Introduction

Abu Dhabi sits on the world’s fifth-largest oil reserves (after Saudi Arabia, Iran, Iraq, and Kuwait) and is the eighth-largest producer of liquid fuels (after Saudi Arabia, Russia, the US, Iran, China, Mexico, and Canada). Its output, which had been roughly flat at about 2.5 million barrels per day (mbpd) during the 1990s, is now rising. It stood at 2.9 mbpd in 2008 and is poised to grow, perhaps to 4.5 mbpd over the next decade, as the company invests in managing its aging fields better and also in bringing new fields into production. Although its financial indicators are difficult to assess because the company is famously secretive, the Abu Dhabi National Oil Company (ADNOC) appears to be well managed and efficient. Compared with KPC, the Persian Gulf state oil enterprise with reserves comparable in size, ADNOC is a completely different organization. KPC, despite huge reserves, struggles to maintain production and is strikingly inefficient (see Chapter 8). ADNOC, by contrast, sits alongside Aramco among the star performers in the Persian Gulf. But where Aramco’s performance stems from having internalized all facets of oil discovery and production, ADNOC’s success comes from a blend of internal expertise and heavy reliance on foreign partners.

This chapter explores the history of ADNOC and examines the factors that explain its strategic choices and performance. We make four arguments. First, the company’s high performance seems to be the result mainly of two factors. One is the relatively late arrival of Abu Dhabi to the league of large world oil producers. When the waves of nationalization overtook the petrostates in the 1970s, Abu Dhabi had little to nationalize because it was just beginning to organize a large oil industry. The emirate was part of a fragile country (United Arab Emirates) that was just three years old on the eve of the first oil shock in October 1973; Abu Dhabi had little internal capacity and many distractions just assuring its national integrity. Those accidents of history yielded the defining feature of Abu Dhabi’s oil sector: concessions for exploration and production of oil that are operated through a consortium in which the controlling share (usually 60 percent) rests with the state (ADNOC) but minority shares are allocated among several Western oil companies. Unlike its peers in North Africa and the Persian Gulf, Abu Dhabi didn’t fully nationalize its industry because its industry was at a much earlier stage of development; risks were much higher; and the country had little choice but to offer a large role for foreign ownership and operators. The other factor that helps explain ADNOC’s high performance relative to its peer NOCs is that the company has used this unique position to build internal management talent through a clever system of corporate governance. ADNOC puts senior managers from the Western oil companies working alongside local employees and continually elicits information and technology from the Western companies. Whereas other studies in this book describe NOCs that have encouraged information and technology on best world practices by opening the oil sector to competition (e.g., Brazil and India), Abu Dhabi has done this within its oil company. In effect, ADNOC serves the dual roles of regulating the oil sector and also governing one of the world’s largest oil companies. Not surprisingly, it is the emirate’s leading institution for building indigenous talent.