North Azadegan, Turning Point in Iran-China Relations
After Western governments imposed sanctions against Iran, forcing big oil companies to pull out of Iran's projects, China became a strategic partner for Iran's oil and gas industry. To that effect, development of North Azadegan oil field was awarded to China National Petroleum Corporation (CNPC) and Yadavaran oil field development was awarded to China's Sinopec.
Despite all challenges and obstacles, Chinese companies, in cooperation with National Iranian Oil Company (NIOC) and Iranian petroleum industry specialists, managed to operate these projects.
Mr. Chang, a CNPC manager in the North Azadegan project, has said that the oil field development is a turning point in the relationships between Iran and China and also between CNPC and NIOC.
"Under the aegis of the Iranian Ministry of Petroleum and NIOC and CNPC's efforts, did this project come on-stream in spite of numerous complicated problems," he said.
He said that North Azadegan oil field is no different from other oil fields in the county in terms of technical aspects and reservoir structure.
He said that the most important point with this field was its location in Hoor al-Azim Lagoon.
Furthermore, he said, North Azadegan contains heavy crude oil, whose extraction is more difficult than extracting light crude. CNPC has already the experience of extracting heavy crude oil in Sudan, but the API gravity of Sudanese oil is different, said Chang.
"The third feature of North Azadegan field that makes the job a bit difficult is that the initial map was available based on the data of a well. As you know, to get the primary plan, drilling must be done in several spots in order to glean necessary data for the primary map. In this case the percentage of error and risk also declines, but in North Azadegan field we had to draw up the primary map based on the data of a first spot and that was very hard job," he said.
"Due to investment and operation in Iran, the US exerted heavy pressure on the Chinese government, but we did not retreat and we continued the job in order to prove the capabilities of CNPC. The Chinese government also announced that the contract for the development of this field had been signed before the sanctions; therefore, we had to remain committed to doing this job," added Chang.
He noted that the development of North Azadegan field involved political issues in addition to economic and investment issues.
"In some cases, political issues were even more important than economic issues because there were many problems on the way of development of this field. Such problems as insufficient data, high risk, sanctions, lack of commodity and equipment, transfer of financial resources through banks and unpredictable events that constantly halted operation in this field. Therefore, our objective in this project was not merely economic motivations," said Chang.
"All our activities in this sector were done via Kunlun Bank of China. That is why this bank was blacklisted by the US and due to accepting this project it lost many investment opportunities," he said.
Chang said the North Azadegan development project was based on a buy-back deal.
"In my view there are some problems with this kind of contract. That is why the Iranian Ministry of Petroleum has been revising the contracts and developed IPC," he added.
"Despite all problems, in the light of 10 years of CNPC's record in Iran and their mutual knowledge as well as the lifting of sanctions, CNPC is willing to cooperate with the Iranian Ministry of Petroleum. I have to note that over these 10 years, CNPC has received support from the Ministry of Petroleum, NIOC, Petroleum and Engineering Development Company (PEDEC) and the Iranian people and we managed to bring the North Azadegan project to fruition despite all problems. Based on the experience gained for both parties, it seems that we have learnt how to deal with the problems and resolve them."
West Karoun Fields Are Unique
Shu H., head of CNPC operation department, said that oil fields located in the West Karoun area are unique in the world.
"Some wells drilled in this area produce more than 1,000 b/d of oil, while similar wells in the world produce around 100,000 b/d. Even in Sudan, where this company has long experience in oil fields, there are not oil fields as good as North Azadegan," he said.
Shu noted that the wells in North Azadegan oil field have a lifespan longer than wells in other oil fields in the world. But, he added, the North Azadegan reservoir is homogenous which poses challenges to production.
He also referred to location of North Azadegan in Hoor al-Azim Lagoon, saying: "This issue made it difficult to work in this field. CNPC was finally forced to conduct many plans in order to spud wells in compliance with environmental regulations of Iran and the world. The existence of this lagoon naturally slowed down the development of the field. Therefore, we had to drill directional and horizontal wells in different spots in order to save time and safeguard the environment."
"For safeguarding the environment in Hoor al-Azim Lagoon, we transferred the substances coming out of well to predetermined spots. Furthermore, the water coming out of the wells was recycled to be used again. We had to respect the PEDEC environment obligations. The canals dug beneath access roads to the oil wells were instructed by PEDEC. The client firmly supported CNPC throughout the development project," said Shu.
He said that CNPC's involvement in the Azadegan project coincided with the toughening of unilateral sanctions by the Western governments against Iran. Therefore, he added, procurement of certain commodities like turbines, pumps and turbo-compressors faced delays and caused problems for financial and drilling affairs.
Record Set in Surface Operations
Shu-dong Chen, a CNPC manager, highlighted technical differences between North Azadegan and other oil fields in the world, saying: "The main feature of this field is its crude oil which is heavy. This category of crude oil has a high BSW, and sophisticated procedures are needed in order to convert it to the light crude oil desired by the NIOC. These procedures start from the extraction stage up to surface facilities and entry into the main pipeline."
Since North Azadegan is jointly owned by Iran and Iraq, and the Chinese company was aware of the strategic importance of this field for the Iranians and the necessity of its development, it was very important for CNPC to go ahead on schedule without any delay, said Shu-dong, adding that the company undertook certain measures to accelerate the project.
"Initially, the supply of our necessary items was supposed to be up to Western vendors, but following the imposition of sanctions, they pulled out of the project and we had to order key items like compressors ourselves. We drew up a list of Chinese vendors and ordered them the items after direct negotiations with them. We also tried to respect Iran Petroleum Standards. We also appointed GL representatives in the factories manufacturing commodities and equipment in order to supervise manufacturing," he said.
Under the deal, he added, 51% of commodities and equipment had to be supplied by domestic manufacturers.
"I don't have any estimate in this regard, but we tried our best to use domestically manufactured equipment. In certain cases we even helped Iranian vendors in terms of engineering and technique so that they would offer products of higher quality. Here I have to highlight the capacities of some Iranian contractors that helped us learn better methods. For instance, pipe laying operation methods applied by Iranians were faster than CNPC's methods," he added.
Shu-dong referred to a 40% progress in surface installations of this project over one year, adding: "This issue is a record and in my view three factors were involved; first, our monthly meeting with partners and stakeholders of this project, second, our weekly meetings at the site with senior PEDEC officials and finally pressuring manufacturers to accelerate manufacturing of commodity and equipment."