Abu Dhabi Upstream Concessions: How the Emirate’s Oil Production Model Works

Short answer

• Abu Dhabi does not use production sharing agreements in the conventional sense. The emirate operates a concession model under which international oil companies acquire a participating interest — capped at 40 percent in aggregate — alongside ADNOC, which retains a minimum 60 percent stake.
• Fiscal terms combine royalties and income tax, not cost recovery and profit oil splits. Income tax on oil activities ranges between 55 and 85 percent depending on the individual concession.
• Concessions are awarded by the Supreme Council for Financial and Economic Affairs (SCFEA), which replaced the Supreme Petroleum Council under Abu Dhabi Law No. 1 of 1988. There are no model-form concession agreements.
• Production concessions typically run for 35 years. Gas projects require ADNOC to hold a minimum 51 percent participating interest.
• Since 2018, Abu Dhabi has used open competitive bid rounds for new acreage. Exploration concessions may grant the IOC a 100 percent interest during exploration, with ADNOC exercising an option to take 60 percent at the development and production stage.

Who this applies to

This article applies to international oil companies and national oil companies evaluating or holding upstream interests in Abu Dhabi, their in-house counsel and commercial teams, and advisers structuring participation in ADNOC-led concessions. It does not address Dubai's separate upstream framework, Sharjah's arrangements, or Ras Al Khaimah's production sharing contracts, which operate under distinct emirate-level regimes.

Why Abu Dhabi uses concessions, not PSAs

The term "production sharing agreement" is widely used in the industry but does not accurately describe the dominant upstream structure in Abu Dhabi. Under a conventional PSA, the state retains title to hydrocarbons, the IOC bears exploration and development costs, and production is divided into a cost recovery tranche and a profit oil tranche shared between the IOC and the government. Abu Dhabi's concession model works differently.

Under Abu Dhabi's concession structure, the IOC acquires a direct equity interest in the concession itself. It is entitled to lift its proportionate share of production and export it from the emirate. Title to the oil passes to the IOC at the point of lifting, not after a cost recovery calculation. The fiscal extraction mechanism is royalty and income tax rather than a profit oil split. This makes Abu Dhabi's regime structurally closer to the tax-and-royalty models used in the North Sea or the United States than to the PSA regimes found in Angola, Indonesia, or neighbouring Ras Al Khaimah.

This distinction matters commercially and legally. IOCs entering Abu Dhabi are not contractors providing services in exchange for a fee or a profit-oil allocation. They are equity participants in a joint venture governed by a concession agreement and, in older structures, an accompanying joint venture agreement. Their rights and obligations run directly from those instruments, not from a government contract for services. Energy lawyers in Abu Dhabi advising on entry structures need to account for this distinction from the outset of any transaction.

The regulatory framework

Under Article 23 of the UAE Constitution, natural resources in each emirate are the public property of that emirate. Abu Dhabi's upstream sector is accordingly governed by emirate-level law, not federal legislation. The principal instruments are:

• Abu Dhabi Law No. 7 of 1971 — established ADNOC
• Abu Dhabi Law No. 4 of 1976 — vests ownership of all natural gas discovered in Abu Dhabi in the state and reserves gas exploitation rights to ADNOC, which may invite participation through joint agreements with a minimum 51 percent ADNOC interest
• Abu Dhabi Law No. 8 of 1978 — governs upstream operations, reporting obligations, and conservation standards
• Abu Dhabi Income Tax Decree No. 1 of 1965 — the primary fiscal instrument for oil producers, though fiscal obligations are ultimately determined by the SCFEA and set out in each concession agreement
• Abu Dhabi Law No. 1 of 1988 — established the Supreme Petroleum Council, whose functions have since transferred to the SCFEA

The SCFEA is the ultimate authority. It awards concessions, sets fiscal terms, and oversees the strategic direction of the sector. ADNOC participates in concessions on behalf of the Abu Dhabi government and manages day-to-day operations through its subsidiary operating companies.

The UAE's 9 percent corporate income tax, introduced in 2023, does not apply to businesses engaged in the extraction of natural resources. Upstream operators remain subject to the Abu Dhabi Income Tax Decree instead, with rates set individually at the concession level.

How concessions are structured

There is no model-form concession agreement in Abu Dhabi. Each concession is individually negotiated and specific terms are not publicly disclosed. The following structural features are consistent across recent awards.

Participating interests. The SCFEA grants an interest in the concession to IOCs or NOCs, with the aggregate interest available to international parties not exceeding 40 percent. ADNOC holds the remaining 60 percent. In exploration concessions awarded through the bid rounds launched in 2018, the concessionaire may hold 100 percent during the exploration phase, with ADNOC exercising a back-in option to take 60 percent at the development and production stage.

Entitlement to lift production. The concession agreement entitles each participating company to lift its proportionate share of crude oil produced from the concession during its term and to export that crude from the emirate. This is the IOC's commercial return: physical offtake at cost, with the fiscal burden applied through the tax and royalty mechanism rather than at the point of production allocation.

