21 Apr 2022
The United Arab Emirates (the UAE) is the seventh-largest oil and gas producing country in the world. The 94% of oil and gas reserves are located in the UAE’s capital, Abu Dhabi, and the remaining 4% is in Dubai, and Sharjah 1.5% and Ras Al Khaimah have 0.5% of oil and gas reserves. In the UAE, each emirate is responsible for regulating its oil and gas industry. As per Article 23 of the UAE’s Constitution, the natural resources are the public property of each emirate, and the community of that emirate is responsible for preserving and using those natural resources for the public good in the public interest. The Constitution also states that the Laws of Abu Dhabi are the primary source of regulation applicable to the emirate’s oil and gas industry.
In Abu Dhabi, the supreme body responsible for the petroleum sector is the Supreme Petroleum Council (the SPC). The chairman of the SPC is the ruler of Abu Dhabi. The principal functions of the SPC are to formulate, promulgate and oversee the implementation of the regulations in the petroleum industry. The SPC is also in control of setting up the financial framework for the petroleum industry in Abu Dhabi and for overseeing royalty and tax assessment and collection through its secretariat; and issue necessary directions for the management of oil and gas companies, especially the ADNOC (Abu Dhabi National Oil Company), the SPC is the Board of Directors of the ADNOC. As Abu Dhabi is the principal oil and gas producing emirate, it has made legislations for the regulation and preservation of oil and gas. Abu Dhabi Law Number 8 of 1978 regarding the Conservation of Petroleum Resources (the Conservation of Petroleum Resources Law) is a major law governing the emirate’s petroleum industry. This law provides guidelines for the high standard of technology and efficient scientific techniques and international standard material for safety and efficiency. The law also contains detailed provisions regarding obtaining prior consent from the SPC and submitting data about exploration and drilling, completing or abandonment of wells, etc. Operators must submit monthly production reports of each producing well to the SPC.
The UAE has acceded to various treaties; on 21 August 2006, it has assented to the New York Arbitration Convention. The government-owned entities performing activities in the emirate are governed by Abu Dhabi law, with disputes subject to arbitration in Abu Dhabi. It has also signed a bilateral treaty with more than fifty countries whose companies have invested in the Abu Dhabi petroleum industry. The SPC grants licenses for crude oil in Abu Dhabi on behalf of the Abu Dhabi government. However, there is no prescribed form or model of oil concession agreements in Abu Dhabi, but the SPC follows a particular structure for granting licenses to international oil companies (IOCs) or national oil companies (NOCs). The SPC assumes that the entity that is entering into the concession agreements is the group’s parent company or that the parent company assures the performance of the relevant entity’s commitments. The approval of the SPC and ADNOC is required before the assignment of interests in the concession agreements. The concession holders are liable for breaching obligations defined by the government. To transfer the concession rights, the right holder must take prior approval from the emirate. Decommissioning requirements are typically dealt with by the relevant concession agreement or otherwise required by the SPC. The SPC is also in charge of supervising royalty and tax assessment and collection in Abu Dhabi. The UAE does not impose an export tax. There is zero tax rate on the export of oil and natural gas, and 5% of VAT is collected mainly. The Abu Dhabi Law Number 4 of 1974 Regarding the Ownership of Gas (Gas Law) confers ownership of discovered gas in Abu Dhabi on the emirate and grants the right to ‘exploit and use’ all such gas the ADNOC either alone or in partnership with others. In joint ventures of transporting and processing gas resources with other foreign investments, the ADNOC will have the highest share/majority ownership. The foreign partners shall transfer maximum technology and skills and assist the Abu Dhabi institutions in training UAE nationals to equip them with new skills and techniques to enhance the workforce in this field. All the agreements concerning gas resources need the approval of SPC, and it has jurisdiction upon exploitation, processing, and transportation of gas resources in the emirate of Abu Dhabi.
The oil companies operating in the emirate are entitled by the Gas Law to use gas they have produced during the oil operations, including generating power, lifting oil from reservoirs, maintaining reservoir pressure, and improved oil recovery operations. After the amendment in the Gas Law in 2014, the ADNOC was allowed to charge oil companies to use such gas. All oil companies operating in the emirate that produce gas must deliver it to ADNOC under the Gas Law. Typically, the ADNOC directs that gas be delivered to ADNOC Gas Processing (formerly GASCO). The UAE has been a member of OPEC since 1967, and it always complies with OPEC production requirements. The UAE Federal Minister of Energy UAE represents the UAE at OPEC meetings, who is from Abu Dhabi and an SPC member as well. For the oil and gas activities conducted by ADNOC group companies or others under the SPC’s authority, the UAE and Abu Dhabi government agencies do not have jurisdiction to license; ADNOC is authorized to set environmental standards for the oil and gas industry in Abu Dhabi and monitor compliance with them. The ADNOC HSE ensures compliance with the environmental standards set by ADNOC and the UAE Federal Law Number 24 of 1999 on the Protection and Development of the Environment (the Environmental Protection Law) for the group of companies in its jurisdiction and SPC’s jurisdiction.
The Environmental Protection Law intends to protect the aquatic environment, soil, and air by prohibiting the release of oil and other toxic substances into the marine environment. If any ship is found spilling off oil in the ocean, which causes the marine environment to be polluted, then that ship would be liable to pay for damages to the environment arising out of that oil spill. The Environmental Protection Law prohibits any activity or discharge of any waste or any dangerous materials that damage soil’s natural features. To protect the air from getting polluted, it has set limits for burning any fuels and crude oil, and ADNOC has adopted strict policy. Article 71 of the Environmental Protection Law states that any person who intentionally or negligently destroys the environment or human health by not abiding by the provisions of the Environmental Protection Law is responsible for all the costs of dealing or eliminating such damage and is liable to pay compensation for loss incurred resulted by that act, which includes compensation for loss because of the inability to use any such polluted area permanently or temporarily, for causing damage to the environment’s economic and aesthetic value and ‘rehabilitation costs. The case is then held in court with involvement of legal prosecutors. Penalties and fines have been provided in the Environmental Protection Law for the breach of obligations, such as for the breach of Article 58 of Environmental Protection Law, imprisonment of a minimum of two years and a maximum of five years, and a fine between AED 200,000 to 500,000 (UAE Dirhams) will be imposed. In the emirate of Dubai, the Dubai Supreme Council of Energy (DSCE), established in August 2009 under Law Number 19 of 2009, DSCE and other relevant energy bodies, regulates and governs policy development and planning regarding the petroleum industry. The representatives from different government entities Emirates National Oil Company, Department of Petroleum Affairs, and Dubai Civil Aviation Authority, are included for coordination and planning regarding the petroleum sector. However, The Department of Petroleum Affairs is responsible for administering oil and gas extraction and production in Dubai.