Win-Win Deals, a Must

Akbar Nematollahi  ( General Director of Public Relations )

 

More than a century has passed since an Iranian king of the Qajar dynasty awarded an oil concession to a British company. The framework of oil contracts has since changed a lot.

With the discovery of oil in Iran, a new period started in the signature of oil contracts. The ensuing events like nationalization of oil industry in Iran, establishment of the Organization of the Petroleum Exporting Countries (OPEC as well as Arab-Israeli conflict have all affected oil markets.

Oil-rich countries have learned from history that they should not let history repeat itself in favor of oil cartels and giants.

However, petroleum industry is an international one from an economic or technological point of view. Therefore, proprietors of knowledge and technology and producer and consumer countries are required to interact.

Iran’s new administration, which took office last August, has been seriously following up on a new type of oil contracts in a bid to persuade international companies to invest in Iran without being worried about the profitability of their investment.

The nature of oil contracts is significant because they define the terms of cooperation between beneficiaries while clearing the way for the expansion of interaction as well as guaranteed supply and demand. These issues are important for producers, consumers and investors willing to finance oil exploration and production.

The industrialized countries in the world consider long-term investment in oil-rich countries in a bid to guarantee their energy supply security in the coming years.

Consumers have well understood that the flow of oil into world markets requires finance for the development of oil fields. But investment must be made under contracts whose terms must be attractive for all beneficiaries. To that effect, each country has its own legal structure for contracts. An outstanding feature of oil contracts in Iran is that oil and gas are under the ownership of the government. It has been enshrined in Iran’s Oil Law and it could not be ignored in contracts.

Iran’s Petroleum Ministry has been revising the structure of buy-back oil contracts in a bid to set the stage for further international cooperation while pursuing the interests of all parties involved in the contract.

Iran’s new model of oil contracts will definitely provide financiers and proprietors of science and technology with a new chance that would also be a positive step in favor of secure energy supply across the world.

New Chapter in Iran-Turkey Energy Cooperation

Iran, which holds huge oil and gas reserves, has the potential to become a major supplier of energy to other countries in the region and in Europe if obstacles are lifted. Since the administration of President Hassan Rouhani took office last August, Iran has tightened its belt to broaden the level of its energy cooperation with other countries.

Coincidentally, Turkey is located in the strategic cross-section of oil-rich countries in the Caspian Sea and Persian Gulf with European countries which represent the second largest natural gas market in the world. Turkey can become the main spot for exchange of energy in the region in the near future if strategic policies are implemented correctly. Therefore, firm determination of senior Iranian and Turkish officials for development of cooperation within the framework of policy of constructive interaction adopted by President Rouhani, cooperation, particularly in the oil and gas sectors, between the two countries would enter a new phase.

Turkish Prime Minister Recep Tayyip Erdogan made a two-day trip (January 28-29) to Tehran at the head of a high-ranking delegation to discuss cooperation in different political, economic and cultural sectors as well as important regional and international issues. Before him, Iran’s Petroleum Minister Bijan Namdar Zanganeh visited Turkey on January 21.   

In his meeting with Erdogan, President Rouhani stressed the importance of strengthening cooperation with Turkey to thwart terrorist activities in the Middle East.

“The expansion of cooperation between the Islamic Republic of Iran and Turkey, as two powerful countries in the region, will frustrate terrorist activities,” Rouhani said.

“We (Iran and Turkey) have the same views on important regional issues including fight against terrorism and extremism,” the Iranian president stated.

He added that Tehran and Ankara also share common views on the importance of providing the Syrian people with humanitarian aid, particularly in winter, in an effort to resolve part of their problems.

 

The two countries believe that only the Syrian people must decide about their country’s future, he pointed out.

“Iran and Turkey should also improve cooperation in other regional issues pertaining to neighbors’ security which is among common issues between the two countries,” Rouhani said.

He urged enhanced cordial relations between Iran and Turkey as two Muslim nations in all fields.

He called for boosting ties between the private sectors of the two countries in an effort to improve economic cooperation.

Tehran and Ankara can expand mutual relations in all economic sectors including construction of power plants and refineries as well as industrial, oil and gas cooperation, the Iranian president added.

The Turkish premier, for his part, said Iran and Turkey are the most powerful countries in the region and added that Ankara seeks to increase the level of economic ties with Tehran to 30 billion dollars by 2015.

He said Turkey would strengthen cooperation with Iran to counter terrorist groups.

At the end of the meeting, Rouhani and Erdogan signed the document for the establishment of a high council for political cooperation between Iran and Turkey for the first time after the victory of the Islamic Revolution in Iran in 1979. The council will pave the way for broader cooperation between the two countries.

 

Turkey Needs Iran Energy

In a joint press conference with Iranian First Vice President Es’haq Jahangiri, Erdogan said Turkey is looking to increase its trade volume with Iran after a down year.

“2012 was a success for both countries, as we reached a balanced trade volume of $21.8 billion. Unfortunately, this plummeted to $13.8 billion in 2013. I hope 2014 will be a milestone year for both countries and that we reach $30 billion by the end of 2015,” he said.

Erdogan stressed the importance of Iranian imports, including crude oil. "It is possible for both countries to act accordingly using a 'win-win' principle in the technological and industrial fields. There are also many things that Iran can get from us".

Jahangiri also highlighted the mutual interests of both countries, saying Iran and Turkey have historic ties.

"I hope the prime minister’s visit will take Iranian-Turkish relations to a new level," Jahangiri added.

The two sides signed a cooperation agreement to form a joint trade committee before the press conference in Tehran's Sa'dabad Palace.

The countries' respective delegations also signed cooperation agreements for different sectors.

Erdogan said earlier that he welcomed the agreement and hoped it would lead to a definitive deal on removing sanctions.

“We wish the process will be finalized with an agreement that will ensure the removal of all sanctions on Iran. Turkey has so far done its best in that regard and will continue to do so,” he said.

In a meeting between Iranian Foreign Minister Mohammad Javad Zarif and Erdogan in Istanbul on January 4, the two officials underlined the importance of enhancing trade cooperation between their respective countries to $30 billion by 2015.

Zarif and Erdogan underlined the need to facilitate the activities of merchants and businesses and remove the existing obstacles in the way of mutual trade.

Iran’s Petroleum Minister Bijan Namdar Zanganeh said “oil and energy” are the most important fields for the two countries to cooperate in.

After his visit to Ankara, Zanganeh had said that “valuable decisions” had been made about trade ties between the two countries and that Tehran and Ankara.

Turkish Energy Minister Taner Yildiz said Turkey may double natural gas imports from Iran if the two countries can agree on a price.

Yildiz said in an interview with Reuters that natural gas purchases from Iran was a key topic in Erdogan’s visit to Iran, but added that the two sides have yet to agree on the price.

"We have discussed how we could increase our imports to 20 bcm and the price mechanism needed for that," Yildiz said, adding that Turkey has insisted that Iran reduce the gas price.

He said that Iran’s price offer was not satisfactory for Turkey, adding “Our teams will continue to work” on the issue to agree on a price and sign a deal with Iran.

Yildiz said that Turkey has also discussed a barter system with Iran through which it could swap various goods with energy imports, but he did not give further details.

Iran’s natural gas is of crucial importance to Turkey as the energy-hungry country uses a significant portion of imported Iranian gas to generate electricity.

Addressing the Istanbul Chamber of Commerce, Yildiz said Turkey is determined to boost the level of its bilateral trade volume with Iran.

He said Turkey imported $7.6 billion worth of Iranian natural gas and crude oil in 2013, which is a huge figure.

The figure, Yildiz further noted, included $4.5 billion worth of natural gas and $3.1 billion of crude oil.

Turkey seeks to raise the level of its trade transactions with Iran within a logical and legal framework, he said.

On November 26, 2013, Turkish Foreign Minister Ahmet Davutoglu said his country can become an energy corridor for its eastern oil- and gas-rich neighbor, Iran.

“Turkey’s annual energy demand is $60 billion. Turkey is a corridor country, Iran is a producer country. If we fuse both potentials, Turkey could become the corridor for energy provider Iran,” Davutoglu said.

Iran Ready for Energy Supply to Thailand

President Hassan Rouhani has voiced Iran’s readiness for increasing energy supply to Thailand.   

Rouhani made the remark in a meeting with Thai Ambassador to Tehran Adisorndej Sukhasvasti.

The Iranian president said the present international circumstances require cooperation of all countries, expressing hope that relations between the two countries will get warmer.

Rouhani hoped for the return of economic relations between the two countries to their past level.

He said that proximity between the Iranian and Thai nations will strengthen ties between the two governments.

For his part, Sukhasvasti said the Thai government is seriously determined to upgrade relations with Iran at all political, economic and cultural levels.

“We are fully assured that we will witness further development of relations between the two nations and countries following the taking office of Dr Rouhani as the president of the Islamic Republic of Iran,” he said.

The ambassador said Thailand attaches great importance to joint ventures with Iran in the oil, gas, agricultural, banking and heavy industrial sectors.

The Thai diplomat expressed assurances about favorable relations between the two countries, saying a high-ranking economic delegation from Thailand will soon visit Iran to negotiate further development of economic relations.

 

Iranians Want Interaction

Iran’s Petroleum Minister Bijan Namdar Zanganeh said the Iranians favor interaction with the world.

He, however, said the Iranian nations will not barter its independence and dignity.

Zanganeh, who was speaking to reporters during a rally marking the anniversary of the 1979 Islamic Revolution, said the Iranian nation calls for unity, solidarity, cohesion, happiness, victory and dignity.

“The Iranian nation has shown that it has always been united and integrated and it supports its government its moderate policies,” he said.

 

Adeli Stresses GECF's Green Commitment

Secretary-General of the Gas Exporting Companies Forum (GECF) Mohammad Hossein Adeli called on Qatari Minister of Environment of Ahmed Amer Mohamed al Humaidi at his office recently.

During the meeting, Adeli reiterated the commitment of GECF to protect the environment and stated that the use of natural gas as the cleanest fossil fuel will lead to less CO2 emissions compared to coal.

He emphasized that GECF is concerned that the growing global demand for energy may lead to pollution, if the choice of fuel would be a polluting one, and also expressed trepidations about the impact of fracking on the environment.

For his part, Humaidi welcomed the views expressed by Adeli, and stressed the need for coordination and collaboration between countries with common interest and views to promote environmental sustainability.

