MUBADALA Petroleum has moved another step closer to gaining a coveted stake in Abu Dhabi’s upstream sector, which has been off limits to the state entity since its parent company was founded in 2002.

The firm signed a memorandum of understanding with Abu Dhabi National Oil Co. (Adnoc), which controls all of the emirate’s oil, to “explore the potential opportunities in areas of mutual interest in the oil and gas sector,” Mubadala says.

The deal includes potential cooperation on “small gas field development and exploration in Abu Dhabi,” a statement says.

Adnoc says it is “seeking to increase its gas production through implementation of expansion projects in the exploration and production sector and introduction of modern technology in gas production processes.”

Mubadala, a subsidiary of sovereign investor Mubadala Development, has made clear that it would like to get involved in Abu Dhabi’s gas sector, even though its mandate was previously to invest in foreign energy assets.

“I have to say that it is one of our secret wishes that one day we could provide the skill set that we developed,” Mubadala chief executive Mauricio La Noce says.

Mubadala’s confidence as an operator has risen since its successful start-up of a gas field in Indonesia in October.

La Noce’s strategy is to pursue small gas discoveries in Abu Dhabi that could have potential upside of 100 million-200 million cubic feet per day. He says at the time that no fields had been identified.

“It is not going to make a huge dent in the system – but everything counts. And we could develop a field like that probably cheaper than anybody else,” he says in London.

Abu Dhabi’s vast oil and gas had been exclusively under the remit of Adnoc and its international oil company partners, but that is changing. State International Petroleum Investment Co (Ipic), which originally focused on downstream investments abroad to handle Adnoc’s crude, entered Abu Dhabi’s upstream this year. OMV, owned 24.9 per cent by Ipic, signed an exploration deal with Adnoc this year.

Adnoc has been unable to develop gas fast enough to keep pace with the country’s rapid energy demand growth, even though it is spending some $25 billion and expanding gas production from 7.8 billion cubic feet per day (bcfd) to 10 bcfd by the end of 2014.

Mubadala is already building a 9 million tonnes per year LNG import terminal in the eastern emirate of Fujairah. The first phase of 4.5 million tonnes per year will be operational at the end of 2015.

“It is also going to provide Adnoc with less stress on their overall plans for reinjection; reservoir pressure maintenance, which is in summer now, is challenged,” La Noce says.

The Mubadala-Adnoc MOU also covers “introduction and development of unconventional technologies.” For example, if Mubadala needs unconventional oil or gas expertise it could tap Adnoc’s skilled employees and post them abroad, a senior Mubadala official says.

Mubadala has explored the possibility of picking up Occidental’s Mideast assets, which could include stakes in Abu Dhabi.