Talks were under way with foreign companies for the second-phase development of this field, but due to sanctions, foreign companies pulled out of Iran. National Iranian Oil Company (NIOC) then decided to award the development project to Iranian E&P firms. Finally, memorandums of understanding were signed with five local firms to study the giant field. 

Minister of Petroleum Bijan Zangeneh has expressed hope that studies on the Azadegan field would end within six months. Reza Dehqan, deputy CEO of NIOC for petroleum and engineering, has also said that contractual talks with E&P firms would begin as soon as their technical and financial proposals win the NIOC approval. 

On May 31, three MOUs were signed between NIOC and five local E&P firm to study the giant Azadegan oil field.

Minister of Petroleum Bijan Zangeneh said at the ceremony that although Iran’s petroleum industry was under US sanctions, everyone is waiting for Iran’s return to the oil market. He said some governments had even claimed that Iran could not produce oil and that there was no market for Iran’s oil.

“Never say there is no market for oil. It is always possible to find a market for it. Iraq, whose production never ever exceeded 3 mb/d, has brought its output to 5mb/d now and has market for it. How is it that Iran cannot find a market for its extra production?”   

“We need to show firm determination, in which case, we will achieve success,” said the minister.

Output Lift a Must

Some experts still maintain that enhanced oil production Iran would mean more dependence on petrodollars. Zangeneh said bringing the country’s oil production to 6.5mb/d would not mean dependence on oil; rather, he said, “it would mean weaning the country off oil because if the oil revenue is invested in the private sector…we would be distancing ourselves from an oil-dependent budget.”

He noted that he would no longer take any government posts after the current administration of President Hassan Rouhani bows out in August.

“I recommend that the next administration bring oil production to 6.5 mb/d. I assure you that sooner or later some conventions would take shape to restrict oil production by nations to not allow countries and governments to produce oil. Therefore, we need to enhance our oil production capacity as long as we have time because international restrictions would cause problem for us. We have to boost our production quickly and this objective is practical,” he said.

Zangeneh said that the main issue in oil production was “management and technology” and not supply of equipment.

“Equipment may be supplied. Now 90% of equipment needed in the petroleum industry is domestically manufactured, which could not be compared with the situation in 20 years ago,” he added.

Foreign Firms Welcome

Zangeneh said that despite financial and technological sanctions, major work had been done in the petroleum industry at the national level.

“The capacity of oil recovery from West Karoun oil fields has increased from 70,000 b/d to 400,000 b/d,” he said.

Zangeneh said Azar oil field could add 60,000 b/d to the West Karoun output. “Activity in joint fields has been among the most significant activities of the Petroleum Ministry. That was done while Iran could not even import pipes and sheets due to sanctions.

“The 6th Five-year Development Plan was not deigned for sanctions. Without sanctions we would have done much more. However, following imposition of sanctions on Iran we did not give up, rather than that we  hit honorable records for the Islamic Republic,” he said.

Noting that what was under way in the Azadegan oil field was just a first step, Zangeneh said: “Out of more than 21 billion barrels of oil in place in this field, we are recovering 5.5%. If we can add 1% to this recovery rate, we will have a further 200 million barrels of oil, which would be valued at $10 billion with $50 barrel.”

The minister expressed hope that the studies would be fulfilled on schedule, noting that foreign companies may join Iranian firms.

Zangeneh also said that the MOU was just a technical and financial proposal for signing a development agreement. He added that Azadegan’s development would need $4.5 billion in finance, which should be preferably supplied domestically.

Local Firms Active

Zangeneh said he wished general contractor companies would take shape in Iran. “Currently, we have several active companies in this field. Formation of E&P companies was another wish of mine and my third wish was to see the effective and active presence of Iranian companies in the foreign trading of crude oil and petroleum products,” he said.

Zangeneh added: “These companies took shape against the backdrop of sanctions pressures and we effectively managed to set up commercial companies in the crude oil and petroleum products sector. God willing, these companies would continue their activity even after removal of sanctions, and this potential that has been created would spare any harm.”

Output Maintenance a Must

On the same day, operations started for the construction of the Tabnak separation center and the Homa and Varavi gas compressor stations for the purpose of enhancing and stabilizing gas production level.

The bulk of Petroleum Ministry plans under the Rouhani administration has been to increase recovery from joint oil and gas fields and maximize output. However, maintaining production to avoid a fall-off in coming years is an issue that has not slipped into oblivion. The petroleum minister has said there was no option but to increase gas recovery. He specifically referred to enhanced recovery from the giant offshore South Pars gas field, adding that $25-30 billion in investment was needed for that purpose.

Touching on activities carried out at the Petroleum Ministry for enhanced gas recovery, he said: “The start of construction operations for gas compressor and separation center at South Zagros would guarantee feedstock supply to the Parsian refinery. That would generate 3.3 million tonnes of ethane, butane, propane and gas condensate as feedstock in the downstream sector. Without this investment we would face problems in feedstock supply as planned.”

“Although the petroleum industry did a lot in terms of investment during years of sanctions, the petroleum industry needs much more investment. This amount of investment does not match the country’s human resources capacity,” he said.

Zangeneh touched on the projects under way in Parsian and Kangan for enhancing gas production, saying these projects had been urgently considered.

“But it does not mean that we had not thought about them. We had defined them earlier and determined the field, but we had postponed it to later on. Delay in the implementation of efficiency plans and lack of price reform strategy alongside increased gas consumption accelerated the implementation of these projects for gas distribution,” he said.

Zangeneh said that all these projects were ready, adding that the next administration would make the final decision about them.

