Energy: Oil & Gas 2023 Comparisons

The UAE is governed by the UAE federal constitution (the “UAE Constitution”). The federation comprises seven emirates (in order of size): Abu Dhabi (the capital), Dubai, Sharjah, Ajman, Fujairah, Ras Al Khaimah and Umm Al Quwain.

Article 23 of the UAE Constitution provides that the natural resources located in each emirate are the public property of that emirate. 

The UAE Constitution further provides that the government of each emirate holds title over oil reserves and all mineral rights, whether on private or public lands. Under federal law, there is no mandated distinction between surface and sub-surface rights. In practice, concessions granted by each emirate may differ in their treatment of surface and sub-surface rights.

Like many countries with a petroleum regime, title to hydrocarbons does not generally transfer to private ownership before the resource is exploited. The relevant concession or other contractual instrument typically specifies where and when the title to extracted oil passes to the concessionaire and will usually be in line with industry norms. For example, title to oil may pass after the oil has been extracted and is at a specified delivery point.

The UAE has exploration and production, onshore and offshore, with each emirate determining where exploration and production activity can take place.

The regulatory bodies for the hydrocarbons sector exist at the emirate level.

• In Abu Dhabi, the regulator is the Supreme Council for Financial and Economic Affairs (SCFEA). Abu Dhabi National Oil Company (ADNOC) – the state-owned oil company – is responsible for the day-to-day management of oil and gas operations, and it reports to the SCFEA.
• In Dubai, the regulator is the Department for Dubai Oil Affairs, which is responsible for granting rights to explore for and produce oil and gas in Dubai. However, there is very little or no private sector participation in the upstream oil sector in Dubai, since operatorship of Dubai’s oil concessions was transferred to Dubai Petroleum (a government-owned entity). The Dubai Supreme Council of Energy has a supervisory function.
• In Sharjah, the regulator is the Sharjah Petroleum Council (https://spc.shj.ae/). The Council is responsible for granting rights to explore for and produce oil and gas. The Sharjah National Oil Corporation (SNOC) is owned by the government of Sharjah and is responsible for day-to-day operations. 
• In Ras Al Khaimah, the RAK Petroleum Authority (https://rakpa.ae/) is responsible for granting rights to explore for and develop oil and gas. RAK Gas is responsible for the management of gas operations and RAK Oil Services processes crude oil into oil products. Both entities are RAK-government owned.

Information on the scope of the regulatory bodies’ authorities and mandate is not publicly available.

There is no single national oil or gas company, but many of the emirates have their own government-owned oil and gas companies:

• Abu Dhabi has the Abu Dhabi National Oil Company or ADNOC, which is one of the world’s leading national oil companies and was founded in 1971 by Emiri Decree. ADNOC is the world’s 12th-largest oil company by production. As of 2021, the company had an oil production capacity exceeding four million bpd (barrels per day) with plans to increase to five million bpd by 2027. ADNOC operates across the entire hydrocarbon value chain, through a network of fully integrated businesses, with interests that range from exploration, production, storage, refining and distribution, to the development of a wide range of petrochemical products. ADNOC’s subsidiaries include ADNOC Onshore, which operates the onshore concession originally granted in the 1930s and renewed in 2014; ADNOC Offshore, which operates certain offshore concessions; and ADNOC Gas (which recently privatised 5% of its shares in an IPO). Abu Dhabi Gas Ownership Law (Law No 4 of 1976) gives ownership to the state of all natural gas discovered in Abu Dhabi, and grants ADNOC the right to exploit and use such gas solely or through joint agreements with ADNOC’s minimum 51% participation.
• Dubai has the Emirates National Oil Company or ENOC, the Dubai Supply Authority or DUSUP, and Dubai Petroleum. ENOC focuses on retail petrol stations, fuel bunkering and has upstream interests abroad. DUSUP is responsible for gas supply within Dubai, and Dubai Petroleum is responsible for managing Dubai’s offshore petroleum assets.
• Sharjah National Oil Corporation or SNOC is the state-owned oil and gas company of Sharjah. SNOC has upstream gas interests in Sharjah.
• RAK Gas and RAK Oil Services are government-owned companies in Ras Al Khaimah. RAK Gas has upstream gas interests in Ras Al Khaimah and internationally.

There is no single comprehensive oil and gas law in the UAE. Regulation of the hydrocarbons sector in the UAE is generally by combination of contract (eg, an applicable concession or production-sharing contract) and legislation (at the federal and emirate level). Official legislation is in Arabic only, although unofficial English translations are sometimes made available by the authorities.

UAE federal laws that have a particular impact on the UAE petroleum sector include:

• Federal Law No 24 of 1999 on the Protection and Development of the Environment;
• Federal Law No 14 of 2017 on the Trading of Petroleum Products; and
• Federal Law 8 of 2017 on Value-Added Tax.

