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Sun 6 Feb 2011 05:07 PM

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UAE warms up to new partners in energy concessions

Foreign firms must sharpen their game to retain rights to lucrative oil and gas fields

UAE warms up to new partners in energy concessions
LUCRATIVE PARTNERSHIP: Occidental Petroleum will take a 40 percent share of ADNOCs $10bn project (Bloomberg Images)

The recent choice of Occidental Petroleum to develop the United Arab Emirates' giant Shah gas project signals to more established partners they must sharpen their game before concessions come up for grabs again.

Occidental will take a 40 percent share of Abu Dhabi National Oil Company's (ADNOC) $10bn project, the companies said last month.

Although not a new entrant to the United Arab Emirates, Occidental is an untested partner for ADNOC. Many in the market had thought Shell, a veteran in the UAE, was the frontrunner.

"Giving the Shah opportunity to Oxy was a way to signal that they're open to newcomers and that they are not tied up to their long-established partners," said an executive at an international oil company with operations in the Gulf.

US ExxonMobil, Shell, BP, France's Total and the Japan Oil Development Co (Jodco) are the main partners of ADNOC in the four largest concessions in the UAE, where they have been operating for many years.

"These companies have been here for ages. They might be feeling too comfortable and that their position is not threatened at all," said the executive.

"They may not feel the need to sharpen their pencils."

But they must, analysts said, if they want to renew their contracts and possibly win new ones in forthcoming oil and gas concessions, after existing contracts begin expiring in 2014. These concessions will offer foreign operators rare equity stakes in oil and gas fields in the world's third-largest crude oil exporter.

Commentators said that what clinched the deal in the case of Oxy was the price.

"Oxy had a better financial offer, that's why they were chosen," said Thaddeus Malesa, an analyst at PFC Energy Consultancy. "The terms they were proposing to ADNOC were much better than what Exxon and Shell were offering."

ADNOC also said it would be looking at prices.

"ADNOC is very price-conscious, when it comes to its investments" a senior executive within the company said. "Obviously, new players in the market have to establish a position, so they can offer cheaper deals."

Occidental's existing operations in the UAE include two small concessions awarded in 2008 and a partnership in Dolphin Energy with Mubadala, Abu Dhabi's investment company. That partnership has helped it establish strong relations with the Supreme Petroleum Council.

Crown Prince Mohammed bin Zayed Al Nahyan, who chairs the council, wants new companies to help develop resources.

"He's really a key driver behind a move to shake things up and seek alternative partners," Malesa said. "For the upcoming concessions, they are certainly willing to entertain bids from new companies that aren't present in Abu Dhabi."

Norway's Statoil, Denmark's Maersk Oil, part of AP Moeller Maersk A/S, Austria's OMV, London-listed oil and gas services company Petrofac and South Korean companies are among the possible contenders.

Exxon Mobil, Shell, BP and Total either declined to comment or were not available for comment on this article.

The vice president of Exxon said in November the company planned to bid for the upcoming concessions.

ADNOC is already talking with interested companies about concessions.

"We're always looking for a good deal and (price) is going to be one of the drivers for bringing in new players," the ADNOC source said.

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