National Iranian South Oil Company (NIOSC), which accounts for 80% of Iran’s oil production, is the beating heart of this giant industry in Iran.

Ahmad Mohammadi, CEO of NISOC, tells "Iran Petroleum" that despite US sanctions targeting the country’s oil sector, oil production is going on as planned.

The following is the full text of the interview Mohammadi gave to "Iran Petroleum":

Now that 111 years has passed since oil was discovered in Iran, given US sanctions where does the country’s petroleum industry stand?

Iran’s petroleum industry has seen ups and downs over the past 111 years. Under sensitive periods of time, the life conditions of Iranians as well as people in regional countries have been affected by petroleum industry developments, mainly resulting from nationalization of the petroleum industry in Iran. In the run-up to the 1979 Islamic Revolution and during the 1980-1988 imposed war, the industry was instrumental in Iran’s economy. After the end of the war, this industry was faced with US sanctions in various periods. However, the sanctions failed to call a halt to Iran’s oil production and exports.

Now that Iran’s petroleum industry has turned 111, I can say that activities and decision-makings in the petroleum industry are all handled by Iranian manpower. Even if we cooperate with foreign companies, the steering of projects, plans and programs are fully handled by Iranians.

The petroleum industry is an international industry. It is technically sophisticated. Iran’s petroleum industry is making headway, while it has been at the receiving end of US embargo since the Islamic Revolution. The US has tried its best in recent years to hinder the transfer of technology to Iran for this sector. This industry is not entirely national; it is international and we need to import technology from international markets. We have received technology as much as we have been able to do. We have also manufactured commodities, equipment and other necessary materials in partnership with Iranian industrialists and manufacturers.

What’s the difference between this and the previous round of sanctions?

This time, the sanctions are tougher and tighter than before. In the new round of sanctions, the US has been exhausting its efforts to zero Iran’s oil exports, but as you can see it has failed and, God willing, will  also fail to do so in the future. Despite the all-out economic war initiated against Iran, up to now oil production has continued at NIOSC-run areas. During the previous round of sanctions, we made planning and built capacity. Having done so, when the sanctions were lifted we managed to maximize our production. Today, we are learning from that period and keep in mind that we should be always ready to return to maximum production. Therefore, we are building capacity and conducting necessary overhaul to be able to reach maximum production in a short period of time if need be.

Is NISOC production likely to decline as Iran’s oil exports rate fall?

Production plans in every country comply with the prevailing circumstances. But based on our plans and also refinery feedstock and export levels, we will not see any problems in our production. At NISOC-run areas we are producing as planned. Future production levels depend on Petroleum Ministry policymaking. We can maximize our production in a reasonable period of time.

For capacity building, are you cooperating with foreign companies or are your activities limited to domestic firms?

As you know NISOC’s equipment is old and decrepit, while many fields are currently in their second half lifecycle. Therefore, renovation of equipment and implementation of projects to increase output and preventing output loss at fields is naturally necessary. Over recent years, we have envisaged many field-oriented projects whose development will follow the new model of oil contract. We also plan to develop 28 reservoirs, for which we need new drilling. In these projects, we have no restrictions with regard to cooperation with domestic and foreign companies. But in the implementation of the 28 development projects, we prioritize domestic companies that could benefit from foreign consultants’ cooperation.

Do you think that investment in this industry will attract Iran’s private sector despite many fluctuations in Iran’s economy under the current circumstances?

We welcome any domestic and foreign investment in NISOC projects. I promise that potential investors will get higher gains from investment in petroleum industry than in every other sector. The margins are high in this industry. We also support domestic industrialists and investors by striking long-term and sustainable contracts because their investment will boost domestic manufacturing, stimulate the economy, create jobs and enhance production.

Do you have any estimation of investment attraction?

