Tehran agrees oil and gas with Petrobras

10 October 2008
Contract with Brazil’s Petrobras to develop an oil and gas field in the Caspian Sea will be Iran’s first.

Iran has confirmed it is to sign its first production-sharing deal within weeks, with Brazil’s Petrobras taking a stake in the development of oil and gas resources in the Caspian Sea.

The contract is due to be signed in the next month, and work will start by the end of this year, following approval of the deal being given by Iran’s Petroleum Ministry in September

MEED revealed in August that the state-run National Iranian Oil Company (NIOC) was considering such deals.

Target for Phase 1 of the Azadegan field150,000 b/d
Target for the Yadavaran field85,000 b/d
Target for third phase of development of Darkhovin field250,000 b/d
Estimated crude reserves at North Azadegan field3 billion barrels
Capacity goal for 20145.3 million b/d
b/d=barrels a day. Source: MEED

It marks a radical change for Tehran, which has favoured using buy-back contracts for more than 20 years (MEED 22:8:08).

“It is going ahead and it is permitted by law,” Akbar Torkan, the ministry’s deputy head of planning affairs, confirms to MEED. “It will be carried out by the Brazilian company Petrobras.”

Production-sharing contracts are favoured by oil majors because the companies typically receive a share of the oil production, allowing them to recoup their investment costs quickly and earn bigger profits.

Under previous buy-back deals in Iran, international oil companies would invest money up front and then hand the field over to the state-run NIOC once production started.

The oil major would then recoup its costs at a pre-agreed rate of profit, based on global oil prices and the field hitting production targets.

According to Torkan, the exploration deal with Petrobras is part of a wider push to ramp up oil production from new fields in previously untapped parts of the country.

In addition to the Petrobas deal, he outlines an ambitious plan to tap into 1 million-barrels-a-day (b/d) of new production from oil fields in Khuzestan province, on the border with Iraq, by 2014.

A production target of 150,000 b/d has been set for the first phase of the Azadegan field, which boasts 40 billion barrels of oil reserves.

Russia’s Lukoil and India’s Reliance Industries are still in talks to buy stakes in the field as part of a joint venture with PetroIran Development Company, a subsidiary of NIOC.

The ministry is also targeting 85,000 b/d from the Yadavaran field, which will be developed as part of a proposed joint venture with China’s Sinopec.

A second phase will more than double output to 200,000 b/d.

The Yadavaran field has oil reserves of 18.3 billion barrels, of which about 3.2 billion barrels are recoverable, while its gas reserves amount to 12.5 trillion cubic feet, with 2.7 trillion recoverable (MEED 9:4:08).

The Darkhovin field, which is being developed by Italian oil major Eni with NIOC subsidiary Arvandan Oil & Gas Company, will produce 160,000 b/d after the second stage of development at the field, and 250,000 b/d after a planned third phase.

Eni brought the first phase of the field on line in 2005 and expects production to pass 100,000 b/d shortly.

According to Torkan, the Jofeir field, which lies near the Iraqi border, is also under development, while drilling has yet to start on the remaining field under the ministry’s plan, North Azadegan.

NIOC recently doubled its reserves estimates at Jofeir, while North Azadegan is estimated to hold about 3 billion barrels of crude.

Last year, the Eastern European state of Belarus was granted a long-term exploration deal for Jofeir as part of an expected partnership deal with Vietnam’s Petrovietnam.

The deal came after the country supported Tehran’s nuclear policy (MEED 7:7:08).

“The capacity from all these fields is 1 million b/d [and] the goal for 2014 is 5.3 million b/d of oil for Iran as a whole,” says Torkan.

However, Tehran is unlikely to agree any production-sharing deals on these fields similar to the one with Petrobras in the Caspian Sea, he adds.

“In the Caspian Sea, the situation is completely different,” says Torkan. “The area where the fields are located is deep water and around 700 metres in depth.

“The situation is hard and it is difficult [to explore], so we prefer to benefit from the motivation of production-sharing contracts.”

He adds that the terms of the deal have yet to be determined with Petrobras and will, in part, depend on the final reserves estimate of the field.

In 2001, NIOC subsidiary Khazar Exploration & Production Company (Kepco) and the Caspian International Petroleum Company (Cipco) estimated there were 21 billion barrels of oil equivalent in the south Caspian region (MEED 24:8:08).

But while the study identified nearly 50 oil and gas structures that contain promising exploration prospects, Cipco, which includes Pennzoil of the US, Agip of Italy and Lukoil of Russia, eventually cancelled its potential investment of $3bn because of disappointing drilling tests.

Another consortium, North Apsheron Operating Company (NAOC), also recorded poor results.

According to Torkan, the min-istry has already estimated the probable reserves of the new
Caspian field. The drilling of an appraisal well this year should provide a proved reserves level, which will offer a more accurate figure of the amount of oil that can be recovered.

“Everything is under discussion and nothing has been finalised yet,” says Torkan.

“It partly depends on the reserves of the field. If it is good reserves, we can do a large deal [with Petrobras].

“We have studied the field, but we have not done an appraisal well yet. An appraisal well will define and explain the field better, [and] that will make us sure how many reserves we have with 90 per cent probability.”

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