NIOC Boss Discusses Future Oil and Gas Deals

TEHRAN, (Shana) -- CEO of National Iranian Oil Company (NIOC) Ali Kardor has shared developments on negotiations with international companies about future contracts with The Oil and Gas Year (TOGY) magazine.


Q: How has NIOC progressed on negotiations of Iran Petroleum Contracts (IPC) s with E&P companies, and what place does the introduction of EOR strategies hold in these talks?

A: NIOC started by concluding MoUs with several companies with the aim of sharing information on existing opportunities in Iran’s hydrocarbons sector. Information was provided to these companies through co-operation agreements. The companies have been delivering their development proposals based on the technical studies they carry out.

NIOC communicated the significance of EOR techniques to the companies wishing to develop fields for which such techniques are deemed strategic. Most of the technical proposals that have been filed include this EOR dimension. Some did not and have actually been rejected. These techniques are a great opportunity for Iran to enhance production.

After confirmation of their technical proposal for the field development plan, selected companies will enter the next step, which is the negotiation and finalization of the text of the Iran Petroleum Contract. The third and last stage will be the commercial side, which will see the signing of the contracts, through tenders or direct negotiations. Four to five agreements which are finalized will be signed by the beginning of 2018.

Q: Does the agreement signed with Total serve as a point of reference for NIOC and IOCs?

A: The framework agreement with Total has allowed better international understanding of Iran’s approach to communications, as well as the strategies that the country has to propose and provide for everyone. They have also held workshops and invited international companies to attend them. This made development strategies and commissioning processes very clear for everyone, especially the aims of the IPC.

The general terms, structure and model of Iran’s upstream contracts for oil and gas have also been approved by the council of ministers, which clarifies our expectation in terms of domestic manufacturing, support for E&P and EPC companies inside the country, and methods of transferring technology to our research institutes and universities.

Q: What are the benefits of EPCF contracts for upstream development?

A: IPC contracts are long-term contracts and these projects might be running for up to 20 years for development and production operations. Such projects have to be carried out through conventional means, such as infield drilling, pilot studies, as well as EOR techniques such as injection of water or gas.

Apart from the fields selected for IPC contracts, there are short-term projects that take a maximum of 2-3 years to be carried out and they are made available for development under EPCF contracts.

Tenders for these projects are going to be held in the near future for domestic EPC contractors who are going to carry out such projects through JVs with partners that might be foreign companies. However, only Iranian companies can lead these JVs, as no specific technology is required. In this framework, the reservoir study and engineering is provided by NIOC, while contractors are responsible for carrying out the revamping and for operation procedures such as drilling, piping, production units and desalter revamping.

The project packages are also ready and their value would be a maximum of USD 200 million-300 million per project. For all of these projects, NIOC is obtaining the required legal authorizations that are granted by Iran’s economy council. The repayment will be made through revenue of the field, so there will be no risk for the contractors.

Further, contractors are not exposed to any risks regarding the repayments as they are fully guaranteed by NIOC. We planned to finance these projects mainly through the financial resources provided by banks and National Development Fund and the remainder will be provided by the contractors, which would be recovered in two or three years.

Each project is divided into several construction milestones and whenever any milestone is accomplished, parts of its cost will be paid to the contractor immediately, and the remaining part will be paid to contractors after two or three years. As I mentioned, the packages are ready and after obtaining the legal approvals, the tenders will be officially announced in the near future.

Q: Iran shares 22 fields with seven neighboring countries. Of these, 17 are oilfields. Which are the government’s priorities?

A: Shared fields are the first priority overall. These projects will be a good experience, especially for foreign companies to learn about Iran’s production potential and investment opportunities.

The most significant fields are Azadegan, Yaran, Yadavaran, Azar, Changouleh, Sohrab, West Paydar and Band-e-Karkeh. The biggest among these are Azadegan, Yadavaran, Azar, and Changouleh. These are joint fields with Iraq, and some are being tapped by Iraq. The main fields are located west of the Karun River and are to be developed under IPC contracts.

After that, there would be the Ab Teymour and Mansouri oilfields, east of the Karun. Later, we will pursue development at the larger fields, but for now the first priority is shared fields.

Q: How are negotiations on the Azadegan oilfield progressing?

A: Several well-known European and Asian companies are interested in the field and have submitted their technical proposals. Some of these have been rejected by NIOC, in which case problems have been highlighted and they are being revised.

NIOC is very hopeful that the commercial stage of this project will begin as soon as possible and tenders will be held. The financial packages are also going to be ready and will be part of the technical features of the contract.

