Sharjah becomes latest Emirate of the UAE to offer oil and gas licensing opportunities

On 26 June, the Petroleum Council of Sharjah, one of the seven Emirates in the United Arab Emirates, announced its first ever onshore oil and gas licensing round. The government owned oil company, Sharjah National Oil Corporation (“SNOC”), has been tasked with administering the bidding round and will retain a share of between 25% to 50% in the three onshore concessions being offered. The concessions are located in areas known to contain primarily gas, and include an unappraised gas discovery below the Sajaa gas condensate field, which previously attained a peak production of 800,000 cubic feet of gas and 50,000 barrels of condensates per day.

The specific terms and conditions of the concessions on offer have not been disclosed, but are expected to take the form of an update to previous licenses offered in the Emirate. SNOC has confirmed that investors will be offered a 30-year contract, with a further 10-year extension option. The contracts will provide for an initial exploration phase of two years, within which time certain minimum work obligations (which will vary from a SNOC carry, drilling wells and acquiring seismic data) are to be satisfied. The initial period can be renewed for two further two-year periods, conditional upon agreement on additional work commitments. SNOC has also stated that it will purchase all dry gas and, to the extent of its capabilities, all wet gas and condensates produced under the concessions.

SNOC hopes that capex and time savings available through the exploitation of existing gas processing and transmission facilities, coupled with what it has stated are competitive fiscal terms, will attract investment and technology to the Emirate, which is currently reliant upon imports.

The announcement of Sharjah’s offering follows similar debut licensing rounds in the northern Emirate of Ras Al Khaimah ("RAK") as well as Abu Dhabi. All three Emirates will announce the winners of their respective licensing rounds in November 2018.

The newly created Ras Al Khaimah Petroleum Authority appears positive that it will attract significant international interest in its acreage. All areas in RAK are currently unlicensed and the newly formed Petroleum Authority has offered seven blocks, which cover the majority of the Emirate’s on and offshore territory. As with Sharjah (and ADNOC in Abu Dhabi), the RAK government-owned oil and gas firm, RAK Gas, will manage the licensing round. However, the offering differs from Sharjah in that an exploration and production sharing agreement (“EPSA”) will be offered instead of a concession. No details have been provided publicly on whether these granting instruments will differ from EPSAs offered historically to international companies operating in the Emirate.

Abu Dhabi, with the vast majority of the country’s reserves, is likely to attract bids from the biggest players in the industry. With six blocks (four located onshore and two offshore) on offer, the announcement to competitively offer further acreage follows a number of substantial bilaterally negotiated investments in the province earlier in the year as INPEX entered the Lower Zakum concession and Total and OMV parted with around $1.5bn each to acquire interests in various offshore concessions from ADNOC.

Whilst we can expect to see continued support from the industry heavyweights in Abu Dhabi, it will be interesting to observe how successful RAK and Sharjah are at attracting investment in their projects, which will likely be smaller and riskier. With OPEC (and Russia) recently announcing it will increase production, Sharjah and RAK will be hoping that oil prices remain high, or at least do not fall significantly, to ensure oil companies have sufficient capital to commit to these smaller projects.