Iran tests waters with new E&D acreage offer

20 October 2003
National Iranian Oil Company (NIOC)has issued a request for expressions of interest for the exploration and development (E&D) of 16 new blocks on a buyback basis. The acreage is in the south of the country and in the Oman Sea south of the Gulf. International oil companies (IOCs) have welcomed the decision to link exploration and development on buyback contracts but say the acreage is far from promising.

Under the terms of the E&D contract, a company that discovers a field with commercial potential will have the right to develop it. One of the key complaints IOCs have made in the past about the buyback contracts normally offered by NIOC was that successful exploration does not lead directly to development. Instead, a new tender is issued for the field development and the only advantage gained by the company that discovers it is improved technical data on which to base its development bid. Expressions of interest have to be submitted by 28 October.

IOCs have long expressed doubts about the prospectivity of the new fields. The discovery of major new blocks in the south this summer has done little to ease the concerns about the new acreage. 'We feel this is a way to balance the concession made on the E&D, which itself is a very good step forward,' says an executive at one IOC. 'Unfortunately, this particular acreage is not very promising and that makes the entire point of putting it out on E&D moot.'

The E&D formula has also been suggested for higher-risk development areas such as the Caspian Sea, where a political agreement between the littoral states still appears some way off. Oil Ministry officials in August said offshore blocks could be developed on an E&D basis or even through a production sharing agreement (PSA). PSAs are illegal under the Iranian constitution but special concessions could be granted in selected cases.

IOCs also say Iran needs to ease the growing backlog of unawarded projects before committing to more. The major Azadegan and Bangestan fields have now been under negotiation for several years each, with no likelihood of a resolution for months to come. Instead, NIOC is putting most of its efforts into the South Pars gas fields.

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