Frances Total and China National Petroleum Corporation (CNPC) have signed a heads of agreement (HoA) with National Iranian Oil Company (NIOC) to develop phase 11 of the South Pars offshore gas field, a project both companies had previously exited.
The phase 11 scheme on the worlds largest gas field will have the capacity to produce 1.8 billion cubic feet a day (cf/d) to be fed into Irans gas network.
Under the terms of the HoA, NIOC and the two international companies will conduct exclusive negotiations to finalise a 20-year contract under the terms of the recently approved Iran Petroleum Contract (IPC) model.
The HoA represents the first detailed agreement between NIOC and a major international oil company since nuclear-related sanctions against Iran were lifted in January this year.
Total will take a 50.1 per cent interest in the project, with CNPC holding 30 per cent. The remaining 19.9 per cent will be held by Irans PetroPars, which has been working on phase 11 for several years and is also carrying out other phases of the South Pars megaproject.
Following Totals successful development of phases 2 and 3 of South Pars in the 2000s, the group is back to Iran to develop and produce another phase of this giant gas field. Total is delighted to have been selected by NIOC it is a recognition of both our technical expertise and the partnership, said Totals chairman and CEO Patrick Pouyanne.
Total will also launch engineering studies call for a tender process so that construction contracts can be awarded immediately upon signature of the final agreement, the company said.
South Pars phase 11 will be developed in two phases. The first, with an estimated total cost of about $2bn, will consist of 30 wells and two well-head platforms connected to existing onshore treatment facilities by two subsea pipelines. At a later stage, a second investment phase involving the construction of offshore compression facilities, will be launched once required by the reservoir conditions, Total said.
The South Pars field development is the most important energy project in Iran, both in terms of size and the strategic value to the country. The offshore field accounts for 40 per cent of Irans gas reserves and more than 40 per cent of the countrys total gas production.
The field was discovered in 1990 and is located about 100 kilometres off the Iranian coast. The asset, which spans Iranian and Qatari borders, is in 65 metres of water and located 3,000 metres below the seabed.
The total field covers an area of 9,700 square kilometres, with 3,700 sq km located in Iran, and Qatar having 6,000 sq km in its territorial waters.
Irans South Pars asset contains estimated gas reserves of 500 trillion cubic feet, recoverable gas reserves of 360 trillion cubic feet, and condensate reserves of 3-4 billion barrels.
Pars Oil & Gas Company (POGC), a subsidiary of NIOC, was set up to manage the development of the field and has embarked on a 24-phase development plan to bring it on stream. The total cost is expected to exceed $100bn, making it the largest ongoing oil and gas project in the Middle East.
Phase 11 was initially awarded to a consortium named Pars LNG, a joint venture of NIOC (50 per cent), Total (30 per cent) and Malaysias Petronas (20 per cent). The consortium signed a framework agreement with POGC in March 2004, and the phase was expected to be completed by 2008. However, negotiations between NIOC and Total dragged on into 2006 and 2007. The French firm pulled out of the project in 2008, with its then-CEO Christophe de Margerie claiming the political environment was too risky to invest in Iran.
In February 2010, Total and Petronas were replaced by CNPC, but this was soon followed in mid-2011 by statements from NIOC saying CNPC could lose its contract if it did not speed up work on the scheme.
In September 2013, it emerged that NIOC had signed a deal reportedly worth $5bn with PetroPars to complete phase 11, replacing CNPC, which was eventually removed from the project in 2012. PetroPars was already working on phases 12 and 19 of the development, and is revamping phase 1.