DUBAI - The Upstream.

Dubai, which does not consider itself being a member of OPEC, has two hydrocarbon producing areas: one offshore for oil, where four fields are depleting, and one onshore at Margham for natural gas and condensates.

The four offshore oilfields lie on the median line with the Iranian waters. They are now producing about 170,600 b/d, compared to 235,000 b/d in the first half of 1998, almost 285,000 b/d in late 1996, 410,000 b/d in 1991 and a peak of 425,000 b/d in October/November 1990. Their export blend is Dubai, 32.5 deg. API with 1.7% sulphur.

Dubai is loaded by SBM. Conoco of the US, the operator of the four fields, regulates the market for Dubai crude. This market includes over-the-counter swaps and the so-called "dry chain" of paper deals, and spot trades (see 1994 oil trading survey in Vols. 42 & 43).

Conoco leads the merged Dubai Marine Areas and Dubai Petroleum Co. (DUMA-DPC), in which it has a 32.5% share. Its main partner in this operation is TotalFinaElf of France, holding 27.5%, which has developed two nearby Sirri fields on the Iranian side of the waters. The other partners are Repsol of Spain (25%), the German firm RWE-DEA Dubai (10%) and Wintershall of Germany (5%).

Background: The search for oil in Dubai began in 1937, two years before the concessionaire Petroleum Development Trucial Coast (PD/TC) moved to Abu Dhabi. PD/TC signed the concession agreement in 1937 with the then ruler of Dubai, the late Shaikh Said Bin Maktoum (the grandfather of the current ruler Shaikh Maktoum Bin Rashid - see who's who in Part 3).

The concession covered onshore areas. Exploration and drilling were carried out after World War Two (as in the case of Abu Dhabi). But PD/TC relinquished its area in 1961, after having drilled one well.

The offshore concession was granted in 1954 to a 50-50 partnership of Compagnie Francaise des Petroles (CFP, now Total) and Hispanoil (now Repsol). The two companies formed the Dubai Marine Areas Ltd. (DUMA). In the early 1960s, DUMA's exploration efforts began to show promising signs and the then new ruler, Shaikh Rashid Bin Said, was in a hurry for oil to be found.

In April 1963, Continental Oil (Conoco) signed an agreement with Shaikh Rashid and took over the onshore concession. Conoco established the Dubai Petroleum Company (DPC), as a unit fully-owned by the US firm. In the same year, DPC acquired a 60% share in DUMA's concession and Conoco became the operator. In 1964 DPC sold 40% of its share to Deutsche Erdol (later Deutsche Texaco and then Wintershall) and Sun Oil Company of the US. DUMA and DPC merged under Conoco's leadership.

Conoco, as operator for DUMA-DPC, discovered the offshore oilfields of Fateh in 1966, South-West Fateh in 1970, Rashid in 1973 and Falah in 1976. Each of these fields was developed quickly. Fateh began oil production in 1969 (see profiles below).

The relationship between DUMA-DPC and the government of Dubai is still not clear to the public. In 1975, the IMF said that by 1973 the government had acquired 25% in DUMA-DPC and had raised its share in 1974 to 60%. In July 1975, it was officially announced by Dubai that the concession was placed under the government's "full control". However, the concessionaire companies were still lifting crude oil in the same proportions as their shareholdings and were paying taxes and royalties to the government.

On Aug. 16, 1979, the Dubai government said it had decided to buy back 100,000 b/d of DUMA-DPC's production. It was then estimated in the press that 50% of DUMA-DPC's output was bought back in order for the Petroleum Department to market it directly. That practice was brought to an end on Aug. 16, 1980, according to an official announcement at the time. But it was said in November 1989 that the Dubai government (Shaikh Mohammed Bin Rashid and his British advisors) had been marketing up to 50% of total production.

Conoco also had a 30% equity in the Dubai Exploration Onshore (DEOL), a joint venture between the US firm and DUMA-DPC formed in 1989 to explore a 1,150 sq km onshore area on the coast south of Dubai City, which DPC had relinquished in the 1970s. The concession covered about 25 km from east to west and 40 km from north to south. But DEOL abandoned this bloc after a negative three-year drilling programme. A depth target of 14,000 was reached with no promising result.

Other Concessions: In 1974, Dubai granted Texas Pacific an offshore concession of 1,954 sq km near the Mubarak oilfield off the coast of Sharjah (see Gas Market Trends). Exploration done in the subsequent years gave no encouraging results. In 1987, South Eastern Drilling Co. (SEDCO) and Houston Oil & Minerals got a 35-year oil concession covering a 6,075 sq km part onshore part offshore tract. Drilling of the first exploration well by SEDCO offshore was interrupted in 1979 at a depth of 14,670 feet. In June 1980 SEDCO suspended work on its second well (onshore) because of technical difficulties. Drilling reached a record depth of 16,760 feet. This was the first onshore well to be drilled in Dubai since 1968.

In June 1980, Arco International Oil & Gas Co., a unit of Atlantic Richfield, got a 3,078 sq km onshore block in the Margham area, with a 35-year E&P agreement based on a deal first signed on Feb. 26, 1980, by Shaikh Rashid. The deal provided for a first well to be drilled as soon as a preliminary geophysical study was done.

The operating company, Arco Dubai, did the work accordingly. In March 1981, the state-owned British National Oil Co. (BNOC) acquired a one third interest in the acreage and was to invest $1m in geophysical operations and $5m in each well to be drilled. A few years later BNOC was bought by BP and its stake in the Margham gas/condensate field, which Arco found in 1982, was transferred to BP Exploration.

Later BP withdrew from the venture and Arco sold a 25% interest the field to Gulfstream Resources Canada. In September 1998 Gulfstream sold its interest back to Arco in what the Canadian company then called "a comprehensive strategic agreement" which also involved its share in a gas venture in Qatar led by the US major. Now Arco is part of BP Amoco/Arco.