afford to make a lot of investments. If there is any place in the world where you can achieve this, it is surely Abu Dhabi. We have already achieved more than 55% recovery in ABK. I think it is feasible.
Price, cost and economics are not limitations. Look at shale in the USA. When the oil price was at USD 100 everyone was saying that at USD 80 these operations would stop and they could not make it. Today, at USD 50 many of these operations are ongoing. Why? Because they cut their costs and put the right technology in place.
We should be optimistic about technology because it can solve a lot of problems. I know that it is very fashionable to be committed to better energy. Technology can help us achieve what we need. It means giving you the energy that you need to live a comfortable life. But we have to respect the environment so that our children can also live on this earth. It is technology that will bring that.

What technological innovations has Total been deploying in Abu Dhabi?

We are studying many subjects. For example, at ABK we conducted a successful chemical injection pilot. Usually, chemical injection is not done on carbon reservoirs but on sandstone reservoirs. The fact that it was successful in ABK means that we can use this technology in the big fields that are in Abu Dhabi, which is something new.
We are conducting pilots on carbon dioxide (CO2) injection as well. We don’t need to put it in place immediately, but in order to plan we have to do pilots so we can see. If you want to inject CO2 everywhere you have to get CO2. Where do you get the CO2? The volumes are small. Today, I can imagine the amount of CO2 being produced can and will be used for the pilot projects. But suppose you decide to apply it to a huge field, you will need to bring in CO2 from abroad.
GASCO has also just decided to use Total’s High Sweet methodology in downstream applications. We are providing many technologies that are being put into place by NOCs.

What is the best way for the Ministry of Energy and ADNOC to balance hydrocarbons and renewables in their new energy basket?
Renewables are an integral part of Total’s strategy, which is built on three pillars: renewable energy, gas and oil where it is cheap to produce. I don’t always agree with the ministry or ADNOC on everything. For example, the question about national energy production is not only about putting in place the cheapest option, you also need to have quality. The price needs to come down so it is competitive with other energy solutions, but you also have to keep looking at the quality. In the end, when you are producing energy for the country you are not producing it for one or two years, you are producing it for the long term. So you need to look at both price and long-term efficiency.
Total understands this. We have partnerships with Shams 1 and with Masdar. We are trying to compete for solar projects, but if you want me to compete with the cheapest solutions, I won’t. I am not going to propose something technically deficient to simply gain a contract. I want to build something so that in 20 years people will say, “Total did this and they made the right decision.”

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