DUBAI: Occidental Petroleum Corp. won the right Thursday to develop a challenging $10 billion natural gas field project in the United Arab Emirates. The deal will give Los Angeles-based Occidental a 40 percent interest in the Shah sour gas field in the desert outside the Emirati capital, Abu Dhabi. The government-run Abu Dhabi National Oil Co. (Adnoc) will control the remaining stake. Oil major ConocoPhillips of Houston signed on for similar terms in 2009, only to back out of the deal in April last year. Since then, Adnoc has been searching for a partner with sufficient expertise and appetite to tackle the tricky project. The Shah field is located deep below the desert about 110 miles (180 kilometers) southwest of the city of Abu Dhabi. It contains what is known as sour gas, which costs more to produce because it contains high levels of the toxic compound hydrogen sulfide. While Adnoc aims to process 1 billion cubic feet of gas per day from the field, only around half that amount will be usable once impurities are processed out. Success at Shah could bolster Occidental's reputation as a leader in developing unconventional oil and gas sites, while opening the door for similar projects in Abu Dhabi and beyond, said Samuel Ciszuk, Mideast energy analyst at IHS Global Insight in London. "Nothing like this has been tried anywhere else in the region, especially at this scale. It's really path-breaking," he said. Bringing the project online is expected to cost $10 billion and require the installation of multiple gas gathering systems, along with processing equipment known as trains and new gas and liquid pipelines. Special alloys will be needed to prevent corrosion from toxic chemicals mixed in with the gas. "It's a very strong health and safety challenge. It could very easily kill people who get exposed to it," Ciszuk said. Specific financial terms were not disclosed. The companies say they have agreed in principle to the deal, but must still complete the paperwork. Occidental's Gulf production activities have been largely focused on Qatar and smaller producers such as Bahrain and Oman. It also has regional operations in Yemen and Libya and is a partner in the regional cross-border Dolphin gas pipeline. Last May, Adnoc awarded $5.6 billion worth of engineering, procurement and construction contracts to begin developing the Shah site. About $3.6 billion worth went to Italian energy contractor Saipem to cover gas processing and sulfur recovery. South Korea's Samsung, Spain's Tecnicas Reunidas and India's Punj Lloyd also won contracts. ConocoPhillips is believed to have backed out of the Shah project because of cost concerns and thinner projected margins for sales of the sulfur that will be produced as a byproduct. Although the UAE holds the world's seventh-largest reserves of natural gas, it has to import more than it produces to keep up with fast-growing demand. Abu Dhabi, the largest emirate, controls the bulk of the OPEC member's oil and gas reserves. It is aiming to have the Shah project running by 2014.
