ABU DHABI: Occidental Petroleum will have a 40 percent share in the Abu Dhabi National Oil Company’s (ADNOC) Shah gas project, United Arab Emirates’ state news agency WAM said on Thursday.
Occidental Petroleum has won the contract develop Abu Dhabi National Oil Company’s (ADNOC) $10-billion Shah sour gas project, sources said, in a deal which could make the U.S.-based company a world leader in high-sulphur gas production.
U.S. major ConocoPhillips pulled out of the big but expensive gas project in April 2010, leaving ADNOC scrambling for a partner to develop the gas field it needs to meet soaring energy demand in the UAE.
"ADNOC has awarded the Shah gas field to Oxy," said an ADNOC source in Abu Dhabi on Wednesday, adding that this was the company’s first ever project with the state firm.
Royal Dutch Shell, Exxon Mobil and Oxy — which all lost out to Conoco in the auction for the project in 2007-2008 — were seen as possible replacements for Conoco in the project which could spur similar projects in the region.
Oxy’s shares opened in New York at $98.95 on Wednesday, up 40 cents from the previous close, but had slipped to $98.30 by 1555 GMT.
In November, ADNOC said that it was considering more than one partner for the project, so if another withdrawal happened it would have an "emergency" partner to plan with.
But the ADNOC source and another an Abu Dhabi energy official said there were no other partners in the new joint venture, other than Oxy.
"The option of more than one partner was under study, but in the end we chose only one firm out of fear that if there were two the sharing of the technology would be limited," a senior Abu Dhabi energy official said.
Deal Details
A spokesman for Occidental declined to comment on the deal, which will require a multi-billion dollar investment in gas processing facilities to process about 1 billion cubic feet per day (cfd) of raw gas and pump around 540 million cfd of gas to the UAE’s grid.
"The new agreement has to be negotiated such as share of the capital, costs, re-estimation of facilities to be built and operating costs," the senior ADNOC official told Reuters, adding that Occidental might own a 40 percent stake in the project.
Despite Shell being seen as a favorite for the deal, after doing extensive studies at Shah for the 2008 bid which Conoco won, some industry sources said Oxy had a better offer.
"Oxy’s offer was very similar to the initial Conoco offer, where the gas would be almost free and profits for the company will have to be recovered through the sale of condensate," said an industry source knowledgeable of the deal.
A Shell spokesman declined to comment on the news.
For Oxy, the deal is a prize win as it would position the firm to become a leader in sour gas production, said Samuel Ciszuk, senior Middle East & North Africa energy analyst at IHS Energy.
"The prize is not only to be able to undertake this project, but if you execute it you are going to be the world leader in ultra-sour gas production and with a lot of the rest of the Middle East looking at this that is potentially a very good position to be in," he told Reuters.
"It will be interesting to try to see how much better terms Oxy was able to secure, given that Conoco’s terms proved unworkable – something both Oxy and Shell realized during the end of the previous bidding when Conoco want for the project in any case," he added.
More than one-fourth of Oxy’s worldwide oil and gas production comes from the Middle East and North Africa region, where the company has been an active investor for more than four decades.
Production at Oxy’s operations in Qatar, Oman, Yemen, Libya and Bahrain was 254,000 barrels of oil equivalent per day in 2009.
Gas demand in Saudi Arabia, the UAE, Kuwait and Oman has outstripped supply as their economies have grown and diversified in a petrodollar-fuelled boom.
This is forcing Kuwait and the UAE to import gas, exposing them to international markets and prices and promoting a change in the value they place on gas, which had previously been seen as a nuisance by-product of oil.
The UAE holds the world’s seventh-largest gas reserves at around 227.1 trillion cubic feet, according to BP statistics. Much of the UAE’s gas is sour.
The gas at Shah has a content of around 30 percent of deadly hydrogen sulphide, making it tougher to produce than conventional gas reserves.
Additional Reporting by Daniel Fineren and Amena Bakr