Abu Dhabi has by far the biggest oil and gas sector, and also has the most laws specific to the hydrocarbons sector. Relevant laws in Abu Dhabi include:

• Abu Dhabi Tax Decree No 1 of 1965, which provides for the taxation regime applicable in Abu Dhabi (in practice, oil and gas-producing companies’ fiscal obligations are determined by this law and the relevant concession);
• Abu Dhabi Law on the incorporation of the Abu Dhabi National Oil Company (ADNOC) (Law No 7 of 1971);
• Abu Dhabi Petroleum Ports Law (Law No 12 of 1973), which regulates the protection of the marine environment and the navigation of vessels in petroleum ports;
• Abu Dhabi Gas Ownership Law (Law No 4 of 1976), which gives ownership to the state of all natural gas discovered in Abu Dhabi, and grants ADNOC the right to exploit and use such gas solely or through joint agreements with ADNOC’s minimum 51% participation;
• Abu Dhabi Petroleum Resources Conservation Law (Law No 8 of 1978), which governs upstream operations and sets out the procedures for granting consents for exploration and which sets standards and reporting obligations for drilling and abandonment operations;
• Abu Dhabi Law on the Establishment of the Supreme Petroleum Council (Law No 1 of 1988), which established the Supreme Council of Abu Dhabi whose duties have now been transferred to the Supreme Council for Financial and Economic Affairs; and
• Abu Dhabi Protection of the Environment Law (Law No 4 of 1999), which deals with environmental standards and procedures for permits.

The private sector may participate in the upstream sector in the UAE. The right to explore for, develop and produce hydrocarbons in the country has been granted by a variety of instruments, including concessions and production-sharing contracts. As noted above, there is a restriction in Abu Dhabi on the exploitation and use of natural gas by private investors. Such rights are reserved exclusively for ADNOC, although ADNOC may invite investors to participate through joint agreements with ADNOC’s minimum 51% participation.

Each emirate has its own regulatory body that grants rights to explore for and produce oil and gas. For example, in Abu Dhabi, oil concessions are granted by the Supreme Council for Financial and Economic Affairs on behalf of the emirate, and the right to explore for and produce oil and gas in Sharjah is granted by the Sharjah Petroleum Council. Instruments used for such grant of rights include tax and royalty concessions and production sharing contracts.

There is no legal prohibition on foreign companies owning upstream oil interests and there is a long history of foreign companies exploring for and producing oil and gas in the UAE. Foreign investors have held interests in Abu Dhabi’s oil sector for over 60 years. Foreign investors need a local presence to do business in the UAE. The form of that local presence is determined by the relevant activity and the applicable concession or other contractual instrument.

The onshore and offshore regimes in Abu Dhabi are broadly the same, albeit the fiscal terms may differ. There are differences regarding oil and gas. For example, all gas in Abu Dhabi belongs to the state and there are no gas concessions, although international oil companies may be paid to develop gas reserves. There are also examples of other emirates granting concessions in respect of gas reserves (eg, Sharjah to Eni).

It has been reported that the concessions awarded in the 2018 and 2019 Abu Dhabi open bid rounds give the concessionaire a 100% participating right in exploration concessions and that ADNOC has the option to take a 60% participating interest at the development and production stage. A suite of documents was developed for the bid rounds but is not publicly available. Bidders may request variations to the terms. 

The other emirates have to date adopted their own structures. For example, in 2019, Sharjah awarded three concessions to its national oil company SNOC and Eni as co-venturers; also, in 2019, Ras Al Khaimah awarded an exploration and production sharing agreement to RAK Gas and Eni.

As noted, in most cases, in each emirate, the right to explore, develop and produce oil is granted by a concession or other contractual instrument. In Abu Dhabi, the contractual instrument is signed by the SCFEA and ADNOC. 

Concessions are awarded through open bid rounds (eg, there have been several such bid rounds for upstream concessions in Abu Dhabi recently) or bilateral negotiations. Abu Dhabi modernised its contractual framework for concessions in 2018. The bid process in Abu Dhabi is administered by ADNOC, which issues a suite of documents for bidders. Typically some (limited) negotiations of the contractual terms are permitted, although the extent to which negotiations are permitted depends on the desirability of the asset.

Foreign investors must have an onshore presence  to perform exploration and production activities in the UAE. Historically, 100% foreign ownership of UAE companies was prohibited, and foreign ownership was limited to 49%. While this 49% cap was lifted in 2020 by Decree Law No 26 of 2020, specific foreign ownership restrictions apply for certain sectors, including oil exploration and production in Abu Dhabi. Accordingly, branch registration is usually the preferred option for foreign oil companies. It is also not unusual for sui generis arrangements to apply to foreign companies investing in the upstream sector.

The usual environmental permits, etc, are required prior to starting operations. 

There is no typical fiscal regime. Some emirates use tax and royalty schemes (eg, Abu Dhabi), while others use cost-recovery and profit-sharing production sharing contracts (eg, Ras Al Khaimah). Some contracts contain elements of all of the above.

In short, the fiscal regime is determined by each relevant concession or production sharing contract. Details are not publicly available, but as a guide, the income tax in Abu Dhabi applicable to net profits is typically between 55% and 85%.

Tax stabilisation measures depend on the individual concession. Even if no specific measures are contractually agreed, the UAE has a good track record of maintaining fiscal stability.

Signing bonuses and milestone bonuses may be payable (eg, on commencement of production), although concessions differ.

In 2018 many concessions in Abu Dhabi came to the end of their term. Some of these concessions were renewed and some were given to new investors. At this time, Abu Dhabi significantly modernised the contractual framework used in its oil concessions.

There is no national-level hydrocarbons tax. Such issues are dealt with at emirate level.

