Return of Giants to Iran
On November 8, the National Iranian Oil Company (NIOC) signed the first international heads of agreement based on new-style oil contracts was with a consortium of France's Total, China's CNPCI and Iranian Petropars for the development of Phase 11 of the giant offshore South Pars gas field. Therefore, efforts made for bringing back oil giants to Iran came to fruition.
The signature of this HOA came just two years after Iran's Ministry of Petroleum developed a new model of oil contracts. Over the past two years, the text of the new type of oil contracts was revised time and again so that the finalized text would secure Iran's interests and be attractive to foreign investors.
The agreement for Phase 11 was signed while there are still fears of penalties by the US. That, along with falling oil prices, had made oil market analysts predict that Iran would face problems in cooperating with foreign companies.
But the signature of the agreement on Nov 8, draw a line on all prejudgments about cooperation between Iran and international oil giants.
Another achievement of development of Phase 11 under the new format of oil contracts would be the obligation of the contractor to fully account for the financing of the project. That would bring in billions of dollars at a time many economic projects in Iran are grappling with financing problems.
Meeting Phase 11 Needs
Phase 11 of South Pars is the only remaining undeveloped phase in South Pars, which is the largest gas field in the world. France's giant Total will be steering the consortium for the development of this phase. It is forecast that $4.8 billion in foreign investment would be brought into Iran's petroleum industry.
As Iran's Ministry of Petroleum had promised, the file of Phase 11 of South Pars was closed under the 11th administration.
With the development of Phase 11, 56 mcm/d of gas would be added to Iran's production capacity from a field it shares with Qatar.
Enhanced oil recovery through application of modern and advanced technologies is one of advantages of Phase 11 development. In this regard, for the first time in South Pars, a giant platform is planned to be constructed in order to boost pressure.
Total would be leading the consortium with a 50.1% share in the project. Petropars holds a 19.9% share while the Chinese party to the contract will have the remaining 30%.
As per the HOA, Total will start preparations for a tender bid which would be held in 2017.
Development of Phase 11 of South Pars would have a capacity of 1.8 bcf/d of gas, scheduled to start in 2020. The duration set for this contract is 20 years and the first gas production should start after 40 months. The development phase includes construction of two wellhead platforms, drilling of 30 wells and two subsea pipelines for onshore gas processing units. But according to the NIOC estimates, three years after the start of gas production from this phase, the reservoir pressure will fall off. That is why pressure booster facilities must be envisaged now. Total has agreed to install pressure booster platform alongside the main platform. The Total-led consortium will design and install onshore installations for gas pressure boosting in a bid to keep the production level unchanged several years after the start of operations. The consortium plans to spend $2 billion on the development of the first phase of this project.
Operations for designing, building and installing gas pressure booster facilities at Phase 11 of South Pars should be over after five years. After that, the consortium will be remunerated by the NIOC.
Under the new model of oil contracts, Total will be paid back all its costs after the end of the project. Over the first five years, the main capital invested by Total will be paid back, and fees will be paid by the end of the 20-year period. Therefore, it would not be logical to consider a longer period for the project.
As per the HOA, the share of domestic manufacturing in this gas megaproject must be up to 70% of the value of the contract. All stages including subsea pipe laying, construction of wellhead platforms and gas pressure booster installations must be done in Iran.
One of important points that have been taken into consideration in the new model of oil contracts is the issue of transfer of state-of-the-art technologies to Iran. In this project too, transfer of technology is done at several levels.
Longtime and Strategic Partners
Of course Total and CNPC have both long history of activity in Iran. Total was active in Iran even before sanctions were imposed. Since the 1990s, Total has been one of key investors in Iran's energy sector. It was instrumental in the development of Siri Island and South Pars projects. It was also involved in different projects including preliminary studies for several phases of South Pars. But it had to pull out of Iran due to