Drilling Magazine Media Intelligence, Contextual Wisdom
A series of primary work have been done; such as signing agreements, studies, and meetings between companies. Work groups have been made between us and the companies responsible for reservoir studies and plenty of fields have also been studied. At the same time, contracts have been arranged, as well as negotiating with work groups including contractual, legal, technical and economical groups nd there exists 10 groups at the moment. There are around 17-18 active local companies. A number of fields are about to be tendered; some of them are being negotiatedand some will be added later. Overall, there is a chain which is promoting and it can be said that its structure has almost been stablished. We are definitely going to continue this way. However, the most worrying issue in the eyes of the international companies might be the return of sanctions. The next concern is the opposing in the country. This is so clear that we are so old-fashioned about development. So we really need to reconsider what requirements we need to develop and we should also follow national benefits. We also need to know that country’s national benefits are dependent on the sort of development and contracts.This subject is mostly solved in the country; however, it is better to continue these kind of compelling activities. This is unfortunate that there are some strange controversies and disagreements. For example, some still believe that we should reserve the resources for the next generations. However, this is not acceptable in the new world andthese
are some unreasonable excuses in order to cover and hide our disabilities in development and production. This kind of matters must be solved. We need to know how able we are and then we will take steps in order to perform the best way possible. These subjects must be defined in related meetings and conferences that how contracts should be arranged, how well they can guarantee our benefits, how able we are in financing and what is the best way to develop the Iranian companies and so on.
It seems that most companies are interested in developing green fields. What is the reason?
Everything is based on our planning and our very first aim is to increase the recovery factor which includes both green and brownfields. As an example, the Azadegan field is not a green field anymore and in order to develop it, our goal is to increaseits recovery factor from 5.5 % to 20 %. Actually, our goal is the same for other fields as well. Another example is the South Pars oil layer in which EOR and IOR had been implemented since the beginning and without them, production would decrease in 6 months. Fortunately, production of the oil layer has been started and its rate is around 30000
barrels per day. The aim of these contracts is to increase the recovery factor.At the end of contract, reservoir production will be meaningful for sure. As an example, if our purpose is to reach 20 % of the recovery factor, this will happen at the end of contracts. So we have no choice but making longterm contracts; as EOR must be implemented during the contract continuously.
There is a big gap between Iranian E&P companies and international ones, especially in financing. What are your plans to develop and empower local E&P companies?
The E&P companies can take our oil industry out of the exclusive hands of a singular company. If there is a possibility for them to develop, they can cover a number of weaknesses, hire young and elite human resources, work mutually and learn from foreign companies. However, some of these companies are owned by private sector, and their policies may alter with management change and so they may not follow a specific policy for a long period of time. Nevertheless, these companies are going to work along foreign companies that they have to transfer new technologies. As an example, Petropars co. could finish different phases of South Pars and get promoted to a strong company with the promotions of previous experience of working with international companies. Conclusively, it is possible that a number of companies grow in our engineering section. Sanctions are really irritating though. Before sanctions, NIOC was about to start projects in Venezuela and Africa and there were some great opportunities there. This is the basic way of developing and all companies got developed by having a mutual cooperation with the world. Our potentials are so high and they can improve through reasonable imitation and interaction. Our reservoirs are capable of forcing foreign companies to transfer new technologies. And for sure, we do not have any problems with the number of E&P companies, but there is a possibility that these companies would be merged. One of the most effective ways that I recommended is that small fields be given to Iranian companies; Another solution, is that governmentally owned company could be transformed into some small companies, or transferred to private section by stock exchange.
The oil industry has got a lot of problems in drilling; including low efficiency. By the fact that 60 % of drilling companies like NIDC are governmental, what is your opinion on improving drilling industry especially reducing time and costs?
Our role to define tender terms as the client is so important. For instance, the contract can be made in a way that well must be done in a particular amount of time instead of daily rig rental system. Furthermore, competitions must be much more real. A real competition means letting foreigners to come to the battle field. An acceptable tender, good work, good duties, good financing, good control and good inspection are all specifications of a client company. Client must have appropriate policies and implementations so that there would be a fair competition. We need some wise and regular clients in order to develop.
Has there been any offer for “Buy-back” contracts?
