Local firms take Iranian field reins
Iran has succeeded in expanding its oil and gas production capacity without the help of foreign partners. But at what future cost?
Iran has made significant progress in overcoming restrictive sanctions preventing the involvement of foreign partners to further develop its oil and gas fields. And that has allowed the Islamic Republic to ramp up its secretive exports and win back market share.
Following the withdrawal of international partners from integrated petroleum contracts (IPCs) signed in 2017, efforts to expand the country’s production capabilities stalled. However, the Ministry of Petroleum and state-owned NIOC appear to be beating the odds, pushing forward with local companies while maintaining previous production targets.
The major push has coincided with the final year of Hassan Rouhani’s second presidential term, which concludes in March 2021 at the end of the current Iranian calendar year. While Rouhani is not eligible to run again, the success of the initiative could benefit the country’s current vice-president, Eshaq Jahangiri, who is seen as a likely contender in next year’s vote.
For much of the year, the core focus areas of this local player push have been the West Karoun oilfield cluster—which comprises the Azadegan, Yadavaran and Yaran fields—and the supergiant offshore South Pars gas field, the 11th phase of which was awarded to a consortium led by Total under an IPC. In August, oil minister Bijan Zanganeh said that oil production from West Karoun had increased to 400,000bl/d, up from 70,000bl/d in 2013.
“Whatever [Iran] export[s] is not under Iran’s name”
Zanganeh, Iranian oil minister
In recent months, though, the initiative has expanded as Iran seeks to maintain production from a wider spread of assets. During August alone, NIOC subsidiaries awarded 13 contracts to local firms worth a total of almost $1.8bn, providing for an increase in output of 185,000bl/d from the provinces of Khuzestan, Fars, Kohgiluyeh and Boyer-Ahmad, Bushehr and Hormozgan. NIOC managing director Masoud Karbasian says the contract awards formed the second part of a broader move to increase output capacity from 33 fields to more than 280,000bl/d.
Of these deals, 11 were awarded by National Iranian South Oil Co for work on onshore resources including the supergiant Ahvaz and Marun oilfields, home to 63bn bl and 44bn bl of original in-place crude resources, Ramin (5.7bn bl), Mansourabad (3.7bn bl), Balaroud (1.1bn bl) and Siahmakan (30-40mn bl), as well as smaller and more recent discoveries.
The remaining two were handed out by NIOC subsidiary Iranian Offshore Oil Co for the offshore Forouzan (850-900mn bl) and Resalat assets. The onshore fields are characterised by low recovery rates—an issue with which Tehran must grapple more widely—with some of its largest fields achieving rates of just 5-6pc.
Recovery rate is not an issue at South Pars, where production continues to progress towards Iran’s target of 1bn m³/d. Of the country’s total proven gas reserves of 34tn m³, South Pars accounts for c.14tn m³, as well as 18bn bl of gas condensates. The 3,700km² field forms the northern segment of an overall 9,700km² gas deposit, the world’s largest, which is shared with Qatar, where it is known as the North Dome.
Current output from the 24-phase field was pegged by Zanganeh in August at 700mn m³/d, up from just 280mn m³/d in 2013. To achieve the increase, says the minister, 26 offshore platforms have been commissioned at the field, 228 wells have been drilled, 2,160km of pipelines have been laid and 30 gas refining trains have been commissioned.
Another 40mn m³/d of gas has been brought online in recent weeks following the completion of three wells at phases 22-24 by NIOC subsidiary Pars Oil & Gas Co, as the company ramps up to a 56mn m³/d plateau. Meanwhile, fellow NIOC affiliate Petropars is progressing alone at South Pars 11, where drilling of the first well is expected to begin imminently and first gas to reach onshore facilities at Asalouyeh within 12 months.
Despite the progress, Rouhani’s administration and Zanganeh’s leadership of the petroleum ministry have come under intense scrutiny from conservatives in recent months. In August, Saeed Mohammad, commander of Khatam-al Anbiya Construction, the engineering arm of the hard-line Islamic Revolutionary Guard Corps (IRGC) said the company was owed nearly $12bn from the government for oilfield development work already carried out.
Mohammad demanded the firm be compensated immediately in crude and government assets. Meanwhile, 114 members of the Majlis parliament have made a call for an investigation into Zanganeh’s ministerial performance.
There is a delicate balance to be struck for the current administration. While the Rouhani government must be heard to be making the right noises by the P5+1 countries of China, France, Russia, the UK and the US plus Germany to not void what remains of the Joint Comprehensive Plan of Action, it must also appear confrontational enough towards the West to appease hardliners at home.
Comments coming out of the petroleum ministry in recent months suggest it has an eye on November’s US presidential election in the hope that a victory for Joe Biden will bring about a softening of stance towards Tehran. But the recent progress towards higher production may further complicate any international reintegration, either of Iran’s barrels or its upstream sector.
While numerous independent companies have taken part in the upstream expansion, the latest contract awards have still served to consolidate the role of companies on the US’ Specially Designated National sanctions list. The IRGC’s reach is so wide that most contracts have gone to Khatam-al Anbiya and other firms under the group’s influence.
400,000bl/d – Oil production from West Karoun
Of these, the most high-profile are Persia Oil & Gas Industry Development Co. (POGIDC), which was awarded the contract for the Ramin oilfield, and Sina Energy, which won a contract to build pipelines for phases 1 and 4 of Marun. POGIDC is a subsidiary of Tadbir Energy Development Co., while Sina Energy is owned by the Bonyad-e Mostazafan Foundation, a religious endowment for war veterans and the poor.
Both fall under the Execution of Imam Khomeini’s Order (Eiko), a body under the direct control of Supreme Leader Ali Khamenei. Meanwhile, Khatam-al Anbiya’s project partners include Mapna Group and Oil Industries Engineering and Construction, together with which the company has played an important role in many of the phases of South Pars.
Eyes on exports
As production volumes grow and severe restrictions on purchasing them remain in place, Tehran has been working on ways to export its crude. It recently kicked off the first phase of development on the $1.1bn Goreh-Jask crude pipeline to move more than 700,000bl/d from the southwest of the country to export terminals along its southern Gulf coast to diversify routes to market. The pipeline will transport 460,000bl/d of heavy crude and 254,000bl/d of light grade, linking West Karoun with the Bahregan and Jask terminals via a pumping station at Omidieh.
A second phase is in progress, which will increase capacity to more than 1mn bl/d. When work began in April, Rouhani said Jask would “turn into Iran’s key hub of oil exports”. The country currently relies on the Kharg Island terminal for around 90pc of its export capabilities.
The expansion of Iran’s export infrastructure is expected to aid the obfuscation of crude flows out of the country. Tehran has previously shipped oil out of Iraqi ports to disguise its origin, while in mid-September Zanganeh admitted that “whatever [Iran] export[s] is not under Iran’s name”, using a shortfall of $200bn to complete oil sector projects as justification for sanctions busting.
With the minister saying the petroleum ministry supports “any proposal for selling Iranian crude”, Tehran must be expected to continue trying any tricks it can to bring in cash.