The joint venturewill be owned 60 percent by Abu Dhabi’s Takreer and 20 percent each by Espoo, Finland-based Neste Oil and Vienna, Austria-headquartered OMV. The agreement, signed in Abu Dhabi and announced Monday,includes basic principles for the design, construction and operation of the base oil facility, and the commercial terms of the project. The joint venture plans to assign front end engineering design by the second quarter of 2008. After that phase is complete, the companies in the JV plan to make a final decision on the investment.

One important background of this partnership is that Takreer operates a large refinery in Ruwais with a large hydrocracker producing suitable feedstock for high-quality VHVI base oils, Matti Lehmus, Nestes vice president, base oils, told Lube Report. The partnership aims at combining the marketing and process know-how of Neste Oil with Takreer’s refining expertise and OMV’s lubricant and project know-how.

Takreer,whose full name isAbu Dhabi Oil Refining Co., has an overall crude and condensate processing capacity of about 500,000 b/d. The company has said it seeks to expand its product portfolio by venturing into the production of high-quality base oils.

OMV is active in refining and marketing in 13 countries, and has an annual refining capacity of 26.4 million metric tons. The company owns a majority share in Romanian Petrom, Romanias largest oil company. OMV also has 2,518 filling stations in 13 countries.

OMV opened an office in Abu Dhabi in May of this year. OMV has already been active in the Middle East for many years, OMV spokeswoman Tosca Purr told Lube Report. Since 1994, IPIC (International Petroleum Investment Company, Abu Dhabi) has been a shareholder of the company.

According to Neste’s Lehmus, the joint venture will license the core hydroisomerization technology for the plant. The experience Neste Oil has developed in operating its own VHVI base oils unit in Porvoo since 1997 will be taken into account in the design, to optimize the process and resulting product quality, he added.

The geographical location is attractive, as exports to all main consuming markets can be implemented efficiently from there, Lehmus continued. Local demand will grow with time, but efficient export capability is an important part of the project, he added.

The joint venture plans to market the base oils where demand is highest for Group III products. Demand for sulfur-free base oils is increasing globally due to their ability to meet current and future performance requirements, and more stringent environmental standards. Today the largest markets for VHVI base oils are Europe and North America, but demand in Asia and the Middle East is constantly growing, Lehmus said.

According to the announcement, Neste will initially be responsible for marketing of the products. Neste Oil is expected to market the production of the unit until differently agreed, Lehmus said. The output will be sold under Nestes existing Nexbase brand, and other options can be considered in the longer term, according to Lehmus.

It is an option for the future for OMV to market its own share of base oil products, OMVs Purr said. A final decision has not been made yet.

Neste operates a 4,670 b/d Group III base oil refinery in Porvoo, Finland. The company is considered a key merchant player in todays Group III market, along with South Koreas SK and S-Oil. Chevron, Petro-Canada, Exxon Mobil and another 10 refiners also produce Group III today, but primarily or entirely for captive use.

In a separate joint venture with Bapco, Neste had been slated to produce another 7,700 b/d of Group III in Bahrain starting in mid-2009. Lehmus said that schedule has changed, with startup likely pushed back to 2011.

The schedule has slipped versus original targets due to the time taken to finalize the engineering and to receive the final cost estimates, he explained. The likelihood of the project going forward has not changed because of this. We expect to be able to make a final investment decision based on this more accurate information during 2008. Construction time for such projects is nowadays typically around 3 years.

A variety of base oil projects have been slowed the last two years, often by the need to review plans in light of sharply escalating costs for refining projects.