* Conoco withdraws from $10 bln UAE gas project
* Follows exit from Saudi Yanbu refinery deal
* Firm likely to struggle striking future deals in region
(Adds UAE energy source on ADNOC plans, analyst comment)
By Simon Webb
ABU DHABI, April 28 (Reuters) - Third-largest U.S. oil firm ConocoPhillips (COP.N) has pulled out of its second big ticket Middle East energy project in a month as it focuses investment on oil and gas exploration and away from refining.
The withdrawals would likely make it tough for Conoco to land future work in two of the world's top oil exporting countries Saudi Arabia and the United Arab Emirates.
"Both Aramco and ADNOC have been quite annoyed by Conoco," said Samuel Ciszuk of IHS Global Insight. "They are used to people being very grateful. (But) They have been the ones that have had to face a partner not moving forward. That has put a strain on a lot of relationships."
Conoco said in a statement on Wednesday it had ended its participation in the UAE's $10 billion Shah gas field project, a joint venture with state-run Abu Dhabi National Oil Company (ADNOC). [ID:nASA00A0E]
"It was a difficult decision not to participate in a project of this importance," Ryan Lance, Conoco's senior vice president for exploration and production said in the statement."
Earlier this month, Conoco withdrew from a project worth around $12 billion in the world's top oil exporter Saudi Arabia to build a 400,000 barrels per day (bpd) refinery with state-run oil giant Aramco. [ID:nN21129738]
The Shah scheme is to pump and purify gas with a high content of potentially deadly sulphur dioxide, making it tougher and more expensive to produce than conventional gas.
A large part of the around $10 billion investment would have gone into the gas processing facilities.
"The (Shah) project has only a small exploration and production component, so that's a bit conflicting with the company strategy," said one source familiar with the project.
The complexity and scope of the project meant there was a risk it would fail to provide the return on investment that the restructuring U.S. company needs to make, the source said.
"The size of this megaproject exposes the firm to the risk of not creating the shareholder value it is looking for," the source said.
Analysts said the move by Conoco had been widely anticipated by Wall Street as the company has been seeking to pare back its spending programmes.
"I thought that they would do that, said Phil Weiss, analyst with Argus Research in New York.
"It makes sense. It sounds like management is making some good strides in terms of trying to improve returns, and the returns associated with the project weren't high enough."
Conoco has announced plans to sell $10 billion in assets to reduce its heavy debt burden, as well as to focus more on exploration and production activity.
An ADNOC spokesman was unable to give an immediate comment on Wednesday on Conoco's withdrawal.
ADNOC would continue with the project and would award deals to build it in coming days despite Conoco's exit, a UAE energy official said on Wednesday on condition of anonymity. [ID:nLDE63R1BM]
The UAE was looking for firms that may be able to replace Conoco, industry sources said.
Shah is a key part of the UAE's strategy to boost gas production to meet rapidly rising gas demand.
The Gulf Arab state has been slow to develop the world's fifth-largest gas reserves to meet demand from industry and the power sector. To meet the shortfall, it imports gas via pipeline from Qatar.
Shah has already been delayed by at least three years and was slated to start-up by the second or third quarter of 2014.
Shah would pump around 1 billion cubic feet per day (cfd) of raw gas, which after processing would give 540 million cfd of gas fit for consumption.
Conoco was to hold a 40 percent stake in the project, with ADNOC taking the rest.
Conoco has already pulled out of another joint venture project in the UAE with a state-run firm. The Houston firm withdrew from a scheme in 2007 to build a refinery in the port of Fujairah with Abu Dhabi's International Petroleum Investment Corp. (Reporting by Simon Webb and Reem Shamseddine in Kuwait, Stanley Carvalho in Abu Dhabi, Barbara Lewis in London and Matt Daily in New York; Editing by Sue Thomas)