We have three priorities for attracting investment in NISOC projects. The first one is management of reservoirs in 28 reservoirs in upstream contracts. The second one pertains to gathering associated gas and preventing flare gas burning and the third one is renovation and retrofitting of surface pipes and equipment. Given the decrepitude of our equipment we would need multi-billion-dollar investment in surface equipment and we may need much more for developing the fields. We don’t mean that we should attract so much investment all at once, rather, we plan to attract investment for developing NISOC-run fields over a reasonable period of time like a two-year, five-year and maybe ten-year period. We believe that the investors and manufacturers interested in cooperating with us can remain with us for years. That is a win-win deal.

You mentioned domestic investors are prioritized in the development of 28 reservoirs. Can any company step in to develop these reservoirs?

One of our most important objectives in implementing these packages is to stimulate domestic manufacturers in addition to reaching production objectives. Therefore, in order for them to step into this sector we decided to consider projects worth at most $300 million with the share of equity given to each contract at 20%. Remuneration will be done in proportion with the pace of work. However, if foreign companies are to get involved in this sector they would be required to finance the project fully. We are currently in talks with several foreign companies and we have made good progress in this sector.

Will the projects be implemented through tender bids?

Sure! But if Iranian companies can account for the full financing of the project we can get permit for tender waiver. That would be an advantage for Iranian companies in order to carry the project through as soon as possible. Otherwise, tender bids will be held before implementing projects. The time envisioned for implementing the projects would be between two years and two years and a half.

How will the projects be financed?

We have several methods for this purpose. One option would be to issue fixed-rate bonds. In phase 1 of our plan, we have issued the bonds and provided sufficient credit. The necessary financing has also been provided for the implementation of these projects in the first year. There are also other methods for financing. We can also attract undecided capital. We invite investors to invest in the petroleum industry because return will be certain and we believe that the petroleum industry is one of the most attractive markets for investors.

How many packages have been finalized?

So far, the six packages of Mansouri Asmari, Ramshir, Gachsaran Khami, Nargesi, Lali Asmari and Kaboud have been finalized and successful bidders have started their work. Tender bids have been also launched for eight packages and we are finalizing the tender bids to announce successful bidders. The fate of 12 more packages is to be decided before the end of the first half of the current calendar year. We hope to start work for all the 28 packages before the end of the current calendar year.

How much will be added to Iran’s total output by implementing these projects?

With the implementation of the 28 reservoir development projects (after about two years and a half), we expect to see production increase 600,000 b/d in NISOC-run areas. Of course, it is noteworthy that we are facing a 10% natural decline a year in output from NISOC-run areas. If for example we are producing 3 mb/d of oil, we will have a 300,000 b/d natural decline in our production annually. To compensate for that loss, well workover, well drilling and desalting projects are needed. Therefore, by implementing the 28 development projects we will make up for the 10% natural decline and furthermore record a 300,000 b/d increase in output.

Is any specific technology needed for reaching such output?

Under the current circumstances, we can increase the output by 600,000 b/d throughout the development of 28 reservoirs in NISOC-run areas. But if we intend to increase output by applying EOR and IOR methods we will need larger investment and more updated technology. We will need foreign consultant and investment in this sector. In field-oriented contracts where increasing the rate or recovery counts this job would be time-consuming and require more costs and specific technologies.

What stage are contract talks in for the development of NISOC-run areas within the framework developed by the company?

After the implementation of the JCPOA (Iran’s nuclear deal with world powers), 18 memorandums were signed for the development of NISOC-selected fields (8 domestic and foreign companies) and we are following up on talks seriously, but some companies pulled out due to the US’s unilateral withdrawal from the JCPOA and the ensuing problems. We are currently in talks with three companies and I hope we would be able to sign at least two contracts in the first half of the calendar year. In any case, the pace of talks may have slowed down, but the talks have continued.

The tightening of sanctions has made any transfer of technology into the country more and more difficult. Will it have any impact on the standards of implementing projects in NISOC-run areas?

The sanctions will not force us to back down from our standards because the petroleum industry is sensitive and any first mistake will be also the last one. Of course we have some considerations with regard to financing and costs, but with regard to compliance with oil standards we should by no means ignore these principles. The standards must be honored.

Courtesy of Iran Petroleum