Feature

2Bonds of trustwith Abu Dhabi leadto a bright future

The Emirate of Abu Dhabi, in the United Arab Emirates, is home to some of the largest oil fields in the world. InMay 2004, INPEX made Japan Oil Development Co., Ltd.
(JODCO) into a wholly owned subsidiary, inheriting the oil
development and production business that JODCO had been
conducting in Abu Dhabi for more than 30 years since 1973.
JODCO reached 2 billion barrels of cumulative crude oil
lifting in April 2004, one month prior to joining the INPEXGroup, having contributed significantly over many years toJapan’s energy security as a Japanese oil developer. Following
its acquisition of JODCO, INPEX continued to work with its
partners on oil fields under development located in the vicinityof ones already in production, and succeeded in commencing
oil production at the Umm Lulu and Nasr oil fields between
2014 and 2015.
Through JODCO, INPEX has since been further expanding its footprint in Abu Dhabi by acquiring new concessions
and extending existing ones as part of its mission to contribute to meeting the energy needs of Japan over the long-term.
The Abu Dhabi authorities have adopted a strategy of selecting
genuine partners in the upstream domain committed to participating in diverse projects that will contribute to enhanced
economic and social development in the UAE. In light of this,INPEX has worked hard to further strengthen its multi-faceted
relationships with ADNOC and other key stakeholders in Abu
Dhabi to secure and maintain its oil concessions.

Technical strengths a decisive factor in the extensionof the Upper Zakum concession
In 1978, INPEX began developing the Upper Zakum OilField in partnership with Abu Dhabi National Oil Company(ADNOC), and started production in 1982. The oil field’s

Ceremony affirming the agreement to increase the Upper Zakum Oil Field’s
production capacity to 1 million barrels per day by 2024 (Photo: ADNOC)
INPEX President & CEO Toshiaki Kitamura (right) with ADNOC CEO Dr. Sultan
Ahmed Al Jaber (center) and ExxonMobil CEO Darren W. Woods (left) (November 2017)

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Part II First 10 years after merger

production capacity continued toincrease thereafter, reaching the550,000 barrels per day threshold,and the Upper Zakum Oil Field became one of Abu Dhabi’s principal
oil fields.
In March 2006, ExxonMobil
acquired a 28% stake in the Upper
Zakum concession from ADNOC
and proceeded to conduct a redevelopment study. ExxonMobil thenmade a proposal to increase theoil field’s production capacity to
750,000 barrels per day through exAbu Dhabi oil fields (INPEX participation)tended reach drilling from artificial
islands. INPEX leveraged its experience working in the Upper Zakum
its relations with ExxonMobil, which was prepared to pull out
Oil Field to contribute to the disof the project altogether if necessary.
cussions on the ExxonMobil-led development proposal.
Today, INPEX continues to work with ADNOC and ExxDuring this process, INPEX also pursued a further extenonMobil on the plan to increase the Upper Zakum Oil Field’ssion of the concession period and a revision of the fiscal terms
production capacity to 750,000 barrels per day using an inthat would ensure adequate returns on the enormous additional
novative artificial island-based development combined withinvestment required. INPEX considered these items to be preextended-reach drilling technology. The three companies also
requisites for the production capacity enhancement project toreached an agreement in November 2017 to further increase
go forward, and negotiated its proposal alongside ExxonMobil
the oil field’s production capacity to 1 million barrels per day bywith Zakum Development Company (ZADCO), the operat2024, resulting in a further 10-year extension of the concession
ing company of the oil field.
until December 2051.
With a positive response from ADNOC, an agreement
was reached in January 2014 that included an improvement
to the fiscal terms and an extension of the concession period
Participating interest in ADCO Onshore Concession
by more than 15 years, from March 2026 to December 2041.
acquired through successful bid
During the negotiations, INPEX had to carefully steer thechallenging discussions to maintain the good relations it had
With the 1939 onshore concession expiring in January
built up with ADNOC and Abu Dhabi, while also considering
2014, the Abu Dhabi government decided to grant a combined
40% interest in a new, 40-year concession through an international bidding process. At the time of INPEX’s acquisition of a5% participating interest in April 2015, the ADCO Onshore
Concession, as it was known then, produced about 1.6 million
barrels of oil per day and was one of the world’s largest depositsof oil, consisting of 11 onshore oil fields in production and fourthat remained undeveloped.
The Abu Dhabi onshore concession originally began inJanuary 1939 after the Ruler of Abu Dhabi granted Petroleum
Development (Trucial Coast) Ltd. a 75-year concession agreement to explore and develop petroleum in Abu Dhabi. Fullscale exploration activities began after the end of the Second
Upper Zakum Oil Field
World War. Thereafter, following the discovery of a number ofFeature 2: Bonds of trust with Abu Dhabi lead to a bright future49

Abu Dhabi offshore oil field concessions acquired andextended amid tough competition