MOU Details

MOUs for studying the Azadegan field were signed in the three southern, central and northern sections. The one for the northern section of Azadegan was signed between NIOC and Persia Oil and Gas Development Company, the one for the central section of Azadegan between NIOC and Petropars and Petroiran Development Company, and the one for the southern section between NIOC and Pasargad Energy Development Company and Dana Energy.

Azadegan is the largest oil field Iran shares with neighboring countries. Covering 1,500 square kilometers, the field is known as Majnoun in Iraq. Estimated to hold 32 billion barrels of oil in place, Azadegan has so far been developed in the northern and southern sections.

The North Azadegan field has been developed by China’s CNPCI. It started producing 75,000 b/d of oil in November 2016. The South Azadegan field was awarded to local firms after the Chinese contractor in charge of the project was expelled in 2014. An agreement has been signed with Petropars for completing the Phase 1 development of South Azadegan and establishing a central treatment export plant (CTEP)

Talks Dependent on Financial Offers

Reza Dehqan, deputy CEO of NIOC for development and engineering, said that in case the technical and financial proposals of E&P companies with which NIOC has struck MOUs are approved, contractual negotiations would start with them for the development of Azadegan.

“Over recent years, development of this field has started in the northern and southern sections. CNPC’s development of North Azadegan brought production from this field to 75,000 b/d in 2016. This output capacity has so far been preserved,” he said.

“In the southern section, Petroleum Engineering and Development Company (PEDEC) – on behalf of NIOC – moved to consider development of this field by signing numerous agreements with contractors, drilling companies and installations. Last [calendar] year, completion of development in the South Azadegan field was awarded to Petropars,” he said.

Dehqan said: “The production capacity of South Azadegan and North Azadegan field currently stands at 140,000 b/d and 75,000 b/d respectively. Total output capacity at Azadegan stands then at 215,000 b/d.”

“Following the JCPOA (the 2015 Iran nuclear deal), we intended to use the development studies of several famous international oil companies on the Azadegan field to accelerate the field development, but the US’s withdrawal from the JCPOA totally changed conditions,” he added.

Dehqan touched on the idea of Iranian E&P companies’ involvement and using the technical, engineering, management and even capital potential of these companies to overcome the current crisis, saying: “Based on studies conducted on Azadegan, the southern section is twice the northern section in terms of deposits. Therefore, it is likely that the southern section be divided into the central and southern sections, and Iranian E&P companies could focus their development studies on these three sections.”

“The signing of this MOU makes clear whether or not such division would be practical, in which case, it would be judged in terms of technical and economic justification,” he said.

Dehqan said NIOC was assisting Iranian E&P companies in the studies on Azadegan. To that end, he added, a joint technical committee has been established for the three sections of the field to study manner of preserving the integrity of the field in terms of reservoir, investment and management.

Recovery Rate Up

Construction of Tabnak separation center and Homa and Varavi gas compressor stations also begun aimed at feeding the Parsian refinery. That would guarantee a 60 mcm/d supply of gas from Tabnak, Homa and Varavi gas fields. All these projects, valued at € 281 million, would be operated by Persia Oil and Gas Company over 36 months.

Homa gas compressor station is constructed with a 1+3 array of compressors with electric drive with a view to enhancing gas recovery from this field from 45.4% to 82.8% reaching a stable output of 15 mcm/d. Auxiliary facilities include a 61-km pipeline to carry liquids from Homa to Kheirgoo separation center.

Varavi gas compressor station is constructed with a 1+2 array of compressors with electric drive with a view to increasing gas recovery from this field from 29.7% to 49.2% for a stable output of 9 mcm/d. Auxiliary facilities include a 6-km pipeline to carry liquids.

Tabnak separation center is being constructed to increase the input feedstock of the Parsian refinery. For that purpose, a 21-km pipeline along with a pump and belongings would be constructed.

The Parsian zone is administered by the South Zagros Oil and Gas Production Company, a subsidiary of Iran Central Oil Fields Company (ICOFC). It is located in southern Fars Province. It is home to Tabnak, Homa, Shanol and Varavi gas fields that feed the Parsian gas refinery.

Feedstock Supply Guarantee

Ramin Hatami, CEO of ICOFC, said the aforementioned projects would guarantee feedstock supply to the Parsian gas refinery.

“The Parsian refinery was launched in two phases in 2003 and 2006 with a total processing rate of 79 mcm/d supplied by Tabnak, Homa, Varavi and Shanol gas fields. Last [calendar] year, the value chain of this section was completed by launching the ethane recovery section of Parsian and Sepehr, thereby maximizing the value of products,” he said.

Hatami said: “In light of the fall in production from these fields and the significance of sustainable feedstock supply, some requirements were planned and pursued by the Ministry of Petroleum. What we saw was the first link in the chain of planned actions.”

“With the implementation of this project we would see the rate of recovery increase from the Homa and Varavi fields respectively 34% and 16%. At the Tabnak field we should see a 3% enhanced recovery in addition to improved quality of refinery feedstock,” he said.

Hatami said the main mission assigned to Petroleum Ministry regarding enhanced recovery was to make maximum use of God-given underground resources to feed refineries. “By implementing this project, billions of cubic meters of gas would be added to our production. We will also produce about 22 million barrels of liquid products.”

He said that the investment made in this project would be recouped by the feedstock supply to the Parsian and Sepehr refineries, not to mention the advantage of using the engineering skills of Iranian companies.

“Establishment of the Shanol pressure compressor station and development of adjacent gas fields including Eram and Paznan with a total rate of 30 mcm/d is on the ICOFC agenda,” he said.

 By Negar Sadeqi-

Courtesy of Iran Petroleum