Sometimes. I think Buy-back would perfectly fit for a number of our fields; especially our gas fields which their production rate is constant for 10 or 15 years (Farzad B field as an example) and we do not have any plans for their secondary production. Financially, the best kind of contract is EPCF. As there is only contracting profit for them. But, under Buy-back, in addition to the interest, there is also another interest considered for the company to accept possible risks. However, it is possible to bargain and reduce these interest rates. In the new method, we move forward with ups and downs of the field and we have to pay an amount to the companies. As a result, depending on the fields, contractor types and financing issues, we would choose one of the models of contracting; there should be no unique way as a default for all.
What is NIOC plans to develop small fields which are not considered in IPC?
All fields have not been included in IPC. The number of fields is too much to start at the same time, so it is better to start with the major ones. The production of a big project such as Azadegan field which is 600,000 barrels per day (as planned) is equal to 60 small fields. However, the energy that it would take is not the same as that. So the fact that the priority is with the large major fields compared to small fields is so reasonable; but it is good that we start to process these small fields as well. Finally, under IPC, there is no limitation for fields; it can include large fields and small fields; and for sure, the number of the fields must increase by time. I generally believe that thousands of upstream and downstream service companies, in or out of the country must be activated. In Kurdistan- Iraq region, there are 900 companies working in the oil & gas field. For sure these companies are not related to production. The number of contractor and service companies from inside and outside are 900. In the offshore territory of NIOC, there are a lot of small oil fields which are left alone as they do not have reasonable economic productions. But if our equipment gets updated, they would be worth investing and development. The solution is to reach to a national solution. The best solution is that Total starts the development engine, our oil reserves are like gold and they must be discovered, even in surface facility projects- such as flare gas which is being burned into the air – there are lots of work to do.
What is the maximum rate of interest in the contracts?
It depends on the contract. Regarding the National Development Fund, it is around 6 to 7 %, for Chinese the rate can be 8 %. In IPC contracts, we have designed the interest formula with Total in the way that the maximum would be 2.5 %. The National Development Fund has taken big steps in the oil field til now. This organization is responsible for the development of the South Azadegan, Yaran and Azar fields nowadays. Fortunately, all the payments would be done in one or two years. As an example, in the 19th phase of South Pars, they have started paying the taken resources and in Azadegan, loans are still being given. We need to increase the Value Added so that investors in the country would be active in the oil & gas industry. We need to make this field interesting for investors by defining profitable work packages.
How do you find EPCF/EPDF contracts?
There is another new contract model, EPC+F, that NIOC has proposed for smaller upstream and midstream EPC projects. Under this model, the consortium of EPC contractors – not the oil companies – finances about 20% of the project with their own assets and budget, 40% is funded by NIOC directly and another 40% has to be financed by the contractors through an NIOC guarantee. They can obtain financing from the National Development Fund, local banks or even foreign investors and funds.
What opportunities does Iran’s oil and gas industryoffer to foreign investors?
Based on the field studies we already received from IOCs – about 30 reports – many Iranian oil and gas fields, greenfield or brownfield, have higher reserves and production capacity than we previously imagined. I believe NIOC willsoon have to update the figures for Iran’s oil reserves, which will bring a major change to our weight in OPEC and other international agencies. Iran, together with Iraq, provides the best opportunities for IOCs. There are many unconventional oil plays in the world, such as shale oil and gas in North America, but for conventional plays, Iran has the best potential at the moment. Our new IPC [Iran Petroleum Contract] model is solid and the IOCs understand that it establishes a good frame for a long-term, win-win partnership. Even though we are still experiencing some problems regarding the sanctions and the US, we are receiving a lot of interest from European, Russian and Chinese companies, and also from countries such as South Korea, Japan, Singapore, India, Malaysia and Indonesia. With our qualified labor force, service and EPC companies will support the development of the upstream industry and increase oil production in the coming decades.
How do you negotiate these opportunities with IOCs?