Abu Dhabi Onshore Concession production facilities

oil fields including Bab, Bu Hasa, Asab, Shah and Sahil, development work led to the production and exportation of Murban
crude.
Petroleum Development (Trucial Coast) later changed its
name to Abu Dhabi Petroleum Company (ADPC). As natural resources nationalism grew around the world in the years
that followed, ADNOC acquired a 25% interest in the concession in 1973, which was then raised to 60% in 1974. ADPC
was restructured in 1978 to become Abu Dhabi Company forOnshore Oil Operations Ltd. (ADCO), thereby bringing theconcession’s operatorship under the control of an Abu Dhabi
company, much like the Emirate’s offshore concessions. Thus,
the Abu Dhabi onshore concession became known as theADCO Onshore Concession.
At this point, Murban oil accounted for about half of Abu
Dhabi’s total oil production, and Japan was one of the world’s
largest importers of the grade.
When the ADCO Onshore Concession opened to international bidding, INPEX decided to participate in the bidding
through JODCO. INPEX submitted its pre-qualification documents in mid-2012 and was pre-qualified in early 2013, at
which point the bidding process began. INPEX presented itsbidding documents at the end of 2013, after which there werebriefings and due diligence conducted by ADNOC.
While the former concession expired in January 2014, adecision on granting stakes in a new concession was still pending at the time. In January 2015, JODCO was notified thatADNOC had entered an agreement with Total SA for a 10%
interest in the concession, and that INPEX could also take aninterest if it accepted the same terms and conditions. Accepting
these terms and conditions was a major decision. In April 2015,
INPEX concluded a 40-year agreement for a 5% interest effective January 2015, where JODCO Onshore Limited (JOL) wasestablished as the interest holder.
50Part II First 10 years after merger

A wellhead in the Abu Dhabi Onshore Concession

Thereafter, South Korea’s GS was granted a 3% interest inthe concession in May 2015, followed by a 10% interest being
awarded to BP in December 2016. Finally, in February 2017,
China’s CNPC and CEFC (currently China ZhenHua Oil)were granted interests of 8% and 4%, respectively, bringing thetotal participating interest assigned to international players to40%.
Today, ADNOC Onshore serves as the operator of what
is known as the Abu Dhabi onshore concession, where INPEX
has begun development work alongside ADNOC and others
to raise oil production to 1.8 million barrels per day. Oil produced from the concession is shipped from the port of Jebel
Dhanna on the western coast of Abu Dhabi as well as from theEmirate of Fujairah on the Indian Ocean, where the oil is firsttransported through the Abu Dhabi/Fujairah crude oil pipeline, which became operational in 2012. The oil exported fromthe Fujairah terminal effectively bypasses the Strait of Hormuz,
a maritime transit route considered to be prone to geopoliticalrisk.

ADNOC and JODCO peer review of Zakum integration study

The ADMA Block, an offshore oil field concession dating from 1953 until 2018, was located off the coast of Abu
Dhabi and comprised seven oil fields including Upper Zakum,
which is one of the world’s largest, as well as Umm Shaif, Lower
Zakum, Umm Lulu, Nasr, Satah and Umm Al-Dalkh.
The Upper Zakum Oil Field concession agreement was
first extended in 2014 and again in 2017. However, the concession agreements for the remaining oil fields were due to expire
in March 2018, prompting major international oil companies
and many other key players in the industry to vie for new stakes
in these oil fields.
During this time, INPEX worked to reach an agreementin principle with ADNOC in January 2017 to extend the concession agreements for the Satah and Umm Al-Dalkh oil fields.
Discussions included the terms on which the duration of thejoint development of the oil fields would be extended by approximately 25 years until December 2042, and INPEX’s participating interest in the Umm Al-Dalkh Oil Field would beincreased from 12% to 40%.
Meanwhile, INPEX also joined the bidding process forthe other oil fields in the ADMA Block. ADNOC and the Abu
Dhabi authorities had divided the ADMA Block oil fields into
three groups for the new bid. These three groups consisted ofthe Umm Lulu and Satah al-Razboot (SARB, an oil field solely
developed by ADNOC) oil fields, the Lower Zakum Oil Field,
and the Umm Shaif and Nasr oil fields. Ownership of a participating interest in Abu Dhabi’s offshore oil fields was considered attractive due to the relatively low cost of production,
the large volume of reserves and Abu Dhabi’s political stability.
The bid therefore attracted the interest of numerous parties
from around the world, with as many as fourteen companies

Signing the new concession agreement for the Lower Zakum Oil Field(February 2018) (Photo: ADNOC)