The Abu Dhabi Tax Decree No 1 of 1965 is applicable to oil producers, but the fiscal obligations of oil producers in Abu Dhabi are ultimately determined by the SCFEA. The fiscal regimes applicable to upstream activities in other emirates are usually addressed in the relevant concession or production sharing contract and the details are not publicly available.

The UAE recently introduced corporate income tax of 9%, but this does not apply to businesses engaged in the extraction of natural resources such as oil.

The UAE introduced VAT on 1 January 2018. The Federal Tax Authority is the government agency responsible for administering VAT. VAT is typically charged at 5% on goods and services, although a zero rate applies to the supply of crude oil and petroleum products.

The UAE does not currently impose capital gains tax. However, specific concessions may require a transferor to account to the government for a portion of its gains on a transfer of interest.

Preferences for state-owned oil and gas companies often exist, although these may not be mandated by law. For example, there is no legal requirement that a state-owned oil company must participate in oil licences. In practice, however, that is often the case.

There is one exception to this general statement. The Abu Dhabi Gas Ownership Law (Law No 4 of 1976) gives ownership to the state of all natural gas discovered in Abu Dhabi and grants ADNOC the right to exploit and use such gas solely or through joint agreements with ADNOC’s minimum 51% participation.

As noted above, the state-owned oil and gas companies in Abu Dhabi, Sharjah and Ras Al Khaimah all participate in upstream licences with foreign investors. There are no mandated carry arrangements if a state oil company participates, but a carry might be negotiated.

State oil companies do not automatically have the right to operate licences in which they participate. In Sharjah, for example, Eni is a co-venturer with SNOC on three blocks. SNOC operates one of these blocks and Eni operates the other two blocks. In Abu Dhabi, some blocks are operated (on a no-profit, no-loss basis) by an operating company established by the co-venturers, some blocks are operated by an ADNOC subsidiary, and some blocks are operated by a single concessionaire.

The terms of each concession or other contractual instrument may set out investors’ obligations in this regard. It is common for oil companies to be required or strongly encouraged to hire Emirati nationals or use locally owned service companies. The employment, training and development of Emiratis is a high priority for the UAE government.

In-Country Value (ICV) Programme

The ADNOC Group champions local talent through its In-Country Value (ICV) programme. The ICV programme is a procurement-led initiative that has the aim of encouraging local supplier selection, development of UAE nationals and localisation of critical functions in the oil and gas industry. In addition, ADNOC has set forth a series of strategic and technical initiatives that will nurture the growth of the ICV strategy.

The “Labour Law”

Preference for local labour is enshrined into Federal Law No 33 of 2021 regarding the Regulation of Labour Relations (the “Labour Law”), which governs the employment of most workers in the private sector. That said, approximately 80% of the UAE’s population is made up of expatriates and the UAE relies heavily on foreign labour. Traditionally, all foreign workers required a work permit and all workers (other than workers from Gulf Cooperation Council states) required a residency visa too. Residency visas are generally dependent on employment, although the regime has been liberalised recently to some extent to attract talent to the UAE.

The Labour Law is a federal law and applies in all of the emirates. The Labour Law is supplemented by various regulations (including UAE Cabinet Resolution No 1 of 2022), directives and circulars from the Ministry of Human Resources and Emiratisation (MOHRE).

Emiratisation

The process of encouraging employment of nationals in the private sector is known as Emiratisation and the MOHRE develops and implements Emiratisation quotas, often by reference to particular sectors, job type and the size of a company’s workforce. There is no training fund for the local workforce, but social security contributions must be paid for certain Emirati employees. Termination of Emirati employees other than by mutual consent is very difficult.

Oil companies may be able to secure exceptions to Emiratisation quotas, although the process is not transparent.

Each concession sets out the exploration, appraisal, development and production terms. In general, if an investor has obtained an exploration licence and has made a commercial discovery, it may continue to the development and production stage provided its proposed production and development plan has been approved by the relevant authorities (eg, the SCFEA in Sharjah and ADNOC in Abu Dhabi). 

Timeframe

There is no customary duration for hydrocarbon concessions or other types of arrangements. Recent oil concessions in Abu Dhabi typically provide for a production period of 35 years. Extension or renewal of the term would be a matter for negotiation.

Relinquishment

Concessions typically contain provisions that require the concessionaire to relinquish a certain percentage of the concession area during the exploration term. Subject to limited exceptions, once the concession moves into development and production, the concessionaire must typically relinquish those areas that are not being developed.

In addition, the concessions will usually give the government rights of termination if certain obligations are breached, such as transfer restrictions or minimum work commitments.

Liability of Concessionaire

Limitations of liability typically follow the industry paradigm with no liability for consequential losses, except in cases of gross negligence. If the relevant concession permits more than one person to comprise the concessionaire or contractor as co-venturers, then the co-venturers would typically be jointly and severally liable to the granting entity.

Credit Support

The requirement for parental guarantees or other credit support will depend on the relevant concession or other contractual instrument and the financial standing of the relevant concession holder. In Abu Dhabi, ultimate parent company guarantees are routinely required for concession holders.

Technology Transfer

Concessions typically include extensive technology transfer provisions from the investor to the national oil company.

Funding of Social Programmes

The terms of each concession or other contractual instrument set out the investors’ obligations in relation to financial contributions to social programmes.

