Energy & Mining

Roll Up

New concession-based oil tenders

After inking three concession deals with an Italian IOC, Sharjah is considering similar agreements in 2019 and 2020.

With Sharjah’s population increasing in recent years and industry taking root in the Emirate, it has become increasingly difficult to keep the supply and demand of natural gas in balance. Although the current production levels are not often disclosed, experts believe that there is room for ramping up production given the unused capacity of the Emirate’s natural gas treatment facilities. As such, authorities are determined to expand oil and gas exploration activities across the Emirate

It is in this context that Sharjah National Oil Corporation (SNOC) and Sharjah Petroleum Council decided to issue a new series of licenses just months after the Italian oil giant, Eni S.p.A., won three concession deals for onshore activities in Sharjah, which cover the phases of exploration and development.

The 30-year deal was signed by Sultan bin Muhammad Al-Qasimi and Eni’s CEO, Claudio Descalzi. The signing ceremony was attended by a number of local dignitaries, including deputy rulers of Sharjah and members of Eni’s top management team.
This was the first time in Sharjah’s history that a bidding process established an oil initiative’s operator. According to the Sharjah Government Media Bureau, international players showed “considerable interest” in the licensing round. This keenness on Sharjah’s recent tender was partly thanks to the thoroughness of the pre-work carried out in the Emirate before announcing the tender.

The pre-work phase included not only the development of a legal and fiscal framework but also a state-of-the-art seismic survey carried out by WesternGeco so as to leave nothing to chance. After months of interpretation of the seismic data, experts came to the conclusion that there is a good chance that significant amounts of hydrocarbons are available in Sharjah’s Thamama reservoir.

Besides promising geological reports, Eni is also eager to expand its presence in the UAE and the greater Gulf region; the IOC has recently undertaken a similar project in Abu Dhabi, where the company leads a consortium working on Abu Dhabi National Oil Company’s (ADNOC) offshore blocks. Elsewhere in the Middle East, Eni is involved in projects in Oman, Bahrain, Lebanon, and Iraq.
In Sharjah, Eni will form a 50-50 partnership with SNOC in one of the three areas subject to the concession, while its stakes in the other two areas—stretching over 1,621sqkm in total—will be 75%. Eni’s boss, Claudio Descalzi, commented that the agreement can secure Eni’s “organic growth” and long-term presence in the UAE.

This licensing model was launched in 2018 by SNOC within the framework of the International Competitive Exploration Licensing Round, in an attempt to foster new international partnerships. Concessions such as this in the oil industry are often agreements whereby a government grants the rights of exploration or production to a company. The concessionaire, in return, is expected to pay a percentage of the generated revenue or a fixed sum to the local authority. Yet another round of deals is in the offing. Promising areas in Sharjah’s eastern coast will be bid for in the near future, though according to SNOC, the number of concession agreements is yet to be decided.

The future concessions will be centered around new fields that currently lack an operator or previously engaged fields that have lost their contractors for some reason or another, says Hatem Al Mosa, SNOC’s most senior executive, adding that no timeframe has been specified for the next round. The licenses may be issued in 2019 or even 2020.

SNOC is confident that the concession deals that have been inked thus far and the ones that will follow will put an end to Sharjah’s gas shortage and even enable Sharjah to help other northern Emirates with their demand for energy.
The company has contemplated a number of scenarios in advance; a small reservoir can meet the Emirate’s internal demands, but the discovery of a larger reservoir can also secure a revenue channel for Sharjah. Before the ongoing explorations bear fruit, however, Sharjah has no choice but to import liquefied natural gas (LNG) via import terminals.

Officials have mentioned in several interviews that they are also considering LNG projects, but without going into details. Such LNG initiatives in parallel with the current concession deals for the discovery and development of local reservoirs is expected to contribute to Sharjah and the UAE’s energy security in the long run.