 

Foreign Companies Flooding Iran for Investment  

Iranian President Hassan Rouhani said in a televised address that many foreign companies are travelling to Tehran, looking for opportunities to invest in the country.

“The investment environment is very extensive and therefore limiting our activities to inside the country is not enough because the country is seeking interaction with other countries,” he said.

“I announced in Davos how much investment Iran will [need to] attract in different sectors. Over the coming eight years, the country must invest more than 100 billion dollars in the oil sector. We also plan 75 billion dollars of investment in the petrochemical sector,” said Rouhani.

The president called for increased commodities and services exports, saying Iranian mines are of high capacity. “This capacity is not summarized in oil and gas. However, Iran remains the first country in terms of hydrocarbon reserves in the world,” added Rouhani.

 

Indonesia Needs Iran Energy

A senior Indonesian official has said that his country needs oil and gas in order to experience growth and development.

In a meeting with Iran’s First Vice-President Es’haq Jahangiri, Special Envoy of the Indonesian President and Cabinet Secretary Dipo Ala expressed hope that constructive cooperation would take shape between the two countries in the oil and gas sectors.

The Indonesian official expressed hope that Iran will see progress and growth quickly. Referring to the important role of the Islamic Republic in the region and the world, he said the two countries face numerous opportunities for cooperation.

For his part, Jahangiri said negotiations between economic delegations of two countries can be of help to further interaction between the two countries.

Noting that Iran and Indonesia have maintained good relations in recent years, he said the two countries can broaden cooperation in the oil, gas, trade and banking sectors.

Jahangiri also referred to Iran’s recent nuclear deal with the P5+1 group of world powers, saying the deal has facilitated cooperation between Iran and other countries.

He expressed hope that the two countries would be able to make up for the decline in their trade in recent years and maximize the level of their economic cooperation.

New Chapter in Iran-France Trade Ties

Iran and France first decided to broaden their relations in the 14^th century. Over the past centuries, the two countries have developed their relations in different political, industrial, trade and cultural sectors. The relations between the two countries in the oil and gas and carmaking industries have been significant in recent years. The willingness of France’s energy giant Total for the development of Iranian oil fields and the presence of France’s leading carmaker Peugeot in Iran are clear examples of the European, particularly French, companies’ due attention to Iran’s energy and industrial sectors.

However, the deep-seated relations between the two countries experienced fluctuations and bilateral transitions declined following the imposition of extensive sanctions against Iran. But since President Hassan Rouhani took office, one can be hopeful of broader ties between Iran and the Europe, mainly due to Iran’s historic nuclear deal with the West.

Iran recently welcomed a French delegation of more than 100 businessmen in Tehran. The delegates represented France’s big companies which sought opportunities for economic and industrial cooperation with Iran. The delegates attended a business forum with Iranian officials on February 4.

The two sides mainly discussed how to cooperate in the car manufacturing as well as oil and gas industries.

 

French Firms Invited to Iran H/C Fields

An Iranian deputy petroleum minister invited French energy companies to invest in Iran’s hydrocarbon fields.

Ali Majedi, Iran’s Deputy Petroleum Minister for International Affairs and Trading, made the remarks in his address to the French businessmen.

 “It is a sincere hope that this meeting will make a new phase in deepening and broadening of economic and commercial relations between Iran and France specifically in the field of oil and gas,” said the official.

He underscored “longstanding relations between Iranian and French companies in the field of oil and gas industries” and said France’s energy giant Total used to operate “many projects” in Iran.

“I would avail this occasion to invite the highly reputable French companies for collaboration,” said Majedi.

He said Europe will have to turn to the Middle East in the future to meet its growing energy needs.

“Additionally, Europe's energy deficit remains roughly steady for oil and coal but grows up by more than 60 percent for natural gas from 26 bcf per day in 2010 to 42 bcf in 2013,” he said.

Majedi said Iran is a good source of energy supply in the light “holding more than 11 percent of the world's oil reserves, as the 4th world oil producer and holding 17 percent of the world's gas reserves.”

He said that Iran feels obliged to accomplish “its duty as an energy supplier and provide sustainable and secure energy to the world.”

Majedi also said Iran’s Petroleum Ministry is determined to “facilitate the conditions to encourage international companies to participate in oil and gas projects of the country.”

“Undoubtedly, a secure energy supply relies on the independency of economic sector from politics, based on an effective, sustainable and dynamic structure,” he said.

Majedi said Iran’s oil and gas industries need $230 billion in investment, including $150 billion for the upstream oil sector.

He said nearly all downstream projects, for refineries and distribution, would be offered on a build-operate-transfer (BOT) or build-own-operate-transfer (BOOT) basis.

 

Iran-France Trade Can Hit $5b

Iran’s Minister of Industry, Mine and Trade Mohammad-Reza Nematzadeh told the French businessmen that Iran-France trade should exceed $5 billion a year.

“The value of trade transactions between Iran and France which has amounted to 250 million euros now will hit five billion euros after removal of embargos,” Nematzadeh said, addressing Iran-France Economic Conference attended by French entrepreneurs.

He proposed holding joint meetings between the two countries’ trade committees to the same end.

Nematzadeh pointed to numerous advantages for investment in Iran, and said, “We can use direct investment opportunities, buy-back contracts and ceding infrastructural oil projects, and other areas such as petrochemical products, banking, insurance and technical-engineering services” to this end.

He stressed that Iran is in pursuit of privatization and encouraging the private sector and foreign companies to invest in its industrial, mining and trade sectors.

Nematzadeh pointed to Iran’s good capacities and potentials in the industrial and mining sectors for foreign investment, and said, “Iran ranks 12 in the world in the field of mining and enjoys an abundance of rich mineral reserves which will fully supply the needs of the steel, copper, aluminum, chrome, titanium, and other ferrous and non-ferrous metals industries.”

 

French Companies Willing to Work in Iran

French Ambassador to Tehran Bruno Foucher said his country is ready to broaden its trade cooperation with Iran.

He said the French delegation of more than 100 businessmen visiting Iran is preparing the grounds for more trade ties between Tehran and Paris.

Foucher noted that more French companies and enterprises are willing to invest in Iran.

“Some of the companies represented in this delegation were already active in Iran’s market and they are well familiar with this market. New companies have also come to Tehran to get familiar with Iran’s market,” said the top French diplomat.

“I hope that this meeting will clear the way for the development of relations between Iranian and French trade and industrial sectors and remove obstacles to better ties,” said Foucher.

The French ambassador said France pins hope in the administration of Iranian President Hassan Rouhani.

French employers’ union vice president Thierry Courtaigne said the delegation wanted to assess the commercial opportunities opened up by the easing of Western sanctions.

“Iran’s high potential for cooperation in different industrial sectors including oil, gas and car has encouraged France’s industries to attend Iran again after several years.

“Over the past years, many efforts were undertaken to convince this country’s industries to be present in Iran,” said Courtaigne.

 

Iran-France Electricity Cooperation   

Iranian Deputy Minister of Energy for International Affairs Esmail Mahsouli called on the French delegates to cooperate with Iran in the manufacturing of electricity industry equipment.

He said Iran is nearly 95 percent self-sufficient in the manufacturing of power supply equipment, expressing hope that the country will become fully self-reliant with the help of France.

“If Iran becomes a regional electricity hub, it will be able to prepare the grounds for extensive electricity exchanges across the Middle East, North Africa, Russia and Europe,” said Mahsouli. 

 

Total Ready to Resume Work in Iran

France’s oil giant Total has voiced its readiness to resume operating Iran’s oil and gas projects, a senior Total director said.

Pierre Olinger said Total’s Tehran office remains open although no activity is being done.

The French businessman, however, said his company is optimistic about future as sanctions are being eased against Iran’s energy sector.

Olinger noted that Total has never cut its cooperation with Iran’s Petroleum Ministry despite the sanctions.

Total struck a buy-back deal with Iran in the 1990s to develop the offshore Siri oil field in the Persian Gulf.

Total also operated phases 2, 3 and 11 of South Pars gas field before it was forced by sanctions to pull out.

Olinger expressed hope that Total will return to Iran to operate oil and gas projects anew.

Iran Keen to Invest in Sierra Leon Energy Sector

Iranian President Hassan Rouhani’s chief of staff has said that the Islamic Republic will be happy to invest in Sierra Leon’s oil and gas sectors.

In a meeting with Franklyn Bai Kargbo, Sierra Leonean President Ernest Bai Koroma’s special envoy, in Tehran, Mohammad Nahavandian underlined technical and engineering experiences of Iranian firms, saying the Islamic Republic’s state-run and private sectors are ready to take part in energy, road and construction projects in Sierra Leone.

 He said the African continent enjoys a significant position in Iran’s foreign policy, emphasizing the need for the expansion of Tehran-Freetown ties in various areas.

Nahavandian also expressed gratitude for the Sierra Leonean president for inviting his Iranian counterpart to visit the West African country, saying, “Tehran welcomes any plan and proposal that leads to the deepening of relations with African countries.”

The Sierra Leonean official, for his part, said his country favors the expansion of political and economic ties with the Islamic Republic.

Kargbo also called for the participation of Iranian companies in Sierra Leone’s development projects, especially in the energy and housing sectors.

Over the past years, the Islamic Republic of Iran has defined a special priority on its agenda to boost relations with African states.

 

Iran to Unveil Revised Oil Contact Model

A senior Iranian official said the country would soon unveil a more attractive model of contract aimed at persuading international energy companies to invest in its huge though underdeveloped, oil and gas reserves.

Ali Majedi, deputy petroleum minister for international affairs, said the Petroleum Ministry would soon complete its review of new contracts to be offered to foreign oil and natural gas companies.

"We are at the last stages of reviewing the new form of contract in oil and gas and they will be unveiled at a seminar in Tehran (around March)," he said.

"After this seminar if there is a need to revise this model of contract, they will be reviewed again," he said. "Then they will be presented at an international conference in London along with new oil and gas fields to be developed," he added. "

After the Geneva nuclear agreements a promising climate has been created for the presence of international companies in Iran.

"Iran welcomes the presence of all foreign oil companies," Majedi said, adding that he was "optimistic about the return of Shell and Total ".

 

NPC to Set Aside Incompetent Financiers

 

National Petrochemical Company (NPC) will not wait for incompetent financiers to finance petrochemical projects, an NPC official said.

