DUBAI (Zawya Dow Jones), Feb. 4, 2010
Dubai announced Thursday the discovery of a new offshore oil field in the Persian Gulf that could boost its economy at a time when the United Arab Emirates' second-largest sheikhdom is struggling with a multibillion-dollar debt pile.
"I can confirm that oil has been discovered and expect production to start within a year," Sheik Ahmed bin Saeed Al Maktoum, the chairman of government-owned Dubai Petroleum Establishment, or DPE, told Zawya Dow Jones, confirming local media reports earlier Thursday that a new offshore oil field had been discovered in the emirate.
Sheik Ahmed, who is also chief executive of Emirates Airline, declined to comment on the size of the find.
In an emailed statement, the media office of Dubai's ruler Sheik Mohammed bin Rashid Al Maktoum announced the discovery of the new oil field offshore Dubai but didn't provide any details on its size. The discovery is located east of Dubai's existing offshore Rashid field, according to the statement.
"We need further details on the size before making any judgments on how it will affect Dubai's revenues going forward, as information is scant now it is too premature to predict whether this will help Dubai's finances," said Angad Rajpal, energy analyst at Prime Emirates.
The discovery, if proven to contain commercial quantities of hydrocarbons, could provide a welcome boost for Dubai after being hit hard by the fallout from the world financial crisis. The emirate is struggling with a debt pile that some experts, including regional investment bank EFG-Hermes, say exceeds $150 billion, and has seen real-estate prices slump.
Unlike Abu Dhabi, the U.A.E.'s largest emirate and holder of almost all the country's oil reserves, Dubai has little hydrocarbon reserves on its own. Income from crude and natural gas contributed only 5.3%, or 7.5 billion U.A.E. dirhams ($2.04 billion), to Dubai's gross domestic product in 2005, according to the latest available data on the Dubai Chamber of Commerce and Industry Web site.
Oil was first discovered in Dubai in 1966 and production started in 1970, according to U.K.-listed Petrofac Ltd. (PFC.LN), which manages the emirate's offshore oil and gas assets. Production rates reached the peak during the late 1980's, but have since fallen. The last discovery was made in 1991, according to industry experts.
Over the past decade, the sheikdom has invested billions of dollars in diversifying its economy by establishing itself as a regional financial, tourism and logistics hub to make up for its dwindling oil revenues.
The new field "will contribute to enhancing the economic capabilities of the nation and increase its oil production, and therefore have a wide-ranging positive effect," Dubai's media office said.
Sheik Ahmed will lead efforts to explore and evaluate the field to determine its size and "possible production capacity in the short and long-term" by using the latest technologies, the office added.
"If it's a larger field, it would be an asset against which they could borrow, and roll over some of their longer-term, higher-interest debt," said Dalton Garis, an associate professor of economics and petroleum market behavior at the Abu Dhabi-based Petroleum Institute.
"They could use the sale of that oil to meet current cashflow needs," Garis said, adding that unless imaging had already been done on the field, it may take three to six months to discover its reservoir potential.
Crude prices have bounced back to levels near $80 a barrel in recent months from below $40 a barrel in the beginning of 2009. Light, sweet crude for March delivery was trading 62 cents lower at $76.36 a barrel on the New York Mercantile Exchange at 1030 GMT.
DPE is responsible for managing Dubai's offshore petroleum assets. In 2007, the company appointed Petrofac to carry out well and facilities management of Dubai's offshore oil and gas assets after the emirate ended a production sharing agreement with a ConocoPhillips (COP)-led consortium.
Officials at Petrofac weren't immediately available for comment.
Dubai produces crude from four offshore oil fields in the Persian Gulf--Fateh, Southwest Fateh, Rashid and Falah. The emirate's oil output is estimated at 60,000-70,000 barrels a day, according to industry estimates.
The U.A.E., a member of the Organization of Petroleum Exporting Countries, presently pumps about 2.25 million barrels a day.
(Tahani Karrar and Nour Malas in Dubai contributed to this report.)
Copyright (c) 2010 Dow Jones & Company, Inc.
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