DUBAI (Reuters) – Prized territory, shared for decades between multinationals and major oil and gas producer the United Arab Emirates (UAE), might be broken up in the medium term, industry sources said on Friday.
The change could follow an open contest that would bring in better technology and a greater variety of players, including Asian firms seeking to meet escalating energy demand.
Since before the founding of the Gulf Arab state in 1971, the concessions, which account for two thirds of its production capacity, have been managed by consortia.
They are held by the emirate of Abu Dhabi, which controls more than 90 percent of the UAE’s oil reserves.
“The UAE is considering all options with the concessions,” said one oil company executive. “That includes breaking them up and offering individual fields in competitive tenders.”
Any changes in the concessions would be made at the highest decision making body for the oil and gas industry, the Supreme Petroleum Council.
If they were split into individual fields, the operators would be more likely to use the latest technology, sources said.
“Are the world’s biggest oil companies really going to give their best technology in a shared concession?” said an oil company executive. “No. Abu Dhabi wants the best of the best. Not the best companies with the second best technologies.”
The state-run Abu Dhabi National Oil Company (ADNOC) has a majority share in the oil and gas provinces and international oil companies hold smaller equity stakes.
The UAE is the only core Gulf member in the Organization of the Petroleum Exporting Countries to allow foreign firms into its oilfields. Leading producer Saudi Arabia and neighboring Kuwait bar entry.
Abu Dhabi may begin discussions next year, even though existing deals were valid into the next decade, sources said.
It could be in the UAE’s interest to make a decision sooner rather than later as it seeks to meet its goal of boosting output capacity to 3.5 million bpd by 2011-2012, from current capacity of 2.8 million to 2.9 million bpd.
“My understanding is that they’ll renegotiate the concessions early,” said another executive. “At the moment there is no incentive for concession holders to invest a penny more than they have to.”
The negotiations would likely start after Abu Dhabi has concluded terms in a tender underway for the development of sour gas reserves, sources said. Gas is the first priority for the government as it looks to feed rapidly growing demand from heavy industry and power generation plants.
Open bidding for remodeled oil and gas concessions would allow smaller players to gain access, as well as national oil companies from the growing Asian economies.
It would fit in with the wider trend among Middle East producers to bolster trade ties with Asia, regarded as the oil market of the future.
At the same time, the world’s sixth largest oil exporter wants the international oil companies to retain an important role.
“The UAE has a very good relationship with IOCs and there is no way it wants this to change,” said an industry source. “But it wants to get more competition into its oil and gas industry.”
The world’s largest oil companies all hold stakes. They are Exxon Mobil, Royal Dutch Shell, BP and Total.