and organizations considered to be vying for stakes in the oilfield concessions. INPEX had set its sights on pursuing a concession agreement for the Lower Zakum Oil Field, the largest
among the offshore oil fields. Under the ADMA Block concession framework, INPEX was the only international oil company with participating interests in both the Upper Zakum andLower Zakum oil fields, and it therefore leveraged this advantage by implementing a study on the synergies of an integrated
development of the two oil fields, and submitted a technicalproposal based on this study to ADNOC.
Despite the most intense competition for a stake in theLower Zakum Oil Field, in February 2018 INPEX succeeded
in being awarded a 10% participating interest in the Lower
Zakum Oil Field to be held through JODCO Lower Zakum
Limited over a 40-year period extending until March 2058.
An extension of the Satah and Umm Al-Dalkh concession wasalso formally signed to substantiate the agreement in principle
reached earlier. The concession agreement for these fields now
runs until March 2043.
JODCO’s operational and technical contributions to Abu
Dhabi’s oil development and production industry over morethan four decades are believed to be a key contributing factor
in INPEX’s acquisition and extension of these concessions, as
are the Japanese government’s proactive efforts to engage in resource diplomacy with Abu Dhabi and the UAE.
Over the last decades, INPEX has built a sound reputation for excellence in Abu Dhabi, as evidenced by its appointment by ADNOC as the asset leader for the Lower Zakum OilField in April 2018, marking the first instance for a company
other than an Oil Major to be appointed asset leader for a giant
offshore field in Abu Dhabi. INPEX is committed to meetingthe expectations of all its stakeholders and will continue to proactively engage in the oil development and production business
in Abu Dhabi over the long-term.

Students undertaking the Kumon method of learning mathematics (from 1998)

Feature 2: Bonds of trust with Abu Dhabi lead to a bright future51

FeatureSocial contribution activities help build trusting
relationships
INPEX has long worked on building cordial, long-termrelationships with Abu Dhabi, and conducts various activities
designed to contribute to social development in Abu Dhabi.
These activities, which have been carried out in earnest since
the latter half of the 1990s, are focused on education, the environment and cultural exchange.
Education and the development of human resources are
considered to be key priorities for the authorities of Abu Dhabi.
INPEX has proactively supported the training of Emirati students by organizing seminars in Japan for geology majors at theUnited Arab Emirates University from as early as 1993, subsequently also including students from the Petroleum Institute—currently part of the Khalifa University of Science, Technologyand Research—from 2007. Meanwhile, in 1998, INPEX played
an active role in introducing the Kumon method of learning
mathematics to Abu Dhabi’s primary school education authorities, later expanding this initiative to support the introductionof Kumon at ADNOC-sponsored schools in 2018, in view ofINPEX’s enhanced presence in Abu Dhabi’s oil and gas development and production sector. Since 2006, INPEX has also
been instrumental in a project to accept Emirati children at theJapanese School in Abu Dhabi. In the spring of 2018, the Japanese School produced its first Emirati junior high school graduates who had entered the school’s kindergarten program in
2006, and two of these graduates have entered a high school inJapan. In terms of contributions to cultural exchange, INPEX
has for many years assisted in the showcasing of traditional Japanese falconry in Abu Dhabi, while also helping introduce andpromote traditional Japanese values and practices such as thetea ceremony and judo. Also, as part of a concerted effort torevive the local pearl farming industry, which earlier in history
had supported the economy of Abu Dhabi, INPEX has played
a role in helping local pearling operations adopt Japanese pearl
culture technologies.
Behind INPEX’s social contribution activities in Abu
Dhabi is a desire to help improve the Emirate’s social challenges
and promote a mutual understanding to further enhance thestrategic partnership between Japan and Abu Dhabi. These activities have also enabled INPEX to strengthen its relationships
with government institutions as well as academic and researchorganizations, creating new channels that would not have beenpossible by focusing solely on the company’s core business ofoil and gas development and production. In such ways, INPEX
has successfully reinforced its ties to the local community reflecting its deep-rooted commitment.
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Part II First 10 years after merger

3

Aiming for greater heights
with a more robust gas supply chain

Supporting a project to accept UAE children at the Japanese School in Abu
Dhabi (from 2006)

INPEX’s business in Japan started with the operationof gas fields and transportation of gas through long-distancepipelines, and has since expanded to midstream anddownstream-business. Along with business expansion, securing a stable gas supply also became important, so operations greatly evolved to cover all processes in the gas
supply chain, including overseas gas field production andoperation, liquefaction, shipping and unloading from LNG
carriers, and finally regasification of the LNG. Each phasein the gas supply chain is creating value to the business, andthe aim is to develop this model further to complement thebusiness as a whole.

Panoramic view of Naoetsu Harbor (March 2017)
Photo: Port Development Division, Bureau of Transportation Policy, Niigata
Prefectural Government

Preparing for the strong demand of natural gas
construction of an LNG receiving terminal
In January 2010, INPEX carried out a plan to source gas
from LNG which began to be received from the Shizuoka Gas
company via the Shizuoka pipeline. This LNG sourced fromthe Pacific Ocean side of the country, combined with the domestic gas operations on the Sea of Japan side, meant INPEX
could secure gas from two different sources, and this improved
its ability to utilize the full pipeline network and create a stablesupply of gas. Meanwhile, the demand for natural gas as anenvironmentally-friendly energy source was expected increasesignificantly due to global warming. However, there was a limit

to how much demand that could meet when relying on Japanese gas field deposits and LNG from Shizuoka Gas alone.
INPEX frantically searched for the supply of LNG from othercompanies in order to ensure a third and fourth source of gas
but things did not go as hoped. After various studies, in 2005
the conclusion was reached that an LNG receiving terminal
should be constructed for the supply of LNG from overseas.
This construction project was the start of a long journey involving a huge amount of capital investment.

Feature 3: Aiming for greater heights with a more robust gas supply chain53