Shell Back to Iran
As the US Senate was close to voting in favor of the extension of the Iran Sanctions Act (ISA), National Iranian Oil Company (NIOC) signed an agreement with Royal Dutch Shell. It was not the first contract with an oil giant. One month before that, France's total formally started work in Iran. Although analysts cast doubt on the continued presence of big oil companies in Iran, the agreement with Shell proved once more that Iran's petroleum industry is still endowed with myriads opportunities for investment.
The provisional agreement was signed between Noureddin Shahnazi-Zadeh, CEO of Iran's Petroleum Engineering and Development Company (PEDEC) on behalf of National Iranian Oil Company (NIOC), and Hans Nijkamp, Shell's vice president for Iran. The signing ceremony was attended by Ali Kardor, CEO of NIOC, and Gholam-Reza Manouchehri, deputy managing director of NIOC for development and engineering.
The agreement requires Shell to conduct studies on Azadegan and Yadavaran oil fields as well as Kish gas field before submitting its findings to NIOC.
These three fields are among priorities of the Iranian Ministry of Petroleum for development.
Iran Sanction Relief, Chance for Shell
Shell is no stranger to Iran. It was operating projects in Iran like the development of Sorous and Norouz oil fields before it pulled out due to the toughening of sanctions against Iran's oil sector. Shell was also a buyer of Iran's heavy crude oil. It purchased between 150,000 and 200,000 b/d of oil from Iran.
After the European Union (EU) tightened its sanctions against Iran's petroleum industry, Shell faced problems with regard to oil purchase from Iran. When Iran was disconnected from SWIFT, Shell could no longer pay for its Iran oil imports. Iran's oil export to Shell was reduced to 100,000 b/d.
However, after sanctions were lifted on Iran, Shell settled its debts to Iran and paved the way for renewed cooperation with Iran.
New Chapter in Ties
“We’re happy to resume working in Iran,” said Nijkamp at the ceremony. “We are hoping to have a fruitful cooperation with NIOC on these fields.”
He said that the agreement signed between PEDEC and Shell would be for conducting preliminary studies on the fields, adding that both sides would then sit together for further cooperation.
Nijkamp praised Iran's performance during years of sanctions.
The world oil market is waiting for Iran's return to international scene as international sanctions have been removed.
Nijkamp also referred to the new model of Iran's oil contracts, describing it as a significant step for creating a win-win situation in trading.
He said that Shell was seeking to find more effective ways for cooperation with NIOC.
Nijkamp said Iran has made significant progress in certain sectors, particularly natural gas production. He noted that Iran has managed to meet its domestic gas demand and also preserve its industry in the global sphere.
However, he noted, that would not be enough for maximum recovery from oil fields because enhanced oil recovery is a very important issue after exploration.
Shell, which enjoys high potential in oil and gas field development and has good experience of working in the Middle East region, is now ready to share its technology and achievements with NIOC.
Nijkamp went on to highlight the willingness of Shell for long-term cooperation in different countries.
He noted that Shell's activities would positively affect job creation, science and technology, skill levels and development. He said Shell's activities will leave behind a legacy much more important than revenues a host country would earn.
Europeans Vying for Return to Iran
International media were quick to react to the news of Shell's return to Iran.
Gary Ashton, oil and gas financial consultant, wrote in Investopedia: "Royal Dutch Shell is the second major global oil and gas company returning to Iran to develop Iran’s oil and gas fields…Shell’s investment decision comes despite U.S. President Elect Trump’s threat to scrap the nuclear energy deal with Iran that ended decade old economic sanctions and paved the way for Shell’s development deal."
"European companies have been quick to establish links with Tehran in a bid to re-establish old relationships. American companies are more reluctant to return to the Islamic Republic. U.S. energy companies have been slow to return to Iranian oil fields because of lingering concerns that the U.S. economic sanctions against the country have not been fully lifted despite assurances from U.S. Secretary of State John Kerry that sanctions no longer apply," he wrote.
The Financial Times also wrote: "The deal comes a month after a consortium led by Total of France signed a provisional agreement to develop a new phase of the South Pars gas field, the first such commitment by a western oil major since the partial lifting of sanctions. However, that was before the election of Trump, and analysts have been waiting to see if others would risk following Total’s lead, given the risks of a renewed freeze in US-Iran relations."
According to Reuters, analysts said the agreement underscored major oil companies' willingness to keep doing business with Iran despite the risk that Trump could scrap the nuclear deal that ended the sanctions earlier this year.
"These preliminary agreements could mark a strong sign of confidence towards the sustainability of the nuclear deal," said Homayoun Falakshahi, Middle East research analyst at Wood Mackenzie.
"These preliminary agreements come at the right time for President (Hassan) Rouhani, who can leverage on the nuclear deal bearing fruits for Iran's economy despite Trump's election," Falakshahi said.
The Wall Street Journal said Shell was "signaling that giant energy companies are unlikely to be deterred by President-elect Donald Trump’s pledge to undo the Iran nuclear deal."
Fields in Question
North Azadegan oil field, with an area of around 460 square kilometers, is located west of the oil-rich city of Ahvaz in Khuzestan province in southwestern Iran. It is shared with neighboring Iraq's Majnoun. The development of Azadegan would be conducted in two phases, each with a capacity of 75,000 b/d. After the planned two-phase development, Azadegan's output would reach 150,000 b/d.
Azadegan is specifically located in West Karoun area. It is estimated to hold 25.34 billion barrels of oil in place, 2 billion barrels of which would be recoverable with a recovery rate of around 8.2%.
Yadavaran, which is situated southeast of Azadegan, is shared with Iraq's Sindbad.
This field is planned to be developed in three phases. In the first phase, recovery from this field must reach 85,000 b/d. It is planned to reach 180,000 b/d in the second phase and 300,000 b/d in the third phase.
Development of Kish gas field involves wellhead installations in Kish Island, offshore platforms for gas production and onshore refining facilities in mainland in Hormuzgan Province in southern Iran. The development plan is required to inflict minimum damage on the environment in Kish Island.