Decommissioning

Newer UAE concessions typically include specific decommissioning obligations and address decommissioning activities (often by requiring operators to act in accordance with good industry practice). It is often the national oil company that undertakes decommissioning post the expiry date, albeit the activities may be financed by a decommissioning fund established by the concessionaire in advance. Older concessions may be completely silent on the allocation of decommissioning liabilities or may include only general provisions (eg, to clean up the contract area, plug and abandon wells, or act in accordance with good oilfield practice). On the expiry of these concessions, liability for decommissioning has generally been negotiated on a case-by-case basis.

There is no standard approach to security deposits for decommissioning. If a concession deals with decommissioning, there may be a requirement to build up a cash decommissioning fund to finance associated liabilities. There may be instances where parties have been able to negotiate that a different form of security will suffice.

In almost all cases, government consent will be required prior to the transfer of any interests or changes of control. There may be exceptions for transfers to affiliates, although the transferor may remain liable for the affiliate post transfer. Pre-emption rights are contract-specific.

Government consent would generally be required in almost all cases for a change of operator. The specific criteria for approval would be identified in the relevant concession, but would likely relate to financial and technical competence.

In some cases, the structure of the relevant instrument makes it very unclear whether the operator can be changed. For example, certain Abu Dhabi concessions designate a specified entity to act as the operator on a no-profit, no-loss basis. Such entity may be owned by the concession holders.

As noted above, the UAE does not currently impose capital gains tax. However, specific concessions may require a transferor to account to the government for a portion of its gains on a transfer of interest.

The UAE is a member of OPEC and complies with the group’s decisions regarding production quotas. The vast majority of oil produced in the UAE is in Abu Dhabi and any restrictions are generally addressed through ADNOC’s production share or on an ad hoc basis. If there is a policy for apportioning cuts, it is not publicly available.

There is no mandated state monopoly in the midstream and downstream sectors, although such sectors have traditionally been dominated by state-owned entities. In recent years this has changed considerably, as ADNOC’s new downstream strategy is to provide for new opportunities for investment by international companies to participate in the midstream and downstream sector. Such investments are usually in the form of joint ventures with the national oil company and may not give the investors operational control.

For example, in 2020, a consortium made up of SNAM and several investment funds completed the acquisition of 49% of ADNOC Gas Pipeline Assets LLC from ADNOC. This followed a similar transaction in 2019 in which GIC, BlackRock and KKR acquired stakes in ADNOC Oil Pipelines.

In 2021, ADNOC raised more than USD1.1 billion from an 11% sale of shares in its drilling unit through an IPO. In March 2023, ADNOC Gas, a subsidiary of ADNOC, raised USD2.5 billion from a sale of 5% of its shares in the biggest listing of the year. This trend is set to continue.

In Abu Dhabi, ADNOC manages downstream operations. ADNOC group activities include refining, processing, marketing, supply and transportation through its subsidiaries ADNOC Gas Processing, ADNOC Sour Gas, ADNOC LNG, ADNOC Refining, ADNOC Fertilisers, ADNOC Industrial Gas, Borouge (a joint venture with Austria’s Borealis), ADNOC Distribution and ADNOC Logistics and Services.

Downstream activities in Dubai are carried out by ENOC, which is wholly owned by the Dubai government and operates in both Dubai and the northern Emirates. One of its subsidiaries, ENOC Processing Company, runs the Jebel Ali refinery in Dubai.

Sharjah LPG Corporation (in which the Sharjah government holds a 60% stake) processes the output of the Sajaa, Moweyid and Kahaif fields in Sharjah, producing liquefied petroleum gas (LPG) for markets in Sharjah and Dubai.

The required licences and permits need to be considered on a project-specific basis. In general, midstream/downstream projects will require relevant approvals at emirate level and federal level, with the Ministry of Energy and Infrastructure and the Ministry of Climate Change and Environment responsible for environmental matters and transportation of hydrocarbons.

There is a UAE competition law, but the hydrocarbons sector is excluded from its application. There are no standard rights and terms of access, and no rights, for example, for an entity to require the operator/owner to grant capacity or expand its facilities in order to accommodate such entity.

In Abu Dhabi, ADNOC and its affiliates may make access to its infrastructure available to third parties (eg, gas processing facilities) on a contractual basis. 

There are no midstream/downstream licences in the same way as there are upstream concessions or production sharing contracts. All companies are permitted to undertake only their licensed activities, so the process of incorporating a company or registering a branch may include specific requirements to show competence relating to their licensed activity.

The development of downstream infrastructure is under each emirate’s control. Specific approvals may be needed for the construction of refineries, processing plants and associated infrastructure, but these will be addressed on a project-specific basis.

For example, to construct a refinery or processing plant, approvals would be required from the relevant emirate and, at a federal level, from the Ministry of Climate Change and Environment in accordance with Federal Law No 24/1999 on the Protection and Development of the Environment.

In Abu Dhabi, the Regulation and Supervision Bureau for the water, wastewater and electricity sector in the Emirate of Abu Dhabi (the “Bureau”) has the power to issue regulations for various purposes pursuant to Abu Dhabi Law No 2 of 1998 on the Regulation of the Water and Electricity Sector in the Emirate of Abu Dhabi. In 2009, the Bureau issued:

• the Fuel Regulation of Downstream Oil & Gas 3/1998 on the Regulation of the Water and Electricity Sector in the Emirate of Abu Dhabi; and
• the Fuel Storage Tank Regulations, which provide requirements for prevention and early detection of any fuel releases from fuel storage tanks in order to minimise the effects of any leakage on the environment and public health.

