Crescent and Rosneft in Sharjah gas venture

Russian giant's first deal in Middle East heralds closer ties between the world's two largest oil-producing regions.

The Sharjah Onshore Concession 1 drill site in Al Madam.
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AL MADAM, SHARJAH // The UAE's Crescent Petroleum and Rosneft, the biggest Russian oil producer, have started drilling the first exploration well under an onshore concession covering the emirate of Sharjah. Crescent, a family-owned company based in Sharjah, announced yesterday that it had formed a venture with Rosneft to develop the concession, which the Government of Sharjah awarded to the local company in 2008.

The two companies formed an alliance last month to undertake their first project together. "We are very pleased that Sharjah was the first international investment choice for Rosneft in the Middle East," Sheikh Sultan bin Mohammed, Crown Prince and Deputy Ruler of Sharjah, said during a ceremony at the rig site outside Al Madam, a small community in the south east of the emirate. The Sharjah project marks Russia's debut in the upstream sector of the UAE's oil and gas industry.

The Russian contractor Stroytransgaz is building a gas pipeline across the UAE for the Abu Dhabi consortium Dolphin Energy, but Rosneft will be the first Russian company to drill in the Emirates. Speaking at the drilling launch, Igor Sechin, the Russian deputy prime minister and top energy official, said the alliance between Crescent and the government-controlled Rosneft represented the first step towards closer relations between the world's two biggest oil-producing regions - Russia and the Gulf.

In Sharjah, the target is natural gas, not oil, although Crescent did not rule out the possibility of an oil find at Al Madam. "We are quite confident that there is gas at the bottom," said Abdullah al Qadi, the exploration and production director of Crescent. "The issue is how to get it up." Sergei Bogdonchikov, the president of Rosneft, said: "We sincerely believe that this lease will turn out to be a rich field."

Crescent and Rosneft will initially spend Dh220 million (US$59.8m) to drill two wells to a depth of about 4,500 metres to test prospects that Crescent had previously identified. The first, at Al Madam, should be completed within the next 100 days. The Sharjah concession's total recoverable reserves are estimated at 67.6 billion cubic metres of gas and 16 million tonnes of condensate, Mr Bogdonchikov said.

The new well is located between the Margham gas and condensate field, which is the only gasfield in the emirate of Dubai, and the Jebel Hafit gas prospect in Oman. In February 2008, an exploratory well at Jebel Hafit suffered an underground blowout after striking gas. If, like most Omani gasfields, Al Madam turns out to contain "tight" reservoirs, from which gas flows reluctantly, Rosneft's broad industry experience could come into play. The joint venture has already hired top international oilfield services contractors including the US companies Schlumberger, Baker Hughes, and Weatherford International. Canada's Nabors Well Services is the drilling contractor at Al Madam.

A commercial gas discovery in Sharjah could help the emirate overcome electricity shortages that have contributed to recent power cuts. Customers for the gas would include local power stations. Because of subsidised domestic gas prices, however, Crescent and Rosneft may be hoping to find reservoirs rich in condensate, a type of ultra-light crude oil they could export. Gas subsidies throughout the GCC have discouraged foreign companies from exploring for gas in a region that is short of clean-burning fuel for power generation.

For Rosneft, Sharjah's attraction is less about the emirate's potential gas reserves and more about its potential as a gateway to other regional energy ventures. "We look forward to achieving many more opportunities together with Crescent Petroleum in the Middle East and North Africa region," Mr Bogdanchikov said. Mr al Qadi said Crescent was seeking new partners for its Pearl gas and condensate project in Iraqi Kurdistan. It was "possible" that Rosneft would join the group, he added.

The Pearl consortium also includes Dana Gas, a Sharjah-based affiliate of Crescent, and the Austrian and Hungarian petroleum groups OMV and MOL.