Ahmad-Reza Heydarnia, director of projects, said the projects which have not yet been started by contractors will be taken back upon an order from Petroleum Minister Bijan Namdar Zanganeh.

He said that the capacities of contractors are being assessed.

“Some petrochemical projects have been awarded to private sector investors, but they have not made progress after years. If they cannot operate the projects they had better return them to be awarded to other investors,” said Heydarnia.

“Petrochemical development projects will not be delayed for incompetent investors,” he said.

“Companies are required to prove themselves so that they would be involved in the projects,” he added.

 

NITC, Europe Agencies Join to Insure Iran Tankers

National Iranian Tanker Company (NITC) and European insurance agencies have teamed up to provide cover for Iranian oil cargoes, the NITC chief has said.

“The objective behind the formation of a joint committee between NITC and European insurance agencies was to follow up on insuring Iran’s oil exports cargoes,” Ali Akbar Safaei said.

He said NITC faces no obstacle for delivering crude oil to India, adding that in certain cases there might have been some delays.

Safaei said NITC is benefiting from a positive atmosphere created following the implementation of a nuclear deal between Iran and six major powers.

He added that with the full lifting of US and EU sanctions against Iran in the coming months, NITC will regain the markets it has lost in the past years.

Safaei said earlier that the sanctions relief will remove all obstacles about insurance coverage and banking services required for crude oil exports to China, India, Turkey, Taiwan, Japan and South Korea.

The development followed the implementation of an interim nuclear accord, which was signed last November between Iran and six world powers and which took effect on January 20.

He said that P&I clubs are also expected to take the necessary measures in harmony with the US executive polices.

 

India Oil Imports from Iran Up 35%

Recent data show India’s crude oil imports from Iran increased by 35.2 percent in December 2013 compared to a year earlier despite the US-led sanctions against Iran.

Essar Oil Ltd purchased 54,200 barrels per day (bpd) of Iranian crude oil in December last year, and shipped an average 81,300 bpd from Iran in 2013, Reuters reported.

India is among Asia’s major importers of energy, and relies on the Islamic Republic to satisfy a portion of its energy requirements.

At the beginning of 2012, the United States and the European Union imposed new sanctions on Iran’s oil and financial sectors with the goal of preventing other countries from purchasing Iranian oil and conducting transactions with the Central Bank of Iran.

On January 19, Iranian Ambassador to New Delhi Gholam Reza Ansari said the Islamic Republic is examining ways to export natural gas to India.

Ansari pointed to India’s eagerness to import Iran’s natural gas through a deep-sea pipeline, and said Tehran is considering the feasibility of such a project.

In December 2013, Ali Amirani, the director of marketing at National Iranian Gas Exports Company (NIGEC), said following negotiations with three Indian firms Iran has generally agreed to export natural gas to India through a deepwater pipeline crossing the Sea of Oman.

 

Turkey Willing to Double Iran Gas Imports

Iran’s Petroleum Minister Bijan Namdar Zanganeh has said that Tehran is studying a proposal from Ankara for raising its natural gas imports from Iran.

Zanganeh said Iran will announce its proposed price for gas exports to Turkey after finalization.

“Following a proposal from the Turkish [government], talks were held for increasing Iran’s gas exports from 10 to 20 billion cubic meters. In case an agreement is reached, Iran’s natural gas exports to Turkey will rise up to twice,” said the minister.

Zanganeh said Iran has not yet accepted the Turkish proposal for reducing the gas price.  

Turkish Energy Minister Taner Yildiz had said Turkey will continue to import oil and gas from the Islamic Republic of Iran.

Turkey imports part of its energy demands from Iran and it will continue to import oil and gas from the country, Yildiz said.

The Turkish minister made the remarks in a ceremony marking the 35th anniversary of Iran’s Islamic Revolution in Ankara on February 12.

He said that Iran and Turkey signed a gas deal in 1996 during a visit by former Turkish Prime Minister Necmettin Erbakan, adding that the agreement is a major strand in bilateral relations.

He described Iran and Turkey as two powerful countries of the Middle East region and underlined the significance of amicable relations between the two countries.

The Turkish minister expressed hope for the further development of Tehran-Ankara ties, particularly in the economic and trade sectors.

Last month, Yildiz said Turkey may double natural gas imports from Iran if the two countries can agree on a price.

"We have discussed how we could increase our imports to 20 billion cubic meters and the price mechanism needed for that," Yildiz said.

Iran owns the world’s second-largest natural gas reserves after Russia, and is also Turkey’s second biggest gas supplier after Russia.

Iran’s natural gas is of crucial importance to Turkey as the energy-hungry country uses a significant portion of imported Iranian gas to generate electricity.

 

India Still Interested in Iran Gas Project

India says that it has not backed out of the Iran-Pakistan Gas Pipeline project, rather it was an excellent Confidence Building Measure (CBM) between the two neighbors as it would create ‘inter-dependency’ between India and Pakistan.

 “If we get cheap gas from Iran and Central Asia till Pakistan, it will be expensive but if India can come into it, it will be cheaper for both because of the sheer scale of the economy,” Indian Minister for External Affairs Salman Khurshid told a visiting Pakistani media delegation at his office in South Block.

 When reminded that it was India that ‘backed out’ from the IP project, Khurshid stood his ground and categorically replied: “India did not back out. Those that invest their money will want to see how serious we are. In fact inter-dependency will increase and ‘majboori’ will compel both sides to stick together.”

 In fact, he pointed out that earlier when the Pakistan government reached out to India to export its electricity and gas, New Delhi was not found wanting. “But now we see that there is no urgency (from Pakistan), so what should we do now?” he asked hinting at the lack of ‘seriousness’ on the issue.

 

Lukoil Seeks Return to Iran Oil Sector

Russia’s second largest oil producer, Lukoil, says it is willing to return to Iran’s Anaran oil project after the US-led sanctions against the Islamic Republic’s energy sector are lifted.

“We are ready to implement the project (Anaran) on our own once the sanctions are lifted,” Russian media quoted Lukoil Chief Executive Vagit Alekperov as saying in the southern city of Budyonnovsk.

Along with Norway’s Statoil, Lukoil was prospecting for oil in Iran’s Anaran block before it pulled out of the project due to the imposition of illegal sanctions on Iran’s energy sector by the United States and the European Union. Lukoil reportedly suffered a 63-million-dollar loss after the withdrawal.

In an earlier meeting with new Iranian Ambassador to Russia Mehdi Sanaei, Alekperov had called for the expansion of cooperation between Tehran and Moscow in the energy sector.

He also voiced the readiness of his company for resuming work in Iran, saying the atmosphere created by an easing of anti-Iran sanctions following a nuclear deal between the Islamic Republic and six world powers has created a good opportunity for the return of international energy companies to Iran.

“New oil contracts with Iran could be profitable both for National Iranian Oil Company and investors,” he said.

Iran Oil Exports Pick Up

A recent report has revealed that Iran’s crude oil exports to its three major Asian importers – China, Japan and India – rose by 100,000 barrels per day (b/d) in January 2014.

The Paris-based International Energy Agency (IEA) said on Thursday that the purchasing countries received 1.32 million b/d of Iranian crude last month.

The figure shows a marked increase in the number of the barrels shipped to the three Asian importers of the Iranian petroleum in the wake of the landmark deal clinched between Iran and six major powers in Geneva last November. The deal took effect on January 20.

The IEA report further noted that Iran’s total oil production rose by 30,000 barrels to 2.78 million barrels in January.

 

Iran, Indonesia Sign $3b Refinery Deal

An Iranian and an Indonesian company have signed a three-billion-dollar agreement for the construction of a refinery in Indonesia.

The agreement was signed on February 11 between Iranian oil firm Nakhle Barani Pardis and Indonesia's PT Kreasindo for the 300,000 barrels-per-day (bpd) treatment facility.

Nakhle Barani Pardis has reportedly accepted to finance 30 percent of the refinery which is planned to be built at Banten or another location in West Java.

The project is set to start next year and will take an estimated three years to complete.

“All of the products will be exported,” said Kreasindo President Rudy Radjab.

Mahendra Siregar, chief of Indonesia's Investment Coordinating Board, said, “The international world needs a strong Iran, a growing Iran and an Iran that has a developed economy.”

He said Indonesia is looking for “good opportunities” in the future, adding that the state-run energy firm Pertamina is ready for investment in Iran.

Indonesia’s current one-million-bpd refining capacity meets only two-thirds of its demand.

Iran-Indonesia trade exchanges totaled 1.26 billion dollars in 2012, five times higher than in 2002, according to official figures from Indonesia's Trade Ministry.

In January, Iran’s Research Institute of Petroleum Industry (RIPI) held talks with Indonesian officials over the revival of the Southeast Asian country's depleted oil wells.

During a visit to Tehran, a group of Indonesian MPs called for the institute to assess the viability of reviving more than 1,000 depleted oil wells in the country.

Indonesia was a member of the Organization of the Petroleum Exporting Countries (OPEC), but dropped out of the OPEC in 2009 after a steady decline in its production due to deficient infrastructure and paucity of investment.

 

Gas Hydrate Discovery Project 70% Completed

The project for exploration of gas hydrates in the Sea of Oman has progressed more than 70 percent, a top researcher said.

Saleh Hendi, head of Department for Upstream Industries Research and Technology in the Research Institute of Petroleum Industry, said the project is aimed at discovering shale oil and gas in Iran.

He said seismic testing is being used for exploring unconventional oil and gas sources.

Hendi predicted the project to be finalized by next September.

“Given the decline in the conventional oil and gas sources and the world energy consumption price hikes, access to alternative sources of energy is inevitable,” he said.

Gas hydrates are crystalline water-based solids physically resembling ice, in which small non-polar molecules (typically gases) or polar molecules with large hydrophobic moieties are trapped inside "cages" of hydrogen bonded water molecules. In other words, clathrate hydrates are clathrate compounds in which the host molecule is water and the guest molecule is typically a gas or liquid.

 

Iran to Supply Oil Services to Sudan

Iran Oil Ministry has signed an agreement with a North Sudanese oil company to provide the oil-rich African country with technical and engineering services.

The agreement has been signed between Iran’s Research Institute of Petroleum Industry (RIPI) and Sudan’s PLRS company.