We were able to start negotiations with many IOCs after receiving their proposals and studies. We sometimes go through tenders, but mostly through direct negotiations, sometimes with several companies at the same time. As of today we have 10 negotiation teams for 10 different field and have made a lot of progress. Fortunately, the contract model is finalized. The main text, as well as 14-15 appendices, is finalized, so there is no ambiguity for foreign companies willing to enter the market. We provide them with this information through confidentiality agreements. They have time to review the information related to the reservoir, service facilities, etc. and we let them visit the sites during the MoU process. Following this, our negotiation teams discuss the legal aspects, scope of work, financial aspects and so on. First, we negotiate the technical and phased development of the project. After finalizing the scope of work for 20 years, we discuss the fiscal model, commercial terms and legal aspects. Other [bodies] supervise these negotiations based on a bylaw that we have, and we are communicating with them to ensure that after the contract is signed there are no other concerns or questions. This is what we did for Total. There was a lot of discussion after the South Pars phase 11 contract was signed, but it was resolved. This is the procedure we follow and the IOCs are happy with that. Because [the 10 fields under negotiation] are huge projects, IOCs also need to have consortiums with an Iranian partner. Each contract has to be signed by one Iranian company and two or more IOCs. We normally start our negotiations with the main company, which may be the operator in the future. They bring their partners into the negotiation at a later stage. We typically aim to conclude the negotiation process in a few months.
Which shared fields are the government’s priority?
Azadegan and Yadavaran. We also have the West Paydar, Azar, Aran, Cheshmeh-Khosh, Sumar, Changouleh, Yaran, Dehloran, Sohrab and Arvand fields and the South Pars Oil Layer. We further have some other important fields for which we started negotiations. Azadegan is the major project that has gone to tender. However, the most attractive project regarding reserves quantity and quality is Yadavaran. For Azadegan, oil reserves stand at 34 billion barrels and we expect, within a 20-year development plan, 15% recovery. If we can extend the contract to 40 years, the recovery would be 25-30%. Yadavaran is almost the same, with 31 billion barrels in reserves but a better reservoir quality, and we can expect higher productivity. Right now, for Yadavaran we have the same 15% recovery objective for a 20-year contract. The total production of each of these fields is expected to reach 600,000 bopd, for a combined 1.2 million bopd.
What other upstream opportunities exist for foreign investors?
There are other greenfield and brownfield opportunities, some of them offshore. There are Farzad-A and -B, which are both greenfields. We are negotiating with an Indian company for Farzad-B. Some companies, such as Gazprom, have already made discoveries on these fields. We also have Kish, a greenfield, and many companies want to develop it as it’s bigger than three South Pars phases and has good-quality gas. We have another greenfield reservoir, Belal, which is not that big. Iran now has excess gas, which can be directed towards the downstream sector. Any investor in upstream gas will also have to finance downstream developments. We will sign contracts based on the IPC model for upstream developments, while downstream will be open to direct investment from international companies. We will also support investment in LNG plants to export gas. For projects such as Kish, Farzad and others, we insist that investment in upstream has to be supported by LNG production in the midstream.
How will upstream projects be financed?
Every IPC contract will be 100% financed by the consortium members. Total, CNPC and Petropars will invest based on their respective shares. Total and CNPC will finance the project partly with their own funds and partly through credit loans. There is another new contract model, EPC+F, that NIOC has proposed for smaller upstream and midstream EPC projects. Under this model, the consortium of EPC contractors – not the oil companies – finances about 20% of the project with their own assets and budget, 40% is funded by NIOC directly and another 40% has to be financed by the contractors through an NIOC guarantee. They can obtain financing from the National Development Fund, local banks or even foreign investors and funds.
Which EOR technologies are best suited for Iranian oilfields?
We want EOR to be a part of the commitment of the IOCs in all new contracts. However, the first wave of additional production will not be based on the implementation of EOR technology, but on the drilling of new, better-designed and better-equipped wells, with new drilling methods. In a second phase, based on the companies’ proposals, water flooding will be introduced to increase oil recovery from 5-6% to up to 15% over a 20-year period. Over a longer period of time, other methods could include chemical injection.
To what extent can Iran’s crude oil production capacity increase?
Based on the studies that we have done in the last 15 months, we estimate that in 10 years, we can obtain 3 million bopd of additional production from the fields. We did have this kind of record back in the 1970s, and we can come back to this figure and add another 1 million boepd of condensate. It depends on how much investment can be absorbed and how many companies will come. If we can overcome the challenge of investment and technology Iran is the best place in the world for new conventional oil and gas developments. Reaching even 9 million bopd is possible over a 20-year development programme. We understand there is another 100 years of work that remains to be done in Iran’s oil and gasfields.