Sanctions Relief to Cut Iran's Oilfield Development Costs

EghtesadOnline: The cost of developing the second phase of North Azadegan Oilfield in Khuzestan Province are expected to be reduced due to the removal of international sanctions in January, the executive director of the oilfield’s development plan said Monday.

News ID: ۷۳۷۶۹۲

25 October 2016

“Costs of the project are expected to fall as we can now gain (direct) access to advanced technology to develop the joint field,” Keramat Behbahani was quoted as saying by Shana.

“Oil production from North Azadegan Oilfield currently stands at 75,000 barrels per day and Iran has so far drawn 11 million barrels since it started production from the joint field with Iraq.”

North Azadegan development plan encompasses two phases each aimed at producing 75,000 barrels per day after completion.

The economic, oil, trade and banking sanctions that were tightened in 2011 and 2012 due to the dispute over Iran's nuclear program made it difficult, if not impossible, for Iran to import modern machinery and equipment for its key industries, namely oil and gas.

Bypassing the stringent restrictions came at a high cost as Tehran was forced to deal with third parties and countries to meet its technological needs from western countries. The high and rising payments in turn made gas and oil field development costs unaffordable and in many cases prohibitive.

According to preliminary surveys by Iran's Petroleum Engineering and Development Company, the North Azadegan Oilfield holds around 6.3 billion barrels of in-place crude oil.

Stressing that Iran is holding negotiations with China’s state-owned oil company, namely China National Petroleum Corporation (CNPC), on contracting the field's second phase, Behbahani said, “Foreign contractors are required to partner with an Iranian company to develop the joint fields.”

CNPC is the largest integrated energy company in China.

The first phase of the North Azadegan project was carried out by the CNPC under a buyback contract, based on which the second phase is also expected to be awarded to the Chinese company if the National Iranian Oil Company reaches an agreement with Chinese side.

The official noted that main issues with CNPC include seismic studies, estimated size of in-place reserves and crude production level.

Oil Minister Bijan Namdar Zanganeh said in May that Chinese firms will maintain their role in the second development phase of North Azadegan and Yadavaran oilfields based on their initial (buyback) contracts to develop the two fields in the first phase, reports Financial Tribune.

The arrangement is said to be part of a memorandum of understanding that was signed between the two countries to expand oil and gas ties in May.

The buyback model was largely unpopular with multinationals even before the introduction of tougher sanctions against Tehran in 2012. It was criticized for its fixed scope of work, capital cost ceiling, remuneration fee and defined cost recovery period.

The North Azadegan project was eliminated from the list of available projects for foreign contractors in an international conference last year.

According to reports, CNPC and China Petroleum & Chemical Corporation, known as Sinopec, were presented with an ultimatum by the NIOC in May to fast track their operations in Iran as the two firms had failed to present technical details and a timeframe to develop the second phases of North Azadegan and Yadavaran oilfields.