Ezzatollah Kazemzadeh, head of the Petroleum Engineering Department of RIPI, said Iran has already dispatched specialists to train North Sudanese petroleum engineers.

He added that the RIPI conducted studies on the sandstone petroleum cores of Abu Gabra Formation in Azraq oil field in North Sudan last June.

Last month, Sudanese Oil Minister Makkawi Mohamed Awad said his country’s oil production stands at 130,000 barrels per day (bpd).

Prior to the country’s breakup in 2011, Sudan produced nearly 500,000 bpd while the rival South Sudan now sits atop more than three quarters of the total oil reserves.

Iran’s oil deal with Sudan is the first since the January 20 implementation of Tehran’s nuclear deal with world powers and the expected easing of sanctions against Iran’s energy sector.

 

A Review of Oil Contracts Background

Recovery of oil requires exploration and extraction operations. In different countries, laws have been drawn up with regards to their sovereignty on natural resources. In some countries, in addition to legal frameworks, there are also religious considerations about development of natural resources. For instance, Iran established Anfal law after the 1979 Islamic Revolution. It meant that natural resources could be used by public. But since using these resources requires specific operations it would be difficult to recover them.

Like everywhere else in the world, the Iranian government and nation are owners of oil reservoirs. In Iran, Petroleum Ministry is the representative of the Islamic establishment for administration of oil reserves. The ministry is not authorized to assign recovery from oil reservoirs to any non-governmental company.

In countries like Malaysia, Brazil, Venezuela and England, companies have been established as representatives of the government to recover from underground reserves. However, the United States is the only country which has recognized private ownership and maintains that oil does not belong to anyone and that every American citizen is entitled to extract from the state he lives in and sell to independent companies.

Today, due to the vital role of oil in the economic, political and military development of countries, focus on their development for further recovery is the top priority of all governments. For years, host governments and oil companies have signed contracts for further development of the petroleum industry. In fact, they have taken more professional steps for evolution of their petroleum industry.

In this article, we review the history of oil contracts which we divide into two categories: concession and contract systems.  

 

Concession

A concession or concession agreement is a grant of rights, land or property by a government, local authority, corporation, individual or other legal entity.

A grant of land or property by a government may be in return for services or for a particular use, a right to undertake and profit by a specified activity, a lease for a particular purpose. A concession may include the right to use some existing infrastructure required to carry out a business (such as a water supply system in a city); in some cases, such as mining, it may involve merely the transfer of exclusive or non-exclusive easements.

An example is the D'Arcy Concession that was signed in 1901 between William Knox D'Arcy and Mozzafar al-Din Shah of Persia.

Concessions expire after five years if oil and gas exploration operations prove unsuccessful, but they will be valid between 25 and 40 years in case of successful discovery.

 

Changes in Concessions

At present, concessions are used in 120 countries, but they are known under other forms like granting production right, granting production license and lease contract. Compared with the past models, the new current models of concessions have changed significantly in sharing profits.

In the past, the contract was valid for 50 to 100 years and sometimes it covered large swaths of land measuring up to one million kilometers and the concessionaire exercised full rights on the land. But today, the allotment is limited and exploration right is granted for a shorter period of time, less than 10 years and the contract is valid for 30 to 40 years. The new contracts are more flexible in terms of sharing profits between the parties involved in the contract. For example, in case of oil price hikes, mechanisms will be worked out for raising the profits of the host government. Concessions are still valid in countries like Indonesia, the Netherlands, England, Norway and Angola. However, in these countries, 85 to 90 percent of revenues are deducted in taxes.

The important point about countries using this model of contracts is that oil, as a major source of income, constitutes only a portion of revenues gained by countries like England and Norway. A country like Norway whose oil exports are much higher than Iran’s earns more than 30,000 dollars in per capita revenues with petrodollars account for only 30 percent of the per capita revenue. But in a country like Iran, the per capita revenue stands at 2,000 dollars with oil money accounting for 85 percent.

When a concession contract is signed, the legal or natural party will have full sovereignty on that country.

 

Contract Systems

Contracts are divided into two main categories: The first category is production sharing agreements with joint ventures being the most common method. Production sharing agreement is a contract between a multinational oil company and a host government, in which the corporation provides capital investment, in exchange for control over an oilfield, and access to a large share of the revenues from it. The second category is service contract in which the contractor is paid in return for providing services.

 

Production Sharing Agreements (PSAs)

 

These agreements became common in the 1960s and many oil-rich countries then moved to apply them. Based on this model of contract, the oil and gas produced from reservoirs are divided between the host government and the investment company. Royalties belong to the government, but the host government and the operator are in contact over management of operations through national oil company in the country. The company operating projects is committed to paying taxes.

 

Iran and PSAs

In Iran, following the 1979 Islamic Revolution, the parliament adopted a law, banning any PSA contract for the development of hydrocarbon fields in the country because in case of implementation of such a model, the foreign company had the right to control the level of production.

 

Joint Ventures

Joint venture is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it. However, the venture is its own entity, separate and apart from the participants' other business interests.

A joint venture takes place when two parties come together to take on one project. In a joint venture, both parties are equally invested in the project in terms of money, time, and effort to build on the original concept. While joint ventures are generally small projects, major corporations also use this method in order to diversify. A joint venture can ensure the success of smaller projects for those that are just starting in the business world or for established corporations. Since the cost of starting new projects is generally high, a joint venture allows both parties to share the burden of the project, as well as the resulting profits.

 

Service Contracts

Service contracts are upstream oil agreements according to which oil companies represent the host government on behalf of the country’s national oil company. These contractors are responsible for oil discovery. These contracts set limitations on the operations and the contractor will have no ownership right on the reservoir or crude oil and it will only be paid in exchange for services. They are divided into pure service contracts, risk sharing agreements as well as buy-back contracts.  

Risk sharing occurs when two parties identify a risk and agree to share the loss upon the occurrence of the loss due to the risk. This is typically done in joint ventures (where equity owners share risks of the loss in proportion to their stakes in the venture), new ventures and relationships where each party shares actual operational control. Risks can be shared pro rata, pro rata in excess of a threshold, in sequential layers or a combination of these “pie-slicing” methods.

Risk sharing agreements are rare in outsourcing transactions. Where one party has physical control of the means of performance, the other party is prevented from exercising any control. The other party is thus prevented from acting to stop the loss. Further, outsourcing transactions typically involve repetitive business processes that are well-tested, commonplace, well understood and not inherently risky. However, outsourcing that includes some joint venture structure may involve such risk sharing arrangements.

Under buy-back deals, the foreign partner that makes the initial investment can repatriate the return on the investment (at a pre-agreed fixed rate) through goods and services produced by the project. While many foreign companies believe that this method is a mere financing instrument for Iran, it is more accurate to say that it is a compromise formula for foreign investment in the short-run. In the medium to long-term, more appropriate laws and regulations will probably replace the buy-back scheme. In other words, once the constitutional concerns have been dealt with, the foreign partners of buy-back agreements can take over the projects that they are involved in, or they can enter into a joint venture with an Iranian partner.

Buy-backs are the only option for Iran, Saudi Arabia, Kuwait, the United Arab Emirates and Iraq – all holding more than 60 percent of the world’s oil reserves – to attract foreign investment in their oil and gas sectors.

 

Oil Contracts Before 1979

Oil and oil products have long been used by people. But industrial use of oil and its derivatives dates back to 1275 AH when the first oil well, 21 meters deep, was drilled by Col. Derrick in the US State of Pennsylvania. This success prompted foreign investors to seek concessions in other countries. At that time, Naser addin Shah Qajar in Iran desperately needed money and therefore he gave concession to foreigners. The first one was the D’Arcy Concession. The oil concession gave D’Arcy the exclusive rights to prospect for oil in Persia (now Iran). During this exploration for oil, D’Arcy and his team encountered financial troubles and struggled to find sellable amounts of oil. They were about to give up but eventually struck large commercial quantities of oil in 1908. After these large commercial quantities of oil were found, the Anglo-Persian Oil Company took over the concession in 1909.

In 1933, a new contract was signed between Iran and the British Petroleum for Anglo-Iranian Oil Company to start work. This contract was similar to D’Arcy Concession.

Nationalization of oil industry in the early 1950s put an end to concessions for some time, but following the CIA-led coup against the government of Prime Minister Mohammad Mossadeq, a consortium deal was signed. The British government was benefiting from this consortium to make up for its losses.

 

PSAs

National Iranian Oil Company (NIOC) signed new contracts with some companies. The two decades from 1954 to 1974 were a modern chapter in the history of Iran’s contracts. That was when concessions were marginalized forever and production sharing contracts emerged. Iran first signed a service contract with a French group in 1966.

Production sharing agreements emerged in that period of time. Following the victory in 1979 of the Islamic Revolution, the Iraqi invasion of Iran in 1980 and the imposition of tough Western embargo on the country changed the nature of contracts. No foreign investment was attracted in the upstream oil sector up to 1989 and foreign finance was mainly used in the downstream sector.

 

Post-Revolution Oil Contracts

After the victory of the Islamic Revolution, the Council of Revolution declared all contracts null and void. Petroleum Ministry was established to sign new contracts for economic development and maximum benefit from oil resources. The Iran and Libya Sanctions Act was imposed in 1996. ILSA was a 1996 act of Congress that imposed economic sanctions on firms doing business with Iran and Libya. On September 30, 2006, the act was renamed to the Iran Sanctions Act (ISA), as it no longer applied to Libya.

The Act targeted both US and non-US business making certain investments in Iran. Under ILSA, all foreign companies that provide investments over $20 million for the development of petroleum resources in Iran will be imposed penalties.

Australia's BHP withdrew from a $3 billion gas pipeline project from Iran. Then US President Bill Clinton scuppered Conoco’s deal with Iran for the development of Siri gas reservoirs. The European Union refused to accept the US Sanctions Act and Iran formed a $2b-consortium with France’s Total, Russia’s Gazprom and Malaysia’s Petronas for the development of South Pars gas field.

 

Buy-Backs

After the Islamic Revolution, NIOC was banned from signing concessions and production sharing agreements with foreign companies. The only framework acceptable by the parliament was the buy-back model, which was a kind of oil service contract.

When the war with Iraq ended in 1988, the necessity for reconstruction of ruins and gaining revenues for economic development required attraction of foreign investment.

