6 Proposals for Iran E&P Sector
Despite extensive measures taken aimed at development of oil and gas fields in Iran, a review of global trends of investment in the exploration and production sectors shows the significant gap between the potentialities and performance of this industry in Iran Although the regulations governing petroleum industry development are global, the certain regional, economic and social situation of the Middle East has distinguished this hydrocarbon-rich region. That is referred to as development gap.Based on the success stories of Iran’s neighbors, I would like to propose six methods which would contribute to prosperity in this industry in Iran.The regulations governing the approaches applied in the Middle East are not much different from the best experiences in the global E&P industry (in nations like the United States, Canada, Britain and Norway). All these approaches are based on E&P business in compliance with common approaches of the petroleum industry on the global scale.Mideast E&P ProsperityInvestment in the upstream petroleum industry entered the phase of prosperity in 2017 after experiencing a sharp decline in 2015 and 2016. The same trend has been under way in the Middle East with a survey forecasting capital expenditures of $70 billion in the Middle East region. Iran sits atop the world’s largest hydrocarbon reserves. However, Saudi Arabia, the United Arab Emirates (UAE), Kuwait, Oman, Iraq and Qatar are experiencing quite more prosperity than Iran.In Qatar, a new round of development of the North Dome gas field has started while French Total’s activities continue in the al-Shaheen field. Qatar Petroleum has teamed up with ExxonMobil to operate international projects. In the UAE, new agreements have been signed with major international firms like Austria’s OMV, Italy’s Eni, France’s Total, as well as Asian firms like India’s ONGC, China’s Petrochina and Japan’s Inpex. Development activities in sour gas reservoirs and exploration activities are under way in partnership with Eni and PTTEP.Oman has held a new licensing round for awarding six exploration blocks, which are expected to be welcomed warmly. Meanwhile, agreements have been signed with Occidental, Eni and Britain’s BP. In Iraqi Kurdistan, Norway’s DNO is severely continuing its activities, and Iraq has revised its oil contracts to sweeten their terms towards production sharing agreements. Saudi Arabia has maintained strategic cooperation with the world’s leading drilling service providers and focused specifically on unconventional gas reserves. E&P in IranIn Iran, major ongoing activities are related to the final stages of previous contracts signed for the development of the South Pars gas field and the West Karoun area. Three Iran Petroleum Contract (IPC)-style contracts were signed, but only one has been implemented. On a larger scale and regardless of the present circumstances, numerous potentialities have been neglected in the previous decades in the three sectors of exploration & assessment, development & production, and enhanced recovery:Iran’s 14 exploration blocks and other exploration potentialities are investment-friendly.Joint fields like Farzad, Esfandyar, Azadegan, Yaran and Yadavaran have potential for more development and production.The enhanced recovery rate in Iran’s reservoirs lies far distant from the rate of recovery in similar fields in Kuwait, Iraq and Saudi Arabia.The main reason for such a situation pertains to “non-formation of E&P business” in Iran, a business which would be described as developed, competitive and dynamic. Therefore, while Iran was once on par with Saudi Arabia and Iraq, it is now lagging behind both in oil production and exports. Even on the global scale, Iran has failed to produce as much oil as Russia and the US. According to BP, taking into consideration the R/P ratio , Iran may produce oil for 90 years, while the US, Russia and Oman are rated respectively 10 years, 26 years and 15 years. Proposals for FutureThe question here is to know which approaches have been applied in the regional countries to generate revenues. The following are six key proposals based on the experience of Middle East nations: Generating wealth from hydrocarbon resources as ultimate objective: The case of UAE shows that consensus on the necessity of maximum development of hydrocarbon resources would encourage benefiting from successful agreements to meet industrial needs and help develop the industry. Therefore, development of Iran’s massive oil and gas reserves must become a cause of concern shared by all industrialists so that policies would be measured based on the level of industrial prosperity and dynamism.Multilateral Partnership between National, International and Local Companies: A review of the Oman case shows that a dynamic and competitive business environment could take shape in partnership with national companies (OOCEP), international giants (Shell, BP), Omani E&P companies (Petrogas) and small and medium-sized foreign firms (CCED). Using Diverse Models of Partnership for Maximize Value Generation: Over recent decade Iraq has introduced a new hybrid model after launching TSC service contract model for developing its fields. The hybrid model is very similar to production sharing. Oher countries in the region often use production sharing or concessions for partnership. Regulating Competitive Financial Provisions in Proportion to Business Environment Risks: Oman and Iraqi Kurdistan are used to determining the share of government and contractor out of revenue based on the E&P sector’s needs, and fixing a predetermined figure could not clear the way for a win-win game. Leveraging hydrocarbon reserves to attract foreign investment: Qatar and the UAE have used their huge oil and gas reserves to attract foreign investment. The reserves should be used in a more competitive way which would be in proportion to risk levels.Transforming NIOC into Profitable Enterprise: The cases of Qatar Petroleum and Oman’s OOCEP have shown that it would be possible to assign a commercial and international role to national oil companies in the Middle East with a view to maximizing their profits. National Iranian Oil Company (NIOC) must take this point into consideration.