South Pars deal sealed

20 September 2002

A consortium led by South Korea's LG Engineering & Constructionon 15 September signed the estimated $1,600 million contract to develop phases 9 and 10 of the South Pars offshore gas field development. The award ends a year-long period without the conclusion of any major oil deals since the signing of the $1,000 million contract by Italy's Eniin July 2001 to upgrade the Darkhovin oil field (MEED 13:9:02; 13:7:01).

LG will hold a 42 per cent share in the engineering, procurement and construction (EPC) project, with local consortium partners Oil Industries Engineering & Constructionand Iranian Offshore Engineering & Construction Companyholding 35 per cent and 23 per cent respectively.

About 85 per cent of the required financing for phases 9-10 will be provided through a multi-source facility, with National Iranian Oil Company (NIOC)providing the remainder. 'Concluding the financial arrangements is expected to take about one year,' says an LG representative. 'We are now starting to prepare payment guarantees for advanced payments.'

ING Investment Bankingis acting as financial adviser for the LG-led consortium. The client on the scheme is the local Pars Oil & Gas Company, the NIOC subsidiary in charge of South Pars.

The two-phase project is due to come on stream in 2007 and will produce 2,000 million cubic feet a day of gas for domestic use, 80,000 barrels a day of condensate and more than 1 million tonnes a year of liquefied petroleum gas (LPG) for export.

Industry sources say there is little hope that the conclusion of the deal will pave the way for a new round of contract awards before the end of the year. 'We have no illusions that things are going to work faster now,' says the representative of one European oil major active in Iran. 'There are no positive indications about timing.'

The next award in the South Pars programme will be for phases 11-12, which includes developing a portion of the field for liquefied natural gas (LNG). It is understood that companies submitted revised proposals for the scheme at the end of August. Companies following the project include France's TotalFinaElf, Eni, the UK's BPand Norway's Statoil. Other projects yet to be finalised are for the Cheshmeh Khosh and giant Azadegan and Bangestan onshore oil fields.

However, questions remain about Oil Minister Bijan Namdar Zanganeh's ability to move ahead with new contract awards in view of intense domestic factional fighting and corruption allegations against Zanganeh and members of the NIOC management team in recent months. Industry sources say pressure on Zanganeh has also increased from the reformist parliament, which has criticised him for concluding deals with contractual terms unfavourable for Iran.

Zanganeh himself in August said that many of his managers were afraid to sign new deals, fuelling suspicions that political pressure plays some role in delaying contract awards (MEED 6:9:02).

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