At that time, a committee comprised of three MPs, a representative of the president, senior officials from Plan and Budget Organization, Ministry of Economy, Ministry of Foreign Affairs and Ministry of Petroleum was established to keep a tab on oil contracts.

The administration of President Rouhani is undertaking efforts to broaden the economic diplomacy of the government. Iran’s economic strategy is again based on increased presence in the world markets.

Iran is planning to facilitate conditions for foreign investment in its energy sector in a bid to attract foreign companies.

Iran’s Petroleum Ministry plans to hold a conference in London next July to introduce new contract terms to international companies.

Last September, Petroleum Minister Bijan Namdar Zangeneh established a committee to revise oil contract terms.

Under a buyback deal, the host government agrees to pay the contractor an agreed price for all volumes of hydrocarbons the contractor produces.

World oil giants have voiced their readiness to return to Iran following the easing of sanctions against Iran in light of the implementation of Tehran’s nuclear deal with the six world powers.

A Review of Oil Contracts Background

Recovery of oil requires exploration and extraction operations. In different countries, laws have been drawn up with regards to their sovereignty on natural resources. In some countries, in addition to legal frameworks, there are also religious considerations about development of natural resources. For instance, Iran established Anfal law after the 1979 Islamic Revolution. It meant that natural resources could be used by public. But since using these resources requires specific operations it would be difficult to recover them.

Like everywhere else in the world, the Iranian government and nation are owners of oil reservoirs. In Iran, Petroleum Ministry is the representative of the Islamic establishment for administration of oil reserves. The ministry is not authorized to assign recovery from oil reservoirs to any non-governmental company.

In countries like Malaysia, Brazil, Venezuela and England, companies have been established as representatives of the government to recover from underground reserves. However, the United States is the only country which has recognized private ownership and maintains that oil does not belong to anyone and that every American citizen is entitled to extract from the state he lives in and sell to independent companies.

Today, due to the vital role of oil in the economic, political and military development of countries, focus on their development for further recovery is the top priority of all governments. For years, host governments and oil companies have signed contracts for further development of the petroleum industry. In fact, they have taken more professional steps for evolution of their petroleum industry.

In this article, we review the history of oil contracts which we divide into two categories: concession and contract systems.  

 

Concession

A concession or concession agreement is a grant of rights, land or property by a government, local authority, corporation, individual or other legal entity.

A grant of land or property by a government may be in return for services or for a particular use, a right to undertake and profit by a specified activity, a lease for a particular purpose. A concession may include the right to use some existing infrastructure required to carry out a business (such as a water supply system in a city); in some cases, such as mining, it may involve merely the transfer of exclusive or non-exclusive easements.

An example is the D'Arcy Concession that was signed in 1901 between William Knox D'Arcy and Mozzafar al-Din Shah of Persia.

Concessions expire after five years if oil and gas exploration operations prove unsuccessful, but they will be valid between 25 and 40 years in case of successful discovery.

 

Changes in Concessions

At present, concessions are used in 120 countries, but they are known under other forms like granting production right, granting production license and lease contract. Compared with the past models, the new current models of concessions have changed significantly in sharing profits.

In the past, the contract was valid for 50 to 100 years and sometimes it covered large swaths of land measuring up to one million kilometers and the concessionaire exercised full rights on the land. But today, the allotment is limited and exploration right is granted for a shorter period of time, less than 10 years and the contract is valid for 30 to 40 years. The new contracts are more flexible in terms of sharing profits between the parties involved in the contract. For example, in case of oil price hikes, mechanisms will be worked out for raising the profits of the host government. Concessions are still valid in countries like Indonesia, the Netherlands, England, Norway and Angola. However, in these countries, 85 to 90 percent of revenues are deducted in taxes.

The important point about countries using this model of contracts is that oil, as a major source of income, constitutes only a portion of revenues gained by countries like England and Norway. A country like Norway whose oil exports are much higher than Iran’s earns more than 30,000 dollars in per capita revenues with petrodollars account for only 30 percent of the per capita revenue. But in a country like Iran, the per capita revenue stands at 2,000 dollars with oil money accounting for 85 percent.

When a concession contract is signed, the legal or natural party will have full sovereignty on that country.

 

Contract Systems

Contracts are divided into two main categories: The first category is production sharing agreements with joint ventures being the most common method. Production sharing agreement is a contract between a multinational oil company and a host government, in which the corporation provides capital investment, in exchange for control over an oilfield, and access to a large share of the revenues from it. The second category is service contract in which the contractor is paid in return for providing services.

 

Production Sharing Agreements (PSAs)

 

These agreements became common in the 1960s and many oil-rich countries then moved to apply them. Based on this model of contract, the oil and gas produced from reservoirs are divided between the host government and the investment company. Royalties belong to the government, but the host government and the operator are in contact over management of operations through national oil company in the country. The company operating projects is committed to paying taxes.

 

Iran and PSAs

In Iran, following the 1979 Islamic Revolution, the parliament adopted a law, banning any PSA contract for the development of hydrocarbon fields in the country because in case of implementation of such a model, the foreign company had the right to control the level of production.

 

Joint Ventures

Joint venture is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it. However, the venture is its own entity, separate and apart from the participants' other business interests.

A joint venture takes place when two parties come together to take on one project. In a joint venture, both parties are equally invested in the project in terms of money, time, and effort to build on the original concept. While joint ventures are generally small projects, major corporations also use this method in order to diversify. A joint venture can ensure the success of smaller projects for those that are just starting in the business world or for established corporations. Since the cost of starting new projects is generally high, a joint venture allows both parties to share the burden of the project, as well as the resulting profits.

 

Service Contracts

Service contracts are upstream oil agreements according to which oil companies represent the host government on behalf of the country’s national oil company. These contractors are responsible for oil discovery. These contracts set limitations on the operations and the contractor will have no ownership right on the reservoir or crude oil and it will only be paid in exchange for services. They are divided into pure service contracts, risk sharing agreements as well as buy-back contracts.  

Risk sharing occurs when two parties identify a risk and agree to share the loss upon the occurrence of the loss due to the risk. This is typically done in joint ventures (where equity owners share risks of the loss in proportion to their stakes in the venture), new ventures and relationships where each party shares actual operational control. Risks can be shared pro rata, pro rata in excess of a threshold, in sequential layers or a combination of these “pie-slicing” methods.

Risk sharing agreements are rare in outsourcing transactions. Where one party has physical control of the means of performance, the other party is prevented from exercising any control. The other party is thus prevented from acting to stop the loss. Further, outsourcing transactions typically involve repetitive business processes that are well-tested, commonplace, well understood and not inherently risky. However, outsourcing that includes some joint venture structure may involve such risk sharing arrangements.

Under buy-back deals, the foreign partner that makes the initial investment can repatriate the return on the investment (at a pre-agreed fixed rate) through goods and services produced by the project. While many foreign companies believe that this method is a mere financing instrument for Iran, it is more accurate to say that it is a compromise formula for foreign investment in the short-run. In the medium to long-term, more appropriate laws and regulations will probably replace the buy-back scheme. In other words, once the constitutional concerns have been dealt with, the foreign partners of buy-back agreements can take over the projects that they are involved in, or they can enter into a joint venture with an Iranian partner.

Buy-backs are the only option for Iran, Saudi Arabia, Kuwait, the United Arab Emirates and Iraq – all holding more than 60 percent of the world’s oil reserves – to attract foreign investment in their oil and gas sectors.

 

Oil Contracts Before 1979

Oil and oil products have long been used by people. But industrial use of oil and its derivatives dates back to 1275 AH when the first oil well, 21 meters deep, was drilled by Col. Derrick in the US State of Pennsylvania. This success prompted foreign investors to seek concessions in other countries. At that time, Naser addin Shah Qajar in Iran desperately needed money and therefore he gave concession to foreigners. The first one was the D’Arcy Concession. The oil concession gave D’Arcy the exclusive rights to prospect for oil in Persia (now Iran). During this exploration for oil, D’Arcy and his team encountered financial troubles and struggled to find sellable amounts of oil. They were about to give up but eventually struck large commercial quantities of oil in 1908. After these large commercial quantities of oil were found, the Anglo-Persian Oil Company took over the concession in 1909.

In 1933, a new contract was signed between Iran and the British Petroleum for Anglo-Iranian Oil Company to start work. This contract was similar to D’Arcy Concession.

Nationalization of oil industry in the early 1950s put an end to concessions for some time, but following the CIA-led coup against the government of Prime Minister Mohammad Mossadeq, a consortium deal was signed. The British government was benefiting from this consortium to make up for its losses.

 

PSAs

National Iranian Oil Company (NIOC) signed new contracts with some companies. The two decades from 1954 to 1974 were a modern chapter in the history of Iran’s contracts. That was when concessions were marginalized forever and production sharing contracts emerged. Iran first signed a service contract with a French group in 1966.

Production sharing agreements emerged in that period of time. Following the victory in 1979 of the Islamic Revolution, the Iraqi invasion of Iran in 1980 and the imposition of tough Western embargo on the country changed the nature of contracts. No foreign investment was attracted in the upstream oil sector up to 1989 and foreign finance was mainly used in the downstream sector.

 

Post-Revolution Oil Contracts

After the victory of the Islamic Revolution, the Council of Revolution declared all contracts null and void. Petroleum Ministry was established to sign new contracts for economic development and maximum benefit from oil resources. The Iran and Libya Sanctions Act was imposed in 1996. ILSA was a 1996 act of Congress that imposed economic sanctions on firms doing business with Iran and Libya. On September 30, 2006, the act was renamed to the Iran Sanctions Act (ISA), as it no longer applied to Libya.

The Act targeted both US and non-US business making certain investments in Iran. Under ILSA, all foreign companies that provide investments over $20 million for the development of petroleum resources in Iran will be imposed penalties.

Australia's BHP withdrew from a $3 billion gas pipeline project from Iran. Then US President Bill Clinton scuppered Conoco’s deal with Iran for the development of Siri gas reservoirs. The European Union refused to accept the US Sanctions Act and Iran formed a $2b-consortium with France’s Total, Russia’s Gazprom and Malaysia’s Petronas for the development of South Pars gas field.

 

Buy-Backs

After the Islamic Revolution, NIOC was banned from signing concessions and production sharing agreements with foreign companies. The only framework acceptable by the parliament was the buy-back model, which was a kind of oil service contract.

When the war with Iraq ended in 1988, the necessity for reconstruction of ruins and gaining revenues for economic development required attraction of foreign investment.

