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UAE oil concessions shake-up opens door to East

UAE oil concessions shake-up opens door to East

UAE oil, gas concessions start expiring in 2014; Talks between IOCs and Abu Dhabi underway

October 1, 2011 1:10 by

In October last year, the senior vice president of ExxonMobil, one of the largest stake holders in the big concessions, said the multi-partnered structure prevented the U.S. energy giant from bringing in its “best” technology.

“The biggest company pushing for change is Exxon,” a senior industry source based in Abu Dhabi said. “They have been lobbying for that for quite some time.”

But Abu Dhabi’s Supreme Energy Council (SPC), the highest authority on energy policy, will not shift readily from a concession system which has worked well for the wealthy emirate for decades.

“We are going through a very conservative period in terms of investment. I would be really surprised if they broke up the concessions,” a senior government source said. “If we are going to allow any new players, I would say it would be for small fields,” he added.

With the first expiry of Abu Dhabi concessions looming in 2014, international oil company (IOC) executives hope ADNOC and the SPC will announce their plans for the renewals this year.

“They are supposed to be making a decision in the next 3-4 months. But knowing the pace of things in Abu Dhabi, I’d double that time,” the industry source said.

Fuel-thirsty Asian companies may also offer more price-competitive bids for pumping out the oil and gas, which could prove key in swaying ADNOC’s decision in their favour.
“I can tell you from experience that whenever there is any kind of bidding, ADNOC would consistently pick the lowest price,” Malesa said.

“Even if (a rival bid) is within a 10-percent band it would be rejected, even if the other bidder has better technology,” he added.

US-based Occidental Petroleum beating front-runner Shell in January to develop the large but technologically challenging Shah Gas field was seen by many analysts as evidence of ADNOC’s sensitivity to price.

The complex nature of future oil and gas extraction in the region should ensure western IOCs with experience extracting fuel from tricky deposits in other parts of the world continue to play a major role in the UAE.

“ADNOC will explore its options,” a source at ADNOC said. “But you will still have the likes of BP, Shell involved.”

With Asian oil demand rising while consumption in the western hemisphere wanes, Asian companies with long-term supply concerns may out bid the established IOCs to secure fuel they need to drive rapid economic growth.

“The concessions are not about profits for the next 10 years but more about what this region will look like in 50 years time,” a western oil industry source said.

“They recognise this will be very important in 60 years time so they start the relationship today.” (By Humeyra Pamuk and Amena Bakr; Editing by Daniel Fineren)

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