Models were developed in order to find a good balance between the financial and technical packages. The best model will be the winner. International consultants have reviewed these models and analyzed their sustainability and technical features.

Q: What are the key financial aspects in the negotiation of this contract?

A: We will negotiate based on everything we know regarding technical aspects and investment. The formula is very clear. We only need figures for the fee, the bank charges and some other items. Those are two or three figures and are very easy for the IOCs to figure out, because they negotiated and know which technical proposal we accepted, and the investment estimate. They can calculate the ROI very easily from the technical side with our formula and they can submit figures for the fee, knowing that we can evaluate it with our formula regarding the technical aspects.

On the technical side, we are looking at the plateau, production target and cumulative production over a 20-year project lifespan. The picture for these factors is very clear ahead of the tenders. We hope to finalize these targets after January 2018.

Q: What is the Azadegan field’s production capacity?

A: Currently, the recovery factor at the field is 6%, but we plan to bring this to 20%. The field is capable of reaching a production of 200,000 b/d now, and with EOR technology this figure can increase to 600,000 b/d. With existing technology, we could achieve a 10-12% oil recovery rate. In the future, with better technology, we can reach a higher rate.

Q: In which fields is the application of EOR technologies a priority for NIOC?

A: After Azadegan and Yadavaran, the priority fields are Mansouri, Ahvaz, Marun and Koupal. There are ongoing EOR operations at Aghajari and Marun, where we are injecting gas. Currently we use gas injection because we have enough gas, but we need to develop water injection. We are studying options to transfer water from the Persian Gulf to onshore Iran.

Some fields offer very good water injection options. For example, for Ahvaz, we are currently using traditional production methods, but for its Bangestan layer we can use water injection. Currently, we are transferring gas, for example, from South Pars to Aghajari for injection.

Q: How is NIOC working to diversify its activities across the oil and gas value chain?

A: We would like to diversify our activities to be present not only upstream but also midstream and downstream with LNG and NGL projects, refineries, petrochemicals, tank farms for the Jask oil terminal.

As part of the Jask project, we have issued a tender for a 10-million-barrel tank farm as a BOO contract for direct investment. We will guarantee the rent per barrel after the investor builds the tanks. This project also involves facilities for an offshore SPM.

On the LNG side, we signed an agreement for a 500,000-tonne-per-year FLNG project. This is not a high volume, but it is our first LNG project and we are entering the club. We are introducing tenders for other small-scale LNG projects – 1 million or 1.5 million tonnes per year, for example.

For the 10-million-tonne Iran LNG project, we are negotiating with European and Asian companies. Some of these are willing to invest directly in the project, others to get involved as EPCF contractors, and others to sign offtake agreements. These agreements are very important for us to enter the LNG market because LNG supply currently exceeds demand so it’s a buyer’s market. Finding a company to inject direct investment is our priority for the project.

The development of upstream projects through the IPCs also means that natural gas and NGL production is set to increase, and these volumes can be allocated to downstream and petrochemical projects.

The Kish, Farzad, North Pars, Golshan and Ferdowsi fields hold huge gas resources that we do not need to use at the moment. However, we can couple these fields to LNG and NGL projects so they can receive investments. There would then be two separate contracts, one IPC for upstream development and another to channel direct investment into a downstream development.

For the manufacturing of any high-tech equipment that we need, we can support the creation of a JV to produce these goods in Iran. Many foreign companies would like to produce here but do not know how to enter the market. We can help with this. They could cater not only to the domestic market but also the broader region.

Goods production costs are low here, as is the cost of producing oil and gas. At the moment, we produce around 8 million boe/d of oil and gas and our oil production cost is 60% of Aramco’s.

Q: How are you planning to develop NIOC’s financial capabilities?

A: We need to develop new solutions on the financial side and we welcome any particular investors or financial institutions that want to invest in Iran’s oil and gas projects. We plan to issue bonds which are indexed to foreign currencies such as EUR or USD. We will issue bonds on a foreign currency basis, but they can also be purchased in IRR on the date of issuance. At the maturity date, investors can choose to receive either in EUR (USD) or its equivalent in IRR.

Also, if an institution wants to establish an investment bank in Iran, we can help them do that. We are ready to engage in new models of co-operation with financial institutions, in addition to our current direct co-operation with IOCs, EPC contractors, manufacturers, etc. For the insurance, if a company wants to have partnership with an Iranian insurance company, we are ready to support them.



Courtesy of Iran Petroleum

News Code 281817

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