RESOURCE NATIONALISM IN THE UAE

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 001859

SIPDIS

SIPDIS

DEPARTMENT FOR NEA/ARP, EB/ESC/IEC/EPC

E.O. 12958: DECL: 11/07/2017
TAGS: EPET ENRG EINV PGOV AE
SUBJECT: RESOURCE NATIONALISM IN THE UAE

REF: STATE 150999

Classified By: Ambassador Michele J. Sison for reasons 1.4 (B) and (D).



1. (C) The question of resource nationalism in the UAE is
complicated by the federal nature of the country.
Constitutionally, natural resources belong to the individual
emirates rather than the UAE Federal Government. Each
emirate, therefore, sets its own policies with regard to oil
and gas development. Although, the UAE has followed a
largely successful policy of diversifying the economy away
from a reliance on oil and gas, it is still a key part of the
economy. In 2006, oil production contributed about a quarter
of real GDP. High oil prices have increased the sector's
share of nominal GDP to 37%. UAE officials have stated that
the oil and gas sector is a vital part of the UAE's national
security and the treatment of the sector was still unresolved
when FTA negotiations were suspended in early 2007.

Abu Dhabi
--------------


2. (C) The Emirate of Abu Dhabi holds over 90% of the proven
oil and gas reserves in the country, making it by far the
richest of the seven emirates (contributing 60% of the UAE's
GDP). The Emirate of Abu Dhabi has always allowed foreign
participation in upstream oil production through long term
concessionary arrangements, although it maintains majority
local control over the major production companies.


3. (C) The Abu Dhabi National Oil Company (ADNOC) oversees
the Emirate's share in the three main operating companies:
the Abu Dhabi Company for Onshore Oil Operations (ADCO),the
Abu Dhabi Marine Operating Company (ADMA/OPCO),and the Zakum
Development Company (ZADCO). Currently foreign oil companies
share 40% equity stakes in each of the three operating
companies. The current share breakdown in ADCO is:
ExxonMobil - 9.5%; BP - 9.5%; Shell - 9.5%; TotalFinaElf -
9.5%; Partex - 2%; ADNOC - 60%. Shares in ADMA/OPCO are
broken down thus: ADNOC - 60%; BP - 14.7%; TotalFinaElf -
13.3%; the Japan Oil Development Company (JODCO) - 12%.
ADNOC (60%),JODCO (12%),and ExxonMobil (28%) have shares in
ZADCO. Exxon won the 28% stake in ZADCO in March 2006 along
with a 20 year concession. There are certain smaller fields
that are operated under majority foreign concession, but the
three main operating companies produce the vast majority of
Abu Dhabi's oil.


4. (C) Abu Dhabi officials have told Emboffs that foreign
partners bring valuable technical and managerial experience
to the development and exploitation of the Emirate's key
natural resource. Although foreign oil companies have
complained about the tight fiscal terms that ADNOC
negotiates, they appear to be generally satisfied with the
relationship. Embassy has not seen any increase in Abu
Dhabi's resource nationalism in recent years. When Exxon won
its 28% stake in the Upper Zakum field, Abu Dhabi negotiated
a 20 year concession with the company. It then extended the
length of the existing concession for the other partner for
the same amount of time. In April 2007, ADNOC tendered a
major sour gas development project to foreign bidders. This
would be the first foreign participation in Abu Dhabi's gas
development and production (although there is foreign
participation in producing gas liquids). Three U.S. Companies
(Exxon, Occidental, and Conoco) along with Shell have been
short listed for the project. Although the tender did not
specifically state that the successful foreign bidder would
have an equity share in the project, all companies are
operating under that assumption.


5. (C) Looking forward, The ADCO concession is scheduled to
expire in 2014. ADNOC is currently considering the procedure
by which it will re-bid that concession. Current foreign
partners are reluctant to invest heavily in production
increases, since they do not have a guarantee that their
concession will be automatically renewed. Senior ADNOC
officials have told us that they hope to break up the
concession to allow more foreign companies the opportunity to
bid. The ADMA-OPCO (offshore) concession expires in 2018,
and post understands that ADNOC is considering how to deal
with that concession as well. Although the lack of a firm
decision on the bidding process for both concessions has an
impact on companies' investment decisions, there is no
indication that Abu Dhabi will nationalize the concessions
when they expire.

The Other Emirates
--------------


6. (C) Dubai, Sharjah, and Ras Al-Khaimah are much less

ABU DHABI 00001859 002 OF 002


endowed with oil and gas reserves. Dubai has approximately
4% of the oil reserves and 2% of gas reserves. Sharjah has
around 1.5% of the oil reserves and 5% of gas reserves. Ras
Al-Khaimah has about half a percent of both. In August 2006,
Dubai announced that it would be taking control of its
offshore oil resources following the early termination of its
agreement with the Dubai Petroleum Company (owned by Conoco
Phillips) marking the end of the concession, which ran
through 2011. Conoco effectively ceased operations in Dubai
in spring 2007. The early termination of the concession was
by mutual consent. Conoco executives told the Consul General
that the company did not believe the extra investment
necessary to exploit fully the remainder of Dubai,s
petroleum would be worth it for the company. A UK company
has been awarded the contract to operate the offshore field.
Sharjah's offshore Mubarak oil field is operated by the
private, UAE-based company Crescent Petroleum on a concession
agreement. BP operates three onshore gas fields, a
processing plant, gas compression facilities, and an exports
terminal for liquids. Officers at the Sharjah Petroleum
Council have told Econoffs that they would welcome foreign
investment in oil and gas development. The emirates of Ras
Al-Khaimah and Umm Al-Quwain both have
exploration/development agreements with foreign firms.
SISON