Iran Seeks 20-Year Contracts in International Oil Tenders

EghtesadOnline: Iran expects to announce the first tender for its oil and gas development projects in the first quarter of next year, heating up the race for its multibillion-dollar energy market among international majors like Total, Royal Dutch Shell and Rosneft.

News ID: ۷۳۸۸۱۲

24 December 2016

"South Azadegan Oilfield will be the first to be tendered. The tender is expected to be held by next March for major international companies," said Gholamreza Manouchehri, deputy for development and engineering affairs at the National Iranian Oil Company, Mehr News Agency reported.

The tenders for 50 plus oil and gas fields will lead to signing 20-year contracts, the official said, pointing to Iran's new model of oil contracts designed to bring back foreign investment and technology following years of economic and financial sanctions that led to the exodus of international oil and gas companies.

The 20 years entail a five-year exploration and development period and 15 years for production.

"We are finalizing the text of the contract (for South Azadegan) and the tender for the project will be held shortly after," he added.

Manouchehri also said the oil and gas companies who have signed preliminary agreements have approximately three months to present a master plan – outlining technical, operational and financial details – to develop the coveted oilfield.

An increasing number of foreign energy companies in the past few months have rushed to sign provisional agreements to study Iran's rich oil and gas reservoirs, notably the giant Azadegan oilfield.

Manouchehri also said oil exploration and production in Iran is economically more viable compared to the costlier shale oil and deepwater exploration projects.

A barrel of Iranian crude costs less than $10 to produce, marking Iran as one of the world's most attractive places for exploration and production after Saudi Arabia and ahead of Iraq, the Wall Street Journal said in April.

Azadegan is the country's largest oilfield located in the southern oil-rich province of Khuzestan, adjoining Iraq's Majnoon oilfield. It is divided into the north and south sections and holds an estimated 33 billion barrels of in-place oil.

Anglo-Dutch energy company Shell, Total, China National Petroleum Corp, Japan's INPEX Corporation and Malaysia's Petronas are among the big names who have lined up to study the development potential of Iranian hydrocarbon deposits.

Manouchehri said that in 20 years, the rate of oil recovery from Azadegan is expected to reach 20% from an unacceptably low rate of 5.5%.

------- Iraq Raises Output

NIOC says boosting extraction from joint fields is a top priority. According to reports, Iraq started production from Majnoon field in 2014 with Shell in charge of development. Production from Majnoon averaged 206,000 barrels per day in 2015 and the volume will reportedly reach 400,000 barrels a day in the near future.

Shell's contract for Majnoon oilfield expires in 2030 and Iran could very well look for sealing a similar agreement that would pave the way for the long-term presence of international majors in its oil and gas projects.

A consortium of British, Japanese and French companies could be assigned to jointly develop the Azadegan project, according to Oil Minister Bijan Namdar Zanganeh.

Azadegan development has had a rocky history. The first development contract for South Azadegan was signed in 2004 with INPEX, but the Japanese company refused to go ahead with the plan after two years, mainly due to the dispute over Iran's nuclear program that led to the enforcement of tighter sanctions against Tehran, Financial Tribune reported.

CNPC was the next in line to sign a development contract but it showed little progress after 19 months in the project.

After President Hassan Rouhani took office in 2013, the government set a 90-day deadline for CNPC to accelerate development operation and finally decided to annul the contract after the Chinese side failed to meet its commitments.