At that time, a committee comprised of three MPs, a representative of the president, senior officials from Plan and Budget Organization, Ministry of Economy, Ministry of Foreign Affairs and Ministry of Petroleum was established to keep a tab on oil contracts.

The administration of President Rouhani is undertaking efforts to broaden the economic diplomacy of the government. Iran’s economic strategy is again based on increased presence in the world markets.

Iran is planning to facilitate conditions for foreign investment in its energy sector in a bid to attract foreign companies.

Iran’s Petroleum Ministry plans to hold a conference in London next July to introduce new contract terms to international companies.

Last September, Petroleum Minister Bijan Namdar Zangeneh established a committee to revise oil contract terms.

Under a buyback deal, the host government agrees to pay the contractor an agreed price for all volumes of hydrocarbons the contractor produces.

World oil giants have voiced their readiness to return to Iran following the easing of sanctions against Iran in light of the implementation of Tehran’s nuclear deal with the six world powers.

Zero-One Law Inapplicable to Oil Projects

In Iran’s economic structure, the oil sector has the highest potentials and development of the petroleum industry is the main way to realize the ideals of the country’s Vision Plan which requires Iran to become the regional top power by 2025. Today, the geopolitical and strategic conditions of oil have changed in the world and different countries are vying to win investment.

To that effect, Iran is determined to make its oil contracts more attractive by modifying buy-back deals in order to offer a variety of contract models which will please investors with different tastes.

Furthermore, given the significant role of oil in the global economy and the efforts undertaken by consumers to find alternatives, Iran’s petroleum industry is reconsidering its future policies.

Iran Petroleum has conducted an interview with Roknoddin Javadi, managing-director of National Iranian Oil Company (NIOC), about new contract terms and other issues related to Iran’s petroleum industry.

 

Q: As you know, the economy of oil-rich countries depends on oil, notwithstanding the positive and negative points of this dependence. How do you evaluate the fact that this fossil substance has grown into the most important instrument of development in terms of income generation and job creation?

A: Iran is one of the largest owners of oil and gas reserves in the world. Due to the accessibility and high value of these reserves, the pillars of our country’s economy have been built on extraction, production and sale of hydrocarbon substances instead of depending on development of industry, technology, agriculture and tourism. Therefore, in the contemporary period and even after the 1979 Islamic Revolution, development in Iran has been planned based on oil and gas affairs. After the victory of the Islamic Revolution, huge efforts have been made for increasing oil and gas production and exports in order to generate more revenues for people’s welfare and the country’s development. In parallel with the development of petroleum industry, development of economic and social structures has also been taken into consideration. Expansion of gas supply networks is a case point. After Russia, Iran has the broadest gas distribution network.

Furthermore, oil and gas industries need investment in order to keep playing their vital in economic development. These industries are able to return the capital investment quickly. For instance, in South Pars gas field projects, the return of investment will occur in one year. It means that if the government is seeking a high yield it had better to invest in the oil and gas industries.

 

Q: So why does the government refuse to make investment?

A: Development of oil industry requires increased investment as well as equipment and state-of-the-art technology. Attraction of the necessary investment for the development of oil industry is not an easy task and if the government focuses all its attention on this sector, it will face serious restrictions for investment in agriculture, industry, road construction, healthcare and education. Therefore, the government is obliged to benefit from other sources while it gains revenues from oil and gas exports.

 

Q: How are projects funded? Through banks and investment institutes or foreign finance?

A: There are different ways of financing projects. The simplest method is getting loans. But the countries whose economy is stable and fund projects are reluctant to grant finance because the rate of return is very low due to interest rates.

Generally speaking, there are two customary methods of finance and attraction of investment in the world. These methods, however, have to some extent changed. One method is attracting investment based on the requirements of the target market. For instance, buyers make investment in long-term contracts for gas and LNG exports and pipeline construction. Gas industry in the breakaway republics of the Soviet Union, Algeria, Malaysia, Indonesia and Australia has developed based on this method.  The second method of attracting investment pertains to contracts struck based on commitment to production. In the oil contracts, due to the possibility of storage and distribution of oil in different periods of time and markets, most investments are made based on committed production from hydrocarbon fields. Examples of this method are the contracts signed for the development of oil fields in southern Iran before the Islamic Revolution.

 

Q: Would you please talk about production sharing contracts and buy-back deals?

A: Production sharing agreements (PSAs) are very extensive and countries have modified them based on their needs. After Oil Law was adopted in 1974 and particularly after the victory of the Islamic Revolution, signature of PSAs which meant sharing a field with a foreign party was dropped. But since Iran is a big oil market and a serious potential for investment by big oil companies and consumer countries could not ignore the position of Iran’s oil industry they sought other methods to be active in Iran’s oil sector. That is why a new framework was defined for oil contracts in order to compensate for investment risks through payment of bonuses. These contracts were known as buy-back and attracted companies and investors. Development of Siri A and Siri B oil fields was done under buy-back deals. Development of phases 2 to 8 of the South Pars gas field was within the framework of buy-back deals with foreign consortiums.

 

Q: Why do you think contractors of these projects were happy with the conditions of return of investment and profits?

A: I think that these projects were carried out satisfactorily, but due to the emergence of conditions which investors had not predicted in their contracts, their profits were lower than their estimates. For example, in the development of Soroush and Norouz oil fields by the Royal Dutch Shell, a minimum 15 percent profit had been predicted, but the margin was only 6 percent. That is why foreign companies showed less willingness to buy-back deals and no company was ready to sing such deals with NIOC.

Widespread efforts have since been undertaken for modifying the buy-back deals and presenting a new model. A new generation of buy-back deals was introduced, reassuring the investor about the risk related to investment. In the first generation of buy-backs, the volume of investment was agreed upon based on specific items, but the new generation was known as open capex. (A capital expenditure (Capex) is money invested by a company to acquire or upgrade fixed, physical, non-consumable assets, such as buildings and equipment.)

However, the new generation of buy-backs was not successful enough and most of them had been signed under specific conditions with certain companies and countries like China which lacked savvy and technology. Moreover, I think that the value of these contracts was no longer reasonable.

 

Q: Iraq has been planning for years to produce 12 mb/d of oil in one decade from now. Iraqi Oil Ministry has adopted “Per Barrel” model of contracts or hybrid contracts. Are per barrel contracts easy to be implemented in Iran?

A: Iraq benefited from Iran’s experience of buy-back and reconsidered its previous contracts by hiring a professional Canadian consultant. Then, it devised a new model of contracts which will recoup the investor based on an agreed percentage of production. Under per barrel contracts, the investor is committed to providing enhanced production services for 20 to 25 years in return for being paid the costs. For each percentage of increase in the oil production, a specific sum (varying between 1 to 5.5 dollars per barrel depending on the field’s risk) is paid to the investor. They were like production sharing agreements while the Iraqi government and country did not run any major risk.

 

Q: You have studied oil contracts in Iraq and made assessment of them. Would you please tell us about your studies?

A: I attended two conferences on oil contracts in Iraq and I received the necessary information about the model of contracts. I gathered the data I had received and submitted my findings in a report to Petroleum Ministry. I think that the Iraqi oil contracts could be a proper framework and good method for the development of oil fields. Contractors gain profits from the contract, their investment, from the risks they run and from the output. This method raises the value of shares of oil companies in the stock markets. In the meantime, it reassures owners of reservoirs about maximal and long-term recovery.

Both parties are happy with this method and I can say that Iraq removed the weaknesses of our buy-back contracts to some extent. But the implementation of contracts is also another important issue to be taken into account. However, the Iraqi model of contracts is still not attractive as production sharing agreement and reservoir sharing for multinational companies.

 

Q: Article 125 of the Fifth Five-Year Economic Development Plan (2010-2015) authorizes Petroleum Ministry to issue exploration, development and production licenses for maximum recovery from oil and gas fields. Some interpret it as insistence on production sharing agreements. Do you think that NIOC can adopt production sharing model?

A: Since the victory of the Islamic Revolution in Iran, this model of contracts has not yet been implemented and it has only been discussed. An expert committee has been set up to study them, but no decision has been made yet. The contract models which the NIOC can use depend on the country’s regulations and national interests. It would be important to see how close the buyer market and the seller market are.

Once you decide to purchase pipeline. You can meet this need by referring to several sellers. Here, you, as the buyer market, decide. But there are circumstances in which the seller market makes decision due to limited choices. In that case, the buyer will have to choose.

When we intend to sign a contract based on national interests, we have to study the circumstances to assess our power of choice. Under certain circumstances, big companies like Shell, BP, Total and Statoil are waiting to be allowed in, but under some circumstances, we have no option but to negotiate with low-profile Indian and Chinese companies.

 

Q: Given the extensiveness of oil-rich onshore and offshore regions in Iran and the diversity of hydrocarbon fields, some experts believe that one single model of contract should not be used for developing all projects. That is why they say production sharing model could be used enhanced recovery from ageing fields, development of heavy crude fields, fields shared with neighbors, or exploration from Caspian deep waters. What do you think?

A: I partially agree. Given the present circumstances and existing limitations, we have to consider a win-win relation to attract investment and technical savvy. We have to propose conditions to buyers in order to persuade them to strike deals with us. It does not mean win-lose contracts. We have to work on the contracts in order to maximize profits and minimize losses. We can strike such deals for some fields.

We should not be afraid of production sharing and we have to view it as a means for attracting investment and technical savvy for our oil industry. What Iraq did is a sort of production sharing, but the conditions of contracts are such that they have benefited Iraq only in certain oil fields.

Production sharing contract is a way of attracting investment and state-of-the-art technology. Now the important factor is to win contracts with minimum losses. It depends on the negotiators, legal experts and the contents of the contract. Zero-one law does not apply to contracts. What is important is smartness and prudence in a way to serve the interests of the country in the best possible manner. Moreover, it has to be noted that interests are not limited to the economic aspect. The signature of a contract can have political, social and strategic results in the long-term. Contracts do not leave necessarily short-term effects on the economy. They are likely to generate big gains in the long-term.

 

Q: Which model of contract do you think is the most appropriate for Iran’s oil industry in view of legal restrictions?

A: Personally, I think that the most appropriate method for operating oil projects in Iran would be engineering, procurement, construction and commissioning (EPCC) model provided that we have sufficient money. In order to make these contracts more attractive, we have to define their contents in a way that the contract would be given a portion higher than that offered by neighboring countries while guaranteeing our national interests.

