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International relations

Abu Dhabi looks to Asia to take up oil concessions

20% of interest now held by China, Japan, South Korea

Japan's Economy, Trade and Industry Minister Hiroshige Seko, left, meets with Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed al-Nahyan in Abu Dhabi in January.

DUBAI -- Asian companies are increasing their presence in oil concessions in the United Arab Emirates.

Abu Dhabi National Oil Co. has solicited new bids for the onshore concessions held by the Abu Dhabi Co. for Onshore Petroleum Operations (ADCO), which expired in 2014. Four Western oil majors -- BP, Total, Royal Dutch Shell and Exxon Mobil -- each held a 9.5% of interest in the ADCO concessions, which produce 1.6 million barrels per day of oil.

Total became the first company to renew its interest in January 2015, followed by Japanese company Inpex's 5% acquisition in April the same year. South Korea's GS Energy then acquired a 3% interest in May 2015 and BP acquired 10% in December 2016.

Earlier this year, ADNOC awarded concessions to two Chinese companies. On Feb. 19, it signed an agreement with state-owned China National Petroleum Corp. for an 8% interest. The next day, it struck a deal with private energy company CEFC China Energy for a 4% interest. The agreements cover a 40-year term backdated to January 2015.

"Our agreement with CNPC strengthens and deepens the strategic and economic relationship between the United Arab Emirates and China," ADNOC chief executive Sultan al-Jaber said. To enter into the concession, CNPC contributed a sign-up bonus of 6.5 billion dirhams ($1.76 billion), according to ADNOC. CEFC paid 3.3 billion dirhams.

ADNOC will continue to hold 60% of the concessions, while Shell and Exxon's shares will be awarded to four Asian companies.

Japan has long imported crude oil from the UAE, but it is likely to trail China by some distance in terms of import volume. Inpex struck its deal with ADNOC about two years ahead of its Chinese rivals, but was only awarded 5%, compared with their 12% total.

The agreements hint at which country ADNOC will focus on over the next 40 years.

A Japanese oil company representative believes Chinese technology to maintain big aging oilfields helped win the contracts.

Meanwhile, ADNOC has also sought to secure stable long-term customers for its gas. On Feb. 22, it reached an agreement with Vitol, the world's largest independent energy trader, to sell up to 528,000 tons annually of liquefied petroleum gas over the next 10 years.

OPEC's agreement to cut oil output has contributed to solid resource prices, but has also helped the U.S. shale industry to recover.

"This agreement, which strengthens the long-standing relationship between ADNOC and Vitol, is a prime example of the innovative and different thinking we are bringing to our business deals," ADNOC said in a statement.

"It will create reliable, long-term value and maximize our gas resources to ensure the company is resilient to future fluctuations in the global energy markets," the company said.

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