Iran’s Drilling Industry Status in the view of Deputy Petroleum Minister The Future Prospect

In a winter morning, we interviewed with Rokneddin Javadi on the 14th floor of Ministry of Petroleum. Deputy of minister in planning and supervision of hydrocarbon resources and the Ex-CEO of National Iranian Oil Company is considered as one of the most well-known managers in this industry. The topic we discussed was the future of Upstream Oil Industry and drilling industry in Iran.

Estimates reveal that oil price will remain in the range of 50-60 dollars and even it is probable that it declines. What is your attitude toward the tight budget of Ministry of Petroleum? What is the future scheme of Iran’s oil industry?

Oil price and its prediction depends on a number of interrelated factor some of which act in opposition of each other.  Three years ago, when oil price was 110 dollars or more, it was forecasted that it will rise up to 140-150 dollars; no one estimated its decline to 25 dollars. Today, we have the same status with two differences. The first difference is that producers, due to the long-time of oil price decline, have reached a logical consensus that in the first place, OPEC and non-OPEC members must be coordinated with one another; moreover, they should have reasonable expectations from the market in a way that no one thinks about the oil price of 120 dollars, and they expect the price to be in the range of 60-80 dollars. For this reason, it is highly possible that oil price reaches above 60 dollars. The second difference is that oil price created a trend in the economy of oil consuming and goods and service exporting countries; this trend leads to the decrease in goods price in the producing countries market. These countries are assumed as large consumer markets for the goods of industrial countries; this is why today, we witness that industrial countries also support the rational increase of oil price. As a result, our evaluation is that oil price will have an increasing trend. It can be noticed that it is expected to have a drastic increase in price after 2018. For this, 2017 is known as the year of consensus among producers and persuasion of consumers, and 2018 is assumed as the year for more increase of oil price and creating a market for industrial exporters.


In your viewpoint, to what extent are domestic drilling companies prepared and capable of working overseas?

These companies can answer this question better than me because they are involved in the business. Some companies have attempted to work overseas; for example, North drilling Co. has carried out some activities overseas and it is acquired some knowledge about market status out of Iran. Domestic companies have a long way to enter foreign market. A suitable solution is that domestic companies can find good strategic partners, make an agreement with foreign companies entering internal market and receive gradual training.

Isn’t the government going to take the responsibility of organizing drilling companies?

The first point is that it must be assumed that government is not in charge of all affairs, and all strategic activities should be done in accordance with rules and regulations and government’s authority is defined according to the framework of rules and regulations. The second point is that government faces a contradiction in privatization and its own presence in private sector. Government must develop regulatory in oil industry, and the success of oil companies in recent years is available. One of the major challenges of government is that it sometimes has governance and responsibility at the same time. When there is a competition between private and public sectors, all projects and supports will be directed toward public sector. Government must take serious measures in this regard in order to separate governance and responsibility from each other due to the fact that the one in charge of operation shall respond to organizations, and the one who approves regulations shall not be a beneficiary.


What planning do you have to support domestic companies?

As mentioned, foreign companies will receive higher scores if they delegate their work to Iranian companies. Rather than absolute subsidiaries, we should allocate supportive subsidiaries to Iranian companies; if this happens, it won’t be favorable for our country. For example, Norway did not assign all its projects to foreign companies, and the policies of this country was in a way that foreign countries should have Norwegian companies as their partners in the projects. As a result, STATOIL, a Norwegian company, gradually learned how to work. This is what Petro Pars did with buyback contracts. The same actions must be taken so that domestic companies can gradually make progress.

How do you evaluate the market of EOR and workover for drilling companies?

The number of underdeveloped fields of our country is declining, and explorations have been directed toward small and medium-sized fields in recent years. It mean that we should concentrate our production increase on two issues: increasing the recovery coefficient in developed fields and the developing small ones. Consequently, it is very important to use the existing rigs in order for enhancing oil fields status and increasing recovery coefficient. The last large field which has remained is Gharb-e Karun. Considering the fact that we are facing annual decrease of 200-300 thousand barrels of production, we must assume the increase of productivity which equals digging new wells, workover of the existing wells, installing deep well pumps and injection. As a result, market will be better and more active in these fields.

Experience shows that foreign and domestic companies do not go for small fields; it seems that the main issue here is the problem with incentives. Aren’t there any incentives for these fields?

Our countries must increase oil production because the main part of our budget comes from oil up to now. The first step is that we should supply the financial resources before taking any development action. The second important issue is that our country’ share among oil exporting countries in the region is maintained. Today, our share in OPEC have been 14.5%, and we have had 4% of the total export in the world. These days, the amount of oil consumption in the world is 92 million (BOE/D). It is estimated that this figure will reach 100-115 million (BOE/D) in 2020. Iran’s share must increase in the same trend and we should reach 5.5 million (BOE/D) for instance. Therefore, we should not only compensate for the annual decrease of two hundred thousand (BOE/D), but also have a 1.5 million (BOE/D) in our production. For this, we have to increase productivity and employing new reservoirs such as Bangestan; this issues must be considered.

Where is the position of professional organizations in the Ministry of Petroleum programs?

Syndicates are formed based on the attitudes in a society. We can not compare a syndicate in Iran with another in the US or other countries. We have some rules for supporting different kinds of these syndicates; at the same time there are lots of unwritten limitations, too. Apart from rules, each syndicate must improve compatible with its members. My evaluation of the groups which have been active so far is that they have done good work. Firstly, that have reduced their competitions and they have cooperated and reached maturity through experience transfer. Secondly, they have succeeded to develop work culture in their companies and gain support in the country. These syndicates have stepped this way, and they could manage to establish relationships so that companies have the opportunity to express their ideas for the parliament and government; these actions were completely positive. It is the same for drilling industry; despite the youth of this industry we have witness good progress a part of which stems from these syndicates and NGOs.

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