In other worlds, we have either spend money ourselves and implement projects within the framework of service contracts and benefit from the services of powerful international companies or modify the buy-back deals to make them more attractive for investors.

Zero-One Law Inapplicable to Oil Projects

In Iran’s economic structure, the oil sector has the highest potentials and development of the petroleum industry is the main way to realize the ideals of the country’s Vision Plan which requires Iran to become the regional top power by 2025. Today, the geopolitical and strategic conditions of oil have changed in the world and different countries are vying to win investment.

To that effect, Iran is determined to make its oil contracts more attractive by modifying buy-back deals in order to offer a variety of contract models which will please investors with different tastes.

Furthermore, given the significant role of oil in the global economy and the efforts undertaken by consumers to find alternatives, Iran’s petroleum industry is reconsidering its future policies.

Iran Petroleum has conducted an interview with Roknoddin Javadi, managing-director of National Iranian Oil Company (NIOC), about new contract terms and other issues related to Iran’s petroleum industry.

 

Q: As you know, the economy of oil-rich countries depends on oil, notwithstanding the positive and negative points of this dependence. How do you evaluate the fact that this fossil substance has grown into the most important instrument of development in terms of income generation and job creation?

A: Iran is one of the largest owners of oil and gas reserves in the world. Due to the accessibility and high value of these reserves, the pillars of our country’s economy have been built on extraction, production and sale of hydrocarbon substances instead of depending on development of industry, technology, agriculture and tourism. Therefore, in the contemporary period and even after the 1979 Islamic Revolution, development in Iran has been planned based on oil and gas affairs. After the victory of the Islamic Revolution, huge efforts have been made for increasing oil and gas production and exports in order to generate more revenues for people’s welfare and the country’s development. In parallel with the development of petroleum industry, development of economic and social structures has also been taken into consideration. Expansion of gas supply networks is a case point. After Russia, Iran has the broadest gas distribution network.

Furthermore, oil and gas industries need investment in order to keep playing their vital in economic development. These industries are able to return the capital investment quickly. For instance, in South Pars gas field projects, the return of investment will occur in one year. It means that if the government is seeking a high yield it had better to invest in the oil and gas industries.

 

Q: So why does the government refuse to make investment?

A: Development of oil industry requires increased investment as well as equipment and state-of-the-art technology. Attraction of the necessary investment for the development of oil industry is not an easy task and if the government focuses all its attention on this sector, it will face serious restrictions for investment in agriculture, industry, road construction, healthcare and education. Therefore, the government is obliged to benefit from other sources while it gains revenues from oil and gas exports.

 

Q: How are projects funded? Through banks and investment institutes or foreign finance?

A: There are different ways of financing projects. The simplest method is getting loans. But the countries whose economy is stable and fund projects are reluctant to grant finance because the rate of return is very low due to interest rates.

Generally speaking, there are two customary methods of finance and attraction of investment in the world. These methods, however, have to some extent changed. One method is attracting investment based on the requirements of the target market. For instance, buyers make investment in long-term contracts for gas and LNG exports and pipeline construction. Gas industry in the breakaway republics of the Soviet Union, Algeria, Malaysia, Indonesia and Australia has developed based on this method.  The second method of attracting investment pertains to contracts struck based on commitment to production. In the oil contracts, due to the possibility of storage and distribution of oil in different periods of time and markets, most investments are made based on committed production from hydrocarbon fields. Examples of this method are the contracts signed for the development of oil fields in southern Iran before the Islamic Revolution.

 

Q: Would you please talk about production sharing contracts and buy-back deals?

A: Production sharing agreements (PSAs) are very extensive and countries have modified them based on their needs. After Oil Law was adopted in 1974 and particularly after the victory of the Islamic Revolution, signature of PSAs which meant sharing a field with a foreign party was dropped. But since Iran is a big oil market and a serious potential for investment by big oil companies and consumer countries could not ignore the position of Iran’s oil industry they sought other methods to be active in Iran’s oil sector. That is why a new framework was defined for oil contracts in order to compensate for investment risks through payment of bonuses. These contracts were known as buy-back and attracted companies and investors. Development of Siri A and Siri B oil fields was done under buy-back deals. Development of phases 2 to 8 of the South Pars gas field was within the framework of buy-back deals with foreign consortiums.

 

Q: Why do you think contractors of these projects were happy with the conditions of return of investment and profits?

A: I think that these projects were carried out satisfactorily, but due to the emergence of conditions which investors had not predicted in their contracts, their profits were lower than their estimates. For example, in the development of Soroush and Norouz oil fields by the Royal Dutch Shell, a minimum 15 percent profit had been predicted, but the margin was only 6 percent. That is why foreign companies showed less willingness to buy-back deals and no company was ready to sing such deals with NIOC.

Widespread efforts have since been undertaken for modifying the buy-back deals and presenting a new model. A new generation of buy-back deals was introduced, reassuring the investor about the risk related to investment. In the first generation of buy-backs, the volume of investment was agreed upon based on specific items, but the new generation was known as open capex. (A capital expenditure (Capex) is money invested by a company to acquire or upgrade fixed, physical, non-consumable assets, such as buildings and equipment.)

However, the new generation of buy-backs was not successful enough and most of them had been signed under specific conditions with certain companies and countries like China which lacked savvy and technology. Moreover, I think that the value of these contracts was no longer reasonable.

 

Q: Iraq has been planning for years to produce 12 mb/d of oil in one decade from now. Iraqi Oil Ministry has adopted “Per Barrel” model of contracts or hybrid contracts. Are per barrel contracts easy to be implemented in Iran?

A: Iraq benefited from Iran’s experience of buy-back and reconsidered its previous contracts by hiring a professional Canadian consultant. Then, it devised a new model of contracts which will recoup the investor based on an agreed percentage of production. Under per barrel contracts, the investor is committed to providing enhanced production services for 20 to 25 years in return for being paid the costs. For each percentage of increase in the oil production, a specific sum (varying between 1 to 5.5 dollars per barrel depending on the field’s risk) is paid to the investor. They were like production sharing agreements while the Iraqi government and country did not run any major risk.

 

Q: You have studied oil contracts in Iraq and made assessment of them. Would you please tell us about your studies?

A: I attended two conferences on oil contracts in Iraq and I received the necessary information about the model of contracts. I gathered the data I had received and submitted my findings in a report to Petroleum Ministry. I think that the Iraqi oil contracts could be a proper framework and good method for the development of oil fields. Contractors gain profits from the contract, their investment, from the risks they run and from the output. This method raises the value of shares of oil companies in the stock markets. In the meantime, it reassures owners of reservoirs about maximal and long-term recovery.

Both parties are happy with this method and I can say that Iraq removed the weaknesses of our buy-back contracts to some extent. But the implementation of contracts is also another important issue to be taken into account. However, the Iraqi model of contracts is still not attractive as production sharing agreement and reservoir sharing for multinational companies.

 

Q: Article 125 of the Fifth Five-Year Economic Development Plan (2010-2015) authorizes Petroleum Ministry to issue exploration, development and production licenses for maximum recovery from oil and gas fields. Some interpret it as insistence on production sharing agreements. Do you think that NIOC can adopt production sharing model?

A: Since the victory of the Islamic Revolution in Iran, this model of contracts has not yet been implemented and it has only been discussed. An expert committee has been set up to study them, but no decision has been made yet. The contract models which the NIOC can use depend on the country’s regulations and national interests. It would be important to see how close the buyer market and the seller market are.

Once you decide to purchase pipeline. You can meet this need by referring to several sellers. Here, you, as the buyer market, decide. But there are circumstances in which the seller market makes decision due to limited choices. In that case, the buyer will have to choose.

When we intend to sign a contract based on national interests, we have to study the circumstances to assess our power of choice. Under certain circumstances, big companies like Shell, BP, Total and Statoil are waiting to be allowed in, but under some circumstances, we have no option but to negotiate with low-profile Indian and Chinese companies.

 

Q: Given the extensiveness of oil-rich onshore and offshore regions in Iran and the diversity of hydrocarbon fields, some experts believe that one single model of contract should not be used for developing all projects. That is why they say production sharing model could be used enhanced recovery from ageing fields, development of heavy crude fields, fields shared with neighbors, or exploration from Caspian deep waters. What do you think?

A: I partially agree. Given the present circumstances and existing limitations, we have to consider a win-win relation to attract investment and technical savvy. We have to propose conditions to buyers in order to persuade them to strike deals with us. It does not mean win-lose contracts. We have to work on the contracts in order to maximize profits and minimize losses. We can strike such deals for some fields.

We should not be afraid of production sharing and we have to view it as a means for attracting investment and technical savvy for our oil industry. What Iraq did is a sort of production sharing, but the conditions of contracts are such that they have benefited Iraq only in certain oil fields.

Production sharing contract is a way of attracting investment and state-of-the-art technology. Now the important factor is to win contracts with minimum losses. It depends on the negotiators, legal experts and the contents of the contract. Zero-one law does not apply to contracts. What is important is smartness and prudence in a way to serve the interests of the country in the best possible manner. Moreover, it has to be noted that interests are not limited to the economic aspect. The signature of a contract can have political, social and strategic results in the long-term. Contracts do not leave necessarily short-term effects on the economy. They are likely to generate big gains in the long-term.

 

Q: Which model of contract do you think is the most appropriate for Iran’s oil industry in view of legal restrictions?

A: Personally, I think that the most appropriate method for operating oil projects in Iran would be engineering, procurement, construction and commissioning (EPCC) model provided that we have sufficient money. In order to make these contracts more attractive, we have to define their contents in a way that the contract would be given a portion higher than that offered by neighboring countries while guaranteeing our national interests.

In other worlds, we have either spend money ourselves and implement projects within the framework of service contracts and benefit from the services of powerful international companies or modify the buy-back deals to make them more attractive for investors.

Options for Attracting Investment into Oil Sector

By Behrouz Pour-Sina, energy expert  

 

Attraction of foreign investment has been a major cause of concern for government officials and experts in recent years. Upstream oil and gas sectors have been the only one to move dynamically and actively in this regard. In the meantime, oil and gas constitute the most important element of national economy.

Iran’s Petroleum Ministry has adopted methods which will help attract foreign finance through introducing upstream oil and gas projects.