The operating company. ADNOC and the concession holders appoint a dedicated operating company to manage the concession on a non-profit basis. That company is typically incorporated by decree of the ruler of Abu Dhabi and is exempted from the UAE Federal Commercial Companies Law. In earlier concessions, each concession area had its own operating company owned by the concession holders in proportion to their participating interests. More recent awards have consolidated operating companies across concession areas to reduce duplication and capture cost synergies — the Ghasha Concession, for which ADNOC approved a new operating company in late 2025, illustrates this approach.

Joint venture agreement. Historically, concession holders signed a joint venture agreement setting out governance arrangements and the framework for joint decision-making. More recent concessions have dispensed with a separate JVA, embedding governance directly in the concession instrument.

Technology transfer obligations. IOCs are required to maximise technology transfer to ADNOC and the operating company under master technology agreements, and to provide personnel support under manpower supply agreements. These obligations are not incidental — they are a stated strategic objective of the concession programme and carry weight in ADNOC's assessment of bids.

Fiscal terms: royalty, income tax, and signature bonuses

The fiscal regime is set concession by concession. The general framework involves three elements.

The income tax range of 55 to 85 percent is wide by design. The effective rate in any given concession reflects the quality of the acreage, the production profile, the signature bonus, and the strategic value ADNOC and the SCFEA attach to a particular partner's technology or capital contribution. Tax stabilisation provisions depend on the individual concession, though Abu Dhabi has a strong track record of fiscal stability even absent express contractual stabilisation clauses.

The competitive bid round process

Abu Dhabi launched its first open competitive bid round in April 2018, a significant departure from the negotiated bilateral arrangements that had governed concession awards since the emirate's original oil agreements in the 1930s and 1950s. The bid round framework, managed through ADNOC's licensing strategy, opened acreage to both new entrants and existing partners.

Awards since 2018 reflect this approach. The SCFEA awarded production concessions in 2025 for Onshore Block 4 with Japan's JODCO Exploration Limited at 40 percent, Offshore Block 2 with Eni at 28 percent and PTTEP at 12 percent, and Offshore Block 5 with Pakistan International Oil Limited at 40 percent. Earlier in 2025, EOG Resources was awarded a 100 percent operated exploration concession for Unconventional Onshore Block 3 in the Al Dhafra region — an unusual structure reflecting the unconventional nature of the resource and ADNOC's interest in attracting specialised operators.

The bid round model has introduced commercial competitiveness into what was previously a relationship-driven process. ADNOC evaluates bids against commercial criteria, technical competence, and strategic fit, including the bidder's technology portfolio and its potential contribution to ADNOC's own capability development.

Governing law and dispute resolution

Abu Dhabi government-owned entities, including ADNOC, consistently require that concession agreements and related instruments are governed by Abu Dhabi law. Disputes are subject to arbitration in Abu Dhabi rather than in international seats.

The principal arbitration institution for Abu Dhabi-seated disputes is arbitrateAD, the Abu Dhabi International Arbitration Centre that replaced ADCCAC with effect from 1 February 2024. Under the arbitrateAD Rules, the default seat is the Abu Dhabi Global Market (ADGM), an English common law jurisdiction, unless the parties agree otherwise. This gives Abu Dhabi-seated arbitrations the benefit of ADGM's common law framework and courts as supervisory authority, which has become an increasingly attractive feature for international counterparties.

The UAE acceded to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards on 21 August 2006. Awards issued in UAE-seated arbitrations are theoretically enforceable in all New York Convention member states. The UAE is also a party to the ICSID Convention. Abu Dhabi has bilateral investment treaties with over 50 countries, including the home nations of most IOCs and NOCs currently invested in the emirate's petroleum sector.

IOCs should note that the ambiguity between onshore Abu Dhabi and ADGM as potential seats has generated litigation in recent years. Specifying the seat with precision in any dispute resolution clause is essential. References to "the Emirate of Abu Dhabi" alone have been held insufficiently specific to determine the supervisory court. For detailed guidance on structuring arbitration clauses for UAE energy contracts, see our article on DIAC vs arbitrateAD: choosing the right UAE arbitration clause in 2026.

What international operators should assess before entering

Any IOC or NOC evaluating a participating interest in an Abu Dhabi concession should conduct its legal and commercial assessment across five areas:

• Fiscal modelling — the effective rate of income tax as applied to the specific concession's production and cost profile, including the interaction of royalty, income tax, and any signature bonus
• Operatorship and governance — the structure of the operating company, decision-making thresholds in the concession instrument, and the IOC's practical influence over technical and commercial decisions in a joint venture where ADNOC holds 60 percent
• Technology transfer obligations — the scope and enforceability of master technology agreement obligations and the extent to which proprietary technology is exposed
• Exploration back-in mechanics — where the concession is structured as an exploration award with an ADNOC option at the development and production stage, the valuation methodology and conditions attached to ADNOC exercising that option
• Dispute resolution — the seat of any arbitration, the governing law, and the supervisory court, with particular attention to whether the reference is to onshore Abu Dhabi courts or the ADGM

Legal advice is required to assess how these terms apply to a specific concession structure and participating interest. For a broader overview of how Abu Dhabi's upstream regulatory framework operates, including reporting obligations and environmental requirements, see our guide on the UAE oil and gas regulatory framework.

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