(Adds comments by Rosneft and Crescent execs, background)
By Simon Webb and Amena Bakr
DUBAI, June 5 (Reuters) - Russia’s Rosneft (ROSN.MM) will join the United Arab Emirate’s Crescent Petroleum in a gas concession in the emirate of Sharjah, Crescent said on Saturday, the first Middle East foray for the Kremlin’s oil arm.
State-run Rosneft pumps over a fifth of Russia’s oil and is the largest oil company in the world’s top crude producer. Crescent is a privately-held energy firm based in Sharjah, in the north of the UAE.
The deal is the first between the two companies after they signed an agreement in mid-May to work on joint ventures in the Middle East and North Africa region.
Rosneft will farm into Crescent’s onshore gas concession in Sharjah, Crescent said in a statement. The companies would drill two wells in the 1,243 square kilometre concession with an initial investment of 220 million dirhams ($59.91 million).
Rosneft will receive a 49 percent stake in the concession, while Crescent will retain the remaining 51 percent, Crescent said.
Forty-nine percent of the initial investment will come from Rosneft and 51 percent from Crescent, Rosneft’s Middle East representative Timur Rustamov told Reuters.
Crescent has held the 25-year gas concession in Sharjah since February 2008.
There is currently no gas production from the concession and no wells have been drilled.
“We are targeting gas reserves of approximately 2.4 trillion cubic feet and gas condensate of approximately 117 million barrels,” Crescent Petroleum Executive Director Badr Jafar told Reuters.
These are reserves that Crescent hopes to find in the concession but the firm would have a more accurate idea after the first two wells are drilled, Badr said.
The number of development wells that Rosneft and Crescent would drill would depend on the results from the first two wells, Badr added.
Gas produced would supply the UAE’s grid, while the condensates could be exported to international markets, Crescent said. Condensate is light oil produced as a by-product of gas.
The UAE is the world’s third-largest oil exporter. Most of its crude and gas production and reserves are in the capital emirate of Abu Dhabi, with much smaller reserves in the northern emirates.
The partnership between the two aims to capitalise on Rosneft’s technical expertise and financial strength and Crescent’s international operating experience and knowledge of the MENA region.
“We look forward to achieving many more opportunities together with Crescent Petroleum in the Middle East and North Africa Region,” said Rosneft chief Sergei Bogdanchikov in the statement.
Rosneft and Russia’s gas export monopoly Gazprom (GAZP.MM) have repeatedly competed for different assets in Russia but abroad both firms are seen as agents of the Kremlin’s energy policies.
Rosneft is working in upstream projects in Kazakhstan, Venezuela and Algeria.
Rosneft has big expansion plans but has so far refrained from aggressive purchases abroad due to what analysts describe as the company’s concerns about potential legal suits it could face from former shareholders and managers of defunct oil firm YUKOS.
Rosneft became the owner of most of YUKOS’ assets after the Kremlin-inspired demise of Russia’s former top producer and its politically ambitious shareholders.
Aside from Iraq and the UAE, Crescent also has operations in Egypt, Yemen and Oman.
The GCC, which Crescent and Rosneft are initially targeting for gas opportunities, is a loose political and economic alliance between Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
Last year, Crescent and UAE affiliate Dana Gas (DANA.AD) formed a consortium with Austria’s OMV (OMVV.VI) and Hungary’s MOL (MOLB.BU) that aims to pump enough gas from Iraq’s Kurdistan region to kick-start the Nabucco pipeline to Europe via Turkey.
Editing by Jason Benham and Sugita Katyal