But one may ask why the issue of attraction of investment is of crucial importance for Iran’s petroleum industry. The following reasons could be provided in response:

 

• We need huge investment and state-of-the-art technology to preserve and enhance the level of our oil production from proven reservoirs and also make new discoveries. To that effect, we will need to attract foreign investment.
• Although the Islamic Republic of Iran sits atop the world’s largest natural gas reserves, its share of gas exports in the world is currently standing at nearly zero.
• It is necessary to get familiar with different financial instruments with the objective of offering comparative analysis and choosing the best option within the framework of the country’s legal restrictions with a view to attracting foreign investment.
• Given the prospect of international sanctions relief, it would be reasonable to expect positive changes in favor of cooperation between Iran and international oil and gas companies. Therefore, it is necessary to pay deeper attention to different methods of investment and foreign finance for our country’s oil and gas industries.

 

 

Host Countries and International Contracts

Generally speaking, international contracts could be discussed from two financial and non-financial standpoints. Financial aspects of the contracts deal with their economic dimensions and calculations, but the non-financial aspect focuses on the following points:

 

• Legal issues and aspects
• Acquisition of the necessary skills for negotiations with countries and companies
• Learning the terminology of contracts

 

Host Government Contracts (HGC) constitutes the pattern presented regarding the non-financial aspects of signature of contracts. The HGC is divided into three categories as follows:

 

• Production Sharing Agreements (PSAs) or Production Sharing Contracts (PSCs)
• Royalty and tax on revenues contracts (RTCs) or Common Ownership Agreements (CAs)
• Service Contracts (SCs) or Service Agreements (SAs)

 

Therefore, as far as HGC is concerned, issues related to foreign investment by international oil companies (IOC) in the oil and gas sectors of host countries are discussed in the non-financial section. The methods presented here are based on concepts defined by the non-profit Association of International Petroleum Negotiators (AIPN).

The AIPN is the leading professional organization of commercial negotiators and energy lawyers in the international petroleum industry. It develops petroleum model contracts that are widely used throughout the industry, and provides educational seminars and conferences around the world.

 

Basic Concepts in HGCs

It would be interesting to note that when host government contracts are discussed, they include both oil and gas sectors.

Host Government

The host government is the government of a foreign country in which an ambassador and diplomatic staff reside while on assignment. The ambassador and staff represent the interests and policies of their own nation while they are guests of the host government.

Joint Operating Agreement

Any contract, agreement, Joint Venture, or other arrangement entered into by two or more businesses in which the operations and the physical facilities of a failing business are merged, although each business retains its status as a separate entity in terms of profits and individual mission.

Objectives

The objective of the host government involved in HGC is to attract investment from international companies in the country’s oil and gas sectors in a way that exploration, extraction and production operations along with relevant risks are under authority of the government.

The purpose of a joint operating agreement (JOA) is to protect a business from failure, yet prevent monopolization within an industry by allowing each party to retain some form of separate operation. JOAs are used in the newspaper, health care, gas and oil, and other industries.

  

Diagram 1 - Oil and Gas Projects Finance

Financing Infrastructural Projects in the Oil and Gas Sectors

Low-Risk Finance

High-Risk Finance

Profit Sharing

Contractual Systems

Common Ownership

Loan

Finance

Production Sharing Contracts

Service Contracts

 

Joint Venture		Build-Operate-Transfer

HGC Models

HGCs are divided into three categories:

 

1. Production Sharing Contracts (PSCs): A contract between a multinational oil company and a host government, in which the corporation provides capital investment, in exchange for control over an oilfield, and access to a large share of the revenues from it. This form of contract is common in many places in the world.
2. RTCs and CAs: In this contract, the products are owned by the foreign contractor and the host government receives royalties and taxes. This model of contracts is used in Canada, North America, France, England, the Netherlands, Norway, Italy, Australia, Brunei, Nigeria, Tunisia and the United Arab Emirates.
3. Service Contracts:

• Risk Sharing Contracts: These contracts are a type of production sharing contracts (PSCs). First implemented in Malaysia, the risk sharing contracts (RSC) departs from the production-sharing contract (PSC) first introduced in 1976 and most recently revised last year as the enhanced oil recovery (EOR) PSC which ramps up recovery rate from 26% to 40%. As a performance-based agreement, it is developed in Malaysia for the Malaysian people and private partners to both benefit from successfully and viably monetizing these marginal fields. Brazil, Chile, Venezuela and Peru use this model.
• Service Agreements: In this model of contracts, the contractor of IOC runs no risk with regards to exploration. The contractor provides exploration and production services in return for a predetermined sum. The contractor is paid based on the contents of the agreement, regardless of the volume of production. This payment might be in cash or in the form of products.

 

What mentioned above was a general categorization of HGCs and each category has its own subsections.

 

Diagram 1 expressed the main criteria in the contracts signed for financing oil and gas projects. This diagram studies methods of financing infrastructural projects which include both upstream and downstream oil and gas projects. There is no mention of domestic usance which could not be used in long-term projects. Here, we briefly review concepts related to the finance of projects.

 

Finance is the allocation of assets and liabilities over time under conditions of certainty and uncertainty. A key point in finance is the time value of money, which states that a unit of currency today is worth more than the same unit of currency tomorrow. Finance aims to price assets based on their risk level, and expected rate of return. Finance can be broken into three different sub categories: public finance, corporate finance and personal finance.

Usance is the allowable period of time, permitted by custom, between the date of bill and its payment. The usance of a bill varies between countries, often ranging from two weeks to two months.

In today's Financial World, the term usance denotes the period of time between the date of the bill and the payment of the bill, which is allowed by law. Usance differs from country to country. Some countries may have a usance period of as little as 2 weeks, while some others may have a usance period of up to 2 months. Usance usually applies to items or goods purchased on credit.

Usance may also mean the interest that will be charged on the person who has borrowed some amount of money. Thus, usance here means the profits earned from the lending of principal.

Production sharing contracts (PSCs) have two subsections: 1. Sharing oil 2. Sharing gross production

Service contracts are divided into three categories: 1. Risk sharing 2. Pure service contract 3. Hybrid service contract (like OSA in Kuwait)  

 

Internal Rate of Return (IRR): The discount rate often used in capital budgeting that makes the net present value of all cash flows from a particular project equal to zero. Generally speaking, the higher a project's internal rate of return, the more desirable it is to undertake the project. As such, IRR can be used to rank several prospective projects a firm is considering. Assuming all other factors are equal among the various projects, the project with the highest IRR would probably be considered the best and undertaken first.

IRR is sometimes referred to as "economic rate of return (ERR).

 

Comparative Analysis of HGCs

We have explained the common points as well as differences between different types of HGCs. More details about these similarities and differences between these subcategories are provided in Table 1.

 

Risk-Based Classification of Contracts

If we want to take into account different types of HGCs from the viewpoint of finance, this group will be entirely categorized under low-risk contracts. But a comparative analysis of these contracts has its own classification shown in Table 2 in terms of exploration and production risks.

 

This categorization is based on the views of researchers from the Oxford Institute for Energy Studies and AIPN as well as independent international experts. The service contracts defined by them are similar to Iran’s buyback deal under which the host government agrees to pay the contractor an agreed price for all volumes of hydrocarbons the contractor produces.

The following points are important with regards to service contracts:

 

• These contracts guarantee the exploration and production risk by the host government, but they are considered a high-risk method of finance for the contractor or IOC which will have to fully fund the upstream projects.
• The contractor has struck buy-back deal with Iran at a time the Islamic Republic of Iran has been under sanctions.
• Signature of buy-back exploration contracts does not by itself provide the chance for oil and gas development.
• The contract duration may be three to seven years and it might not be favorable for the IOC.
• Under these contracts, the contractor is paid from the sale of products and if the prices dwindle the government will have to reduce its own share in a bid to avoid any delay in payment to the contractor.
• If prices grow to an unpredictably high level, the volume of production will be less than expected by the contractor.

 

We are not supposed to make a comparison between buy-back and other models of contracts, but we note that buy-back contracts which proved effective when Iran was under sanctions are no longer attractive to foreign contractors as they do not offer any mechanism for optimal oil and gas recovery. Moreover, the nature of these contracts is such that companies will be reluctant to invest in newly discovered fields to explore and produce oil. They will prefer to invest in regions where the objective is development. For instance, everyone is assured that investment in South Pars gas field, which is the largest gas reservoir in the world, will be productive.

In the contracts signed for the development of phases 2 and 3 of South Pars, the contractor enjoys the advantage to be compensated from production in Siri oil region besides from production from this gas field.

In short, compared with foreign investment, finance has certain weak points.

 

Table 1 – Comparative Assessment of HGCs

Types of HGCs	CA	PSC	SA
Sections	Host government or representative of the government (legal or natural person)	Host government or representative of the government	Host government or representative of the government
	One or several contractors	One or several contractors	One or several contractors
Rights Granted	Exclusive right for exploration and production	Exclusive right for exploration and production	Pure service contract: right to provide services in return for a specific sum
			Risk sharing contract: Exclusive right for exploration and production
Production Ownership	The contractor exercises full ownership of wellhead production provided that usufructs and domestic supply are already agreed upon.	The contractor is entitled to have a specific share of production provided that it is committed to paying share of royalties as agreed upon.	The contractor owns no portion of the production and is only entitled to be paid as agreed upon.
Execution Commitments	The contractor is committed to executing specified exploration operations. (Moreover, it accounts for some financial commitments)	The contractor is committed to executing specified exploration operations. (Moreover, it accounts for some financial commitments)	Pure service contract: nothing
			Risk sharing contract: similar to PSCs
Operations Control	The degree of control varies, but the contractor is entitled to lead its plan of action as it wishes after endorsement from the host government.	The degree of control varies, but the contractor is entitled to lead its plan of action as it wishes after endorsement from the host government.	Pure service contract: The host government controls the operation.
			Risk sharing contract: similar to PSCs
Assets Ownership	The contractor is the natural owner of facilities and assets as long as the assets are not fully restored to the host government.	The contractor is the natural owner of facilities and assets as long as the assets are not fully restored to the host government, but after the installation of equipment, compensation of costs and full amortization, or after the expiration of the contract	Pure service contract: The host government owns all facilities and assets (after compensating costs)
			Risk sharing contract: similar to PSCs
Host government revenues