Drilling for gas began in Sharjah yesterday, under the agreement for gas concession signed between Sharjah-based Crescent Petroleum and Russia's Rosneft Oil Company. The production is expected to start after 100 days.

Emirates Business had reported recently that Russian oil and gas was making its first entry into the UAE through this Sharjah deal. Yesterday's drilling operations were inaugurated by Sheikh Sultan bin Mohammed Al Qasimi, Crown Prince and Deputy Ruler of Sharjah, who announced that the concessions were for the production of hydrocarbons, especially gas, for two onshore wells in Al Madam area.

"We are looking at long-term partnerships between the two companies and this will further bolster the co-operation between Crescent Petroleum and Sharjah Oil Council," he said.

The agreement was signed by Badr Jafar, Executive Director of Crescent Petroleum Group, and Sergey Bogdanchikov, President of Rosneft Oil Company, and became effective in the presence of Igor Sechin, Deputy Prime Minister of the Russian Federation and Chairman of Rosneft Oil Company, and Omar Ghobash, UAE Ambassador to the Russian Federation.

Under the terms of the farm-out agreement, the two companies will work together to develop the Sharjah Onshore Concession, which comprises an area of 1,243 square kilometres.

Rosneft receives 49 per cent of the participating interest in the concession, with Crescent Petroleum holding the remaining 51 per cent. The investment ratio is the same. The current agreed investment plan of approximately Dh220 million will go mainly towards initial exploration activities, including the drilling of two wells to an approximate depth of 14,800 feet.

Jafar said: "This is, hopefully, the first of many joint projects across the region, and we would also like to thank the governments of the UAE and Russia for their support."

Bogdanchikov said: "The project is the first of our company in the region and the Middle East – and I do believe it is a pilot one with our partners for other projects. It marks a major milestone for us."

Crescent has held a 25-year gas concession in Sharjah since February 2008, but until now there has been no production from it. "We are targeting gas reserves of approximately 2.4 trillion cubic feet and gas condensate of approximately 117 million barrels," Jafar said. These are reserves that Crescent hopes to find in the concession, but the firm will have a more accurate idea after the first two wells are drilled, he added.

In a passing comment on the British Petroleum oil leak disaster, Bogdanchikov said: "There is not such a big risk here…. We all took a lesson from the accident to improve requirements for safety and avoid facing such risks."

Talking about the significance of the current project, Abdullah Al Qadi, Operations Manager of Crescent, said: "The Northern Emirates, in general, face a big shortage of gas needed for power production and industrial projects. The current gas production of Sharjah depends only on the Al Sajaa field, which started production in 1982 and is now in decline, while need is increasing."

Al Qadi put the estimated capacity of the underground reserves at 2-2.5 trillion cubic feet of gas, and he said previous drilling in Sharjah had shown oil finds, so there was a possibility of finding oil with the new wells, but the priority was gas. "We are quite confident that there is gas underground – the issue is how to get that gas to services. When we drill, we'll see if we can find oil as well," he said. Crescent is also discussing projects in Iraq, said Al Qadi, without specifying where.

The gas produced would supply the UAE grid, while the condensates could be exported to international markets, Crescent said. Condensate is light oil produced as a byproduct of gas.

The farm-out agreement follows the strategic co-operation agreement between Rosneft and Crescent Petroleum, signed on May 19, to jointly develop material oil and gas opportunities in the Middle East and North Africa. (With inputs from Reuters)