All licensed operators and other relevant sector parties must comply with all relevant regulations issued by the relevant authorities. Accordingly, it is advisable that an investor undertakes a comprehensive legal due diligence exercise in order to identify the applicable laws and regulations at federal and emirate level (as well as any guidelines issued by the authorities or national oil companies, such as ADNOC).

There are no typical commercial arrangements for the major types of midstream/ downstream operations. Arrangements are made on a project-specific basis. Most midstream/downstream infrastructure (eg, pipelines, processing facilities, LNG terminals) would usually be owned and operated by a state-owned entity or include a state-owned entity as a sponsor.

This would depend upon the specific project. Corporate tax might be relevant but there are no specific taxes targeted at midstream/downstream operations. 

As noted above, there are no specific midstream/downstream licences. In practice, most midstream/downstream operations are owned and controlled by state-owned entities.

There are no specific local content requirements regarding midstream/downstream licences. See 2.6 Local Content Requirements: Upstream regarding local content requirements for upstream operations.

These are no mandated key terms for midstream/downstream projects; these would be project specific.

The respective rulers of each emirate possess powers of compulsory acquisition to facilitate land access.

There are no specific overarching laws regarding transportation of hydrocarbons. In each emirate, government bodies and authorities regulate oil and gas transportation within that emirate, setting various standards and codes of practice. There is also regulation at a federal level by the Ministry of Energy and Infrastructure and the Ministry of Environment and Climate Change.

There are also federal and international laws and treaties that are relevant to transportation activities in the UAE such as:

• Federal Law No 24 of 1999 for the Protection and Development of the Environment prohibits pollution from marine and ground transport and addresses protection of the environment;
• the Basel Convention on Hazardous Waste;
• the Convention on Marine Pollution by Dumping Waste and Other Matter; and
• the Kyoto Protocol on Climate Change and the Convention on Biological Diversity.

There is a UAE competition law, but the hydrocarbons sector is excluded from its application. There is no right of third-party access to downstream infrastructure.

Federal Law No 14 of 2017 on Trading in Petroleum Products provides that any entity wishing to participate in, among other things, the import, distribution, transport, sale or storage of petroleum products, must first obtain a trading authorisation issued by the local authority of the applicable Emirate. The trading authorisation will specify the petroleum products the licensee may trade.

Oil producers in Abu Dhabi are generally free to export crude oil and crude oil products (subject to the direction of the Supreme Council for Financial and Economic Affairs), and oil production in the UAE outside of Abu Dhabi is very limited.

Domestic marketing obligations may be agreed in the relevant concession or production sharing contract and the relevant supervisory authority in each emirate retains the authority to direct policy in this regard.

The only LNG export facilities in the UAE are in Abu Dhabi and ADNOC LNG is involved in each of them. As a state-owned company, it likely deals with authorisations directly with the government. 

There are also LNG import facilities in Abu Dhabi and Dubai, which are sponsored by state-owned entities.

These are individual to each project.

The UAE is a contracting state to the New York Arbitration Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). An arbitration award issued in the UAE is theoretically enforceable in all New York Convention member states, and any award issued in another member state is directly enforceable in the UAE. The UAE is also a party to the International Centre for the Settlement of Investment Disputes convention.

Government-owned entities in the hydrocarbons sector typically prefer that agreements are governed by local law but they are amenable to resolving disputes by arbitration in accordance with international institutional rules, such as the International Chamber of Commerce (ICC) and the London Court of International Arbitration (LCIA). Typically, government entities require a local seat for arbitration. UAE law prohibits the enforcement of a judgment or an award against public property owned by the state or one of the emirates. This means that attaching assets held by the state-owned oil companies is unlikely to be successful.

The UAE has signed bilateral investment treaties with more than 50 countries, including China, France, Germany, India, Italy, South Korea and the United Kingdom, all of which have international oil companies or national oil companies that have invested in the emirate’s petroleum sector. The bilateral investment treaties typically promise fair and equitable treatment for foreign investors.

The UAE is a member of the United Nations Convention Against Corruption, which prohibits bribery, abuse of function and private sector corruption. There are also criminal sanctions against anti-bribery and corruption enshrined in domestic laws, such as the UAE Federal Penal Code.

The trend in the UAE seems to be to open up the hydrocarbons sector to more foreign investment. ADNOC has been privatising certain assets, and has conducted two open bid rounds. Sharjah and Ras Al Khaimah have also conducted open bid rounds in the last five years. As noted above, however, there are restrictions in Abu Dhabi on the foreign ownership of gas.

Tax stabilisation measures depend on the individual concession. Even without specific measures, the UAE has a good track record of maintaining fiscal stability.

The UAE implements the United Nations Security Council Resolutions (UNSCRs), including those related to UN sanctions regimes. The office responsible for sanctions control is the Executive Office for Control and Non-proliferation (www.uaeiec.gov.ae). The Executive Office reports on its website that it is implementing UNSCRs on the suppression and combating of terrorism, terrorist financing and countering the financing of proliferation of weapons of mass destruction.

