Conoco, ADNOC sign long-awaited Abu Dhabi gas deal

Conoco, ADNOC sign long-awaited Abu Dhabi gas deal
(Reuters)8 July 2008

DUBAI - ConocoPhillips and Abu Dhabi National Oil Co (ADNOC) signed a long-expected deal on Tuesday to develop sour gas reserves in the United Arab Emirates for a cost that could exceed $10 billion.

The partners did not release the expected project cost after signing the deal, saying only they would 'jointly share' any investments in developing sour gas reservoirs within the onshore Shah field.

An ADNOC spokesman declined to comment on the investment costs related to the project.

Costs of the project have escalated, as they have worldwide in the energy sector as producers strain to bring new capacity online to meet rising demand.

'Completion of final joint venture agreements ... is expected by year-end,' ADNOC and Conoco said in a statement.

The sour gas deal is one of the largest upstream projects in the past year open to international companies competing for limited access to the Middle East's oil and gas fields.

Saudi Arabia, home to the world's largest oil reserves, keeps its oilfields closed to international firms.

ConocoPhillips beat competitors -- including Exxon Mobile, Occidental Petroleum and Royal Dutch Shell -- for the project to process 1 billion cubic feet of gas per day at Shah and produce 570 million cubic feet of network gas.

Developing sour gas at the Shah field would cost at least $10 billion, an industry source told Reuters in February.

Conoco and ADNOC would set up a joint venture firm to manage and operate the Shah project, with Abu Dhabi owning 60 percent and Conoco 40 percent, they said on Tuesday.

Record oil revenues from a sevenfold rise in oil prices since 2002 have fuelled economic expansion and rapidly rising demand for gas from both the power sector and the Gulf Arab state's growing heavy industry.

The UAE holds the world's fifth-largest gas reserves at nearly 214 trillion cubic feet, much of it sour.

The gas has a content of around 30 percent of potentially deadly hydrogen sulphide, making it tougher and more expensive to produce than conventional gas reserves.

ADNOC unit Abu Dhabi Gas Industries Ltd said in May it would invest about $25 billion in gas-processing plants and pipelines as it develops more fields to meet surging demand.