ZADCO to award soon $4 billion Upper Zakum 750 EPC-2 project

Abu Dhabi to decide now in order to meet OPEC quotas

Abu Dhabi National Oil Company (ADNOC) and its partners, ExxonMobil and Japan Oil Development Company Ltd. (Jodco), are on the point to award the second engineering, procurement and construction contract (EPC-2) for ZADCO Upper Zakum 750 project.

ZADCO stands as the Zakum Development Company (ZADCO), a joint venture created in 1977 which currently is shared between:

 – ADNOC 60%, the operator

 – ExxonMobil Abu Dhabi Offshore Petroleum Company Ltd. (EMAD) 28% 

 – Japan Oil Development Company Ltd. (Jodco) 12%.

Through ZADCO, ADNOC, ExxonMobil and JODCO are willing to move ahead with the selection of the winning consortium for Upper Zakum 750 (UZ750)  project EPC-2 despite the significant excess of all the offers submitted by the bidding companies.

Originally estimated around $2 billion capital expenditure, this Upper Kakum EPC-2 package is actually ending around $4 billion from the actual offers on ZADCO table.

Three consortium in competition are very close to each other around this number:

 – Hyundai Heavy Industries with KBR

 – Technip with NPCC

 – Samsung Engineering

Then two other teams are much further with no chance any longer.

From this situation ADCO has the choice between three options:

 – Organize new bids on the same scope

 – Review the scope of work to reduce costs

 – Select one bidder now and go ahead

The first option is the easiest to organize and could be implemented in a short period of time, but since the three bidders are very close to each other, no major discount might be expected. 

In addition if one of the three bidders which has already invested a lot of money on this offer was withdrawing from the competition, the result may be worst than the actual situation.

ADNOC, ExxonMobil and JODCO to meet deadline

The second option would carry significant savings, but at the scale of the project any decent re-work of the engineering would cost anyway money and take one year.

This delay would have a cascade of consequences because this UZ 750 EPC-2 project is a critical package between the Upper Zakum 750 EPC-1 project for the oil and gas production and the Zirku Island Expansion project for the oil and gas central processing facilities and export.

The Upper Zakum EPC-1 project is the upstream part of Upper Zakum development project, it has been already awarded to Technip and NPCC on first half 2012 for $800 million capital expenditure.

For the Zirku Island Expansion, Foster Wheelercompleted the pre-front end engineering and design (pre-FEED) and ZADCO is planning to award the FEED contract on first quarter 2013 in targeting to sign the EPC contract on early 2015 for completion in 2017.

This deadline for the whole Upper Zakum development project involving the three projects UZ750 EPC-1, UZ750 EPC-2 and Zirku Island Expansion is critical for Abu Dhabi to meet its OPEC quotas given for 2018.

Revised several times from 2006 to 2011 and finally to 2018, Abu Dhabi is committed to reach 3.5 million b/d production by then instead of the actual 2.8 million b/d.

In consequence Abu Dhabi must increase production capacities by 700,000 b/d.

With 250,000 b/d additional production, the Upper Zakum field is carrying most of the efforts to meet this 2018 target that cannot suffer from any delay.

In this context the third option to make a decision now and go ahead for Upper Zakum EPC-2 seems to be the most likely solution so that a letter of intend should be issued soon.

In this scenario where the three bidders are at the same level, the logic would recommend ADNOC and its ZADCO partners, ExxonMobil and JODCO, to chose the engineering company offering the less risks.   

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