The UAE is part of OPEC and OPEC+ (which includes Russia). The UAE is not thought to be implementing sanctions against Russia relating to the war in Ukraine.

The UAE itself is not subject to any EU, US, UK, or UN sanctions relating to its hydrocarbons sector.

Federal Law No 24 of 1999 for the Protection and Development of the Environment is the overarching federal law relating to the environment.

In Abu Dhabi (where the majority of the UAE’s oil-related facility operations take place), operators typically have a contractual duty of care to act in accordance with internationally accepted standards for health, safety and the environment (HSE). Operators may also be required to comply with Abu Dhabi National Oil Company codes of practice and will need to consider applicable treaties relating to environmental, decommissioning and maritime issues. Specific HSE laws and regulations include the Abu Dhabi Petroleum Resources Conservation Law (Law No 8 of 1978) and those of the Environment Agency of Abu Dhabi.

Regarding the health and safety of employees, Federal Law No 33 of 2021 regarding the Regulation of Labour Relations together with UAE Cabinet Resolution No 1 of 2022 (the “Labour Law”) includes rules on, among other things, working hours, overtime pay and holidays for both UAE nationals and expatriates.

The penalties for breach of environmental laws are strict and include civil and criminal liability.

Principal Laws and Regulations

As noted in 5.1 Environmental Laws and Environmental Regulator(s), the principal law regulating environmental matters in the UAE is the Federal Law on the Protection and Development of the Environment (24/1999) and its Executive Regulations issued under Cabinet Resolution 37/2001 (the “Environmental Law”). At an emirate level, additional laws may apply to certain projects (eg, the Abu Dhabi Law on the Conservation of Petroleum Resources 8/1978).

Under the Environmental Law, an assessment must be undertaken whenever a project that might affect the environment is proposed. The regulations outline the procedure to be applied for issuing environmental permits and imposes various obligations on competent authorities and relevant departments.

Federal Environmental Agency

The Federal Environmental Agency is the principal body issuing environmental permits and related licences. 

The Federal Environmental Agency is authorised to accept applications for environmental permits and either to grant them with or without conditions, or reject them. Oil and gas projects typically require an environmental impact assessment (EIA).

Environmental Protection Division

The agency department responsible for issuing assessments is the Environmental Protection Division, which in Abu Dhabi works in co-ordination with the planning department, Abu Dhabi municipality, Abu Dhabi Industrial City, the Civil Defence Department and others, depending on the project in question.

The agency has produced internal draft rules and regulations for EIAs that contemplate a four-stage approach to each application – screening, scoping, reviewing and monitoring.

EIA screening, scoping and reviewing stages

At the screening stage, an environmental permit application form must be submitted to the agency with supporting documentation. A project may be approved at this stage without the need for scoping and reviewing, skipping straight to monitoring. If the project is not initially approved, then an assessment terms of reference may be required, which is reviewed at the scoping stage. If the terms of reference are approved, then the assessment study itself is conducted. If the assessment is accepted at the reviewing stage, the agency will issue a construction environmental permit. The applicant must then commence construction of the project within one year. Appeals against rejection may be permitted.

EIA monitoring stage

The monitoring stage covers the implementation period of the project. At this stage, the agency monitors the construction of the project to ensure compliance with the permit conditions. Applicants may be required to modify their project. The agency also conducts a pre-commissioning audit. After reviewing this and the outcome of the monitoring stage, the agency agrees or refuses to issue an environmental operating permit, with or without conditions. If a permit is issued, monitoring continues and at the end of the relevant validity period, the permit may be renewed.

Other Rules and Procedures

Other rules and procedures may also have to be adhered to in respect of particular types of projects. Additional bodies may need to be consulted depending on the project (eg, the Ministry of Fisheries and Agriculture or Abu Dhabi National Oil Company). In addition, the Environmental Research and Wildlife Development Agency recently imposed an obligation on companies dealing with chemicals, hazardous and radioactive materials and waste, and other materials that may have an adverse effect on the environment, to obtain environmental permits.

Generally, undertaking an assessment for the agency does not obviate the requirement to undertake further assessments by other bodies. It is important, therefore, for a company wishing to develop a project in the UAE (including Abu Dhabi) to be aware of its obligations with regard to assessments and obtaining the necessary permits.

The UAE is party to customary international maritime treaties such as the United Nations Convention on the Law of the Sea, and the regulatory regime is in accordance with such treaties.

There are very limited laws and regulations dealing specifically with abandonment and decommissioning. Oil companies have a general obligation to comply with environmental laws and regulations. In particular, the Federal Law on the Protection and Development of the Environment (Law No 44 of 2015) sets out permits and penalties for environmental breaches.

In Abu Dhabi, the Abu Dhabi Petroleum Resources Conservation Law (Law No 8 of 1978) provides that operators must take all measures necessary to prevent damage resulting from operations and to prevent contamination of the air, underground surface or sea. Furthermore, operators must (following consent from the Supreme Council on Financial and Economic Affairs) close dry and non-commercial wells.

Additional guidance is provided by applicable international standards. For example, contractors must follow international laws on offshore decommissioning to which the UAE is a party. The UAE is a party to the Kuwait Protocol pursuant to which it is obliged to ensure that offshore contractors have adequate resources to deal with decommissioning. Under the protocol, each operator of an offshore platform or other sea-bed structure must remove such installation after operations (in whole or in part) to ensure safe navigation and to protect fishing interests. The International Maritime Organization 1989 Guidelines and Standards on the Removal of Offshore Installations require abandoned or disused offshore installations to be removed, unless an exception applies.

