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ADNOC awards contracts for wells and drilling materials as it drives value through smart procurement

21st August 2019

The combined scope of the three contracts awarded for the procurement of casing and tubing is AED 13.2 billion ($3.6 billion) and is one of the world’s largest in this category

ADNOC
Abu Dhabi National Oil Company (ADNOC)

The Abu Dhabi National Oil Company (ADNOC) announced, today, the award of multi-billion-dollar contracts for the procurement of casing and tubing as it drives value through its smart approach to procurement. The combined scope of the three contracts awarded is one of the world’s largest in this category, maximizing value for ADNOC across its drilling value chain and underpinning its strategy to deliver a more profitable upstream business.

The contracts – which were awarded to Consolidated Suppliers Establishment, representing Tenaris S.A. (from Luxembourg); Abu Dhabi Oilfield Services Company, representing Vallourec S.A. (from France); and Habshan Trading Company, representing Marubeni Corporation (from Japan) – have a combined scope of AED 13.2 billion ($3.6 billion) and the potential to achieve In-Country Value of over 50 percent. This includes more than AED 367 million ($100 million) in foreign direct investment, over the next five years, to establish a state-of-the-art oil country tubular goods (OCTG) threading plant and repair center, and a training academy in Abu Dhabi to enhance local expertise and generate value for the UAE.

Under the terms of the contracts, the three companies will supply a combined total of 1 million metric tons of casing and tubing – which by comparison is equivalent to the distance from Abu Dhabi to Houston – over 5 years, to support ADNOC’s drilling activities.

The award marks the first in a series of drilling-related procurement expenditures with an overall value of AED 55 billion ($15 billion) that ADNOC plans to make in the next five years and is part of its AED 486 billion five-year capital expenditure (CAPEX) approved by Abu Dhabi’s Supreme Petroleum Council (SPC) in November 2018. The other procurement categories – excluding this award – are Downhole Completion Equipment, Wellheads, and X-Mas Trees, Liner Hangers, Drilling Fluids, Directional Drilling, Cementing, and Wireline Logging.

Abdulmunim Saif Al Kindy, ADNOC Upstream Executive Director, said: “The award of contracts with a combined scope that is one of the world’s largest for tubing and casing follows a highly competitive bid process. It underscores ADNOC’s optimization efforts to drive commerciality across our growing portfolio. In addition, it is testament to our targeted approach to engage with value-add partners to unlock value as well as enhance the performance and returns on our assets and capital.

“These agreements will provide ADNOC with increased flexibility to proactively respond to the demands of the evolving energy landscape as we ramp up our drilling activities and deliver our 2030 strategy. They will also generate substantial In-Country Value and provide attractive foreign direct investment opportunities for the private sector, further demonstrating ADNOC’s commitment to creating sustainable value for the nation and its people, in line with the Leadership’s wise directives.”

The contract awards followed a robust tendering process that included a rigorous assessment of how much of the contract value would support the growth and diversification of the UAE’s economy through ADNOC’s In-Country Value Program, which is aimed at nurturing new local and international partnerships and business opportunities, catalyzing socio-economic growth and creating job opportunities for UAE nationals.

With more than AED 6.6 billion ($1.8 billion) value potential to flow back into the UAE’s economy, the awards will give significant stimulus to the country’s products and services and create additional skilled employment opportunities for UAE nationals.

The combined scope of the awards is based on the forecasted requirement for casing and tubing across the ADNOC Group. The awards complement ADNOC’s substantial upstream growth plans and drive to deliver integrated drilling services as it plans to increase its conventional drilling by 40 percent by 2025 and substantially ramp up the number of its unconventional wells. This is part of its target to achieve 4 million barrels of oil production capacity per day (mmbpd) by the end of 2020 and 5 mmbpd by 2030.

As an integral part of its 2030 strategy, ADNOC is optimizing its procurement strategy to reflect market dynamics, focusing on long-term contracts with a reduced number of suppliers that provide stable and reliable delivery at highly competitive rates. This smart approach is enabling ADNOC to create more value, drive efficiencies, and ensure that strategic materials and components are available on time while achieving substantial efficiency gains as it increases overall procurement spend.