As noted in 2.8 Other Key Terms: Upstream, newer UAE concessions typically include specific decommissioning obligations and address decommissioning activities (often by requiring operators to act in accordance with good industry practice). It is often the national oil company that undertakes decommissioning post expiry date, albeit the activities may be financed by a decommissioning fund established by the concessionaire in advance.

Older concessions might be completely silent on the allocation of decommissioning liabilities or include only general provisions (eg, to clean up the contract area, plug and abandon wells or act in accordance with good oilfield practice). On the expiry of these concessions, liability for decommissioning has generally been negotiated on a case-by-case basis.

There is no standard approach to security deposits for decommissioning. If a concession deals with decommissioning, there is usually a requirement to build up a cash decommissioning fund to finance associated liabilities. There may be instances where parties have been able to negotiate that a different form of security will suffice.

International Compliance

The UAE was the first Middle Eastern nation to sign the Paris Agreement, and the first country in the region to submit its Nationally Determined Contribution (NDC) in 2015. The UAE recently updated its NDC, setting a more ambitious target for curbing carbon emissions by 31% by 2030, up from its previous 23.5% target. In addition, the UAE will host the 28th United Nations Climate Change Conference, or COP28, in 2023. HE Sultan Ahmed Al-Jaber, the CEO of ADNOC, is the president-designate for COP28.

In accordance with the United Nations Framework Convention on Climate Change (UNFCCC), the UAE is a non-Annex 1 country, and is not obliged to reduce its emissions. However, the UAE has chosen to implement actions to slash its carbon emissions. In addition, the UAE is committed to expanding the role of low-carbon technologies in the economy and investing in renewable energy and nuclear power.

National Climate Change Plan 2050

The UAE Ministry of Climate Change and Environment, in collaboration with its partners in the public and private sectors, is working to mitigate climate change through the National Climate Change Plan 2050, adopted by the UAE Cabinet in June 2017, and the National Climate Change Adaptation Program, adopted at the first annual meeting of the UAE government in September 2017, in addition to other relevant policies and programmes.

The primary objectives of the National Climate Change Plan of the UAE 2017–2050 are to manage greenhouse gas (GHG) emissions, while sustaining economic growth, minimising risk, improving the capacity for adaptation to climate change, and enhancing the UAE’s economic diversification agenda through innovative solutions.

Each emirate has, in theory, the power to limit oil and gas development, for environmental or other reasons. 

The current trend, however, seems to be to accelerate oil and gas development. ADNOC is trying to increase production to five million barrels of oil per day by 2027. 

The legal and regulatory regime for conventional interests largely applies to unconventional resources. As noted previously, each concession is negotiated between the parties and the terms are confidential. 

Unconventional Gas Resources

There are a number of unconventional upstream projects being developed in the UAE. ADNOC is currently developing potential unconventional gas resources as part of its integrated gas strategy, so that the UAE will become gas self-sufficient by 2030.

In November 2018, ADNOC signed the region’s first unconventional gas concession agreement with TOTAL, granting a 40% stake in the Ruwais Diyab Unconventional Gas Concession, while ADNOC retained a 60% stake. It has been reported that the Concession’s terms include a seven-year exploration and appraisal phase, which will be followed by a 40-year development and production term. The joint venture first delivered gas in 2020.

In November 2019, the SCFEA announced the discovery of 160 trillion standard cubic feet (SCF) of recoverable unconventional gas resources.

Unconventional Oil Resources

Abu Dhabi’s unconventional recoverable oil resources are estimated at 22 billion barrels of very light and sweet crude, comparable to ADNOC’s flagship lower-carbon Murban grade, according to ADNOC.

In 2022, ADNOC and Petronas signed a landmark deal for the exploration and appraisal of Abu Dhabi’s first onshore unconventional oil block. The Concession was in respect of Abu Dhabi’s Unconventional Onshore Block 1, which covers a 2,000 square-kilometre concession area in the Al Dhafra region. It has been reported that Petronas will hold 100% equity and operatorship to explore for and appraise unconventional oil in the concession area for a period up to six years and, following a successful appraisal phase, the parties can enter a production concession with a term of 30 years from the first award of the concession to Petronas, with ADNOC having the option to hold a 50% stake in the production concession.

There are no express regulatory requirements that apply in respect of cross-border sales or deliveries of natural gas. Standard export controls apply.

The emirates each have their own local customs departments, which fall under the Federal Customs Authority. The role of the Federal Customs Authority is to unify, develop and improve customs policies, legislation and regulations, and supervise their implementation across the local customs departments. The customs procedures are similar throughout the UAE.

GCC Customs Union

Since the establishment of the GCC Customs Union on 1 January 2003, the UAE has applied the GCC Common Customs Law, which provides for a single port of entry whereby items imported into the UAE (or any other GCC state) that are destined for another GCC market are subject to customs duty only at the first point of entry into the GCC. Customs procedures and the required documentation are the same for all GCC states. The UAE’s existing LNG plant consists of three trains with a total capacity of 5.8 million tonnes per year. It is located on Das Island about 100 km northwest of the UAE mainland in the Gulf, west of the Strait of Hormuz.

Expansion of ADNOC’s LNG Capacity

At the moment, Abu Dhabi is the only emirate with sufficient gas reserves to develop an LNG export project. As noted above, foreign ownership of gas is restricted in Abu Dhabi, so ADNOC would need to take a lead role in any LNG exports which would likely make any approvals or permitting process run more smoothly. ADNOC is currently expanding its LNG capacity with a new low-carbon LNG export project. The proposed project is a 9.6 million tonnes per year LNG facility, comprised of two 4.8 million tonnes per year liquefaction trains. This would more than double the country’s current output of LNG. The facility was originally conceived as an LNG import project to be located in the emirate of Fujairah, however ADNOC recently announced that it will instead be located in Ruwais Industrial City near much of ADNOC’s oil and gas infrastructure. This demonstrates the growth in local gas production.

Demand for ADNOC’s LNG has already been signified by the signing of a USD1.2 billion LNG deal with TotalEnergies. It has been reported that the deal will last three years from 2023, with ADNOC supplying an unspecified quantity of LNG to TotalEnergies.

Present Oil Consumption in the UAE

The UAE has one of the highest rates of oil consumption per head. According to BP’s 2022 Statistical Review of World Energy, approximately 95% of the UAE’s energy needs are covered by oil and gas. The UAE, however, has a carbon transition strategy and is increasingly investing in nuclear, hydrogen and solar energy projects. In July 2023, the UAE government announced that it plans to triple the contribution of renewable energy over the next seven years and invest USD40 billion to USD54 billion to meet the country’s growing demand for energy.

The UAE 2050 Energy Strategy

The UAE 2050 energy strategy (launched in 2017) is an ambitious plan to diversify the country’s energy mix. By 2050, the UAE wants to ensure that 44% of its needs are met by clean energy (solar power, wind power and biofuels) and to increase the share of clean energy in the country’s electricity generation capacity to 50% (44% renewable and 6% nuclear). The Barakah nuclear power plant entered into commercial operation in April 2021. In addition, in its Hydrogen Leadership Roadmap unveiled in November 2021, the UAE set a target to conquer 25% of the global low-carbon hydrogen market by 2030. ADNOC also has ambitious decarbonisation goals: decreasing GHG intensity by 25% by 2030 and expanding carbon capture, utilisation and storage capacity by 500%.

A key contributor to the success of these goals will be the Muhammad bin Rashid Al Maktoum Solar Park. The solar park will be the largest such facility in the world when completed in 2030 and will generate an estimated 25% of Dubai’s total energy production.

The UAE has also announced that it is building the first solar-powered green hydrogen plant in the region and, subject to regulatory approvals, ADNOC and its partners are investing in a new one million metric tons per year blue ammonia project in Ruwais.

In 2020, ADNOC and Abu Dhabi Power Corporation (“ADPower”) announced the issuance of a joint tender to develop and operate the region’s first high-voltage, direct current sub-sea transmission system to connect ADNOC’s offshore production facilities to ADPower’s onshore electricity grid using state-of-the-art technology. 

In October 2021, ADNOC announced a clean energy partnership between ADNOC and Emirates Water and Electricity Company (EWEC), which will result in up to 100% of ADNOC’s grid power being supplied by EWEC’s nuclear and solar clean energy sources, making ADNOC the first major oil and gas company to decarbonise its power at scale through a clean power agreement. 

In 2021, Mubadala Investment Company, ADNOC, Abu Dhabi Holding (“ADQ”), and the Ministry of Energy and Infrastructure announced the Hydrogen Alliance to pursue producing blue and green hydrogen for export. In August 2022, the Abu Dhabi Department of Energy announced it was developing a hydrogen policy and regulatory framework aimed at accelerating the UAE’s hydrogen strategy.

In December 2022, ADNOC, international energy and water company TAQA and Mubadala announced the successful completion of a major joint venture transaction, following which they will all become shareholders in Masdar. ADNOC will take a 43% stake in Masdar’s green hydrogen business (with Mubadala holding 33% and TAQA 24%). TAQA will take a 43% stake in Masdar’s renewable business (with Mubadala retaining 33% and ADNOC holding 24%). Masdar’s new green hydrogen business will target an annual green hydrogen production capacity of up to one million tonnes by 2030.

In addition to diversification, ADNOC plans to further increase its oil production through concession agreements for new exploration and production. In March 2022, ADNOC awarded framework agreements with a value of USD658 million to expand drilling operations and crude oil production capacity.

The UAE is estimated to have the sixth-largest oil reserves in the world with recoverable reserves of approximately 107 billion barrels at the end of 2021. While there are countries with higher reserves (eg, Iraq, the Kingdom of Saudi Arabia and Venezuela) or countries that produce more oil (eg, the USA), the hydrocarbons sector in the UAE is very attractive to foreign investors because it offers:

• access to conventional resources with a low cost of production;
• a very business-friendly environment (compared to many other Middle Eastern countries);
• a long track record of fiscal stability; and
• it is actively seeking foreign investment in the sector.

There have been no material changes in oil and gas laws or regulations over the past year.

In the last several years, the UAE has, however, promulgated a suite of new business-friendly laws and regulations. These include, among others, a new companies law, a new employment law, new visa laws, and laws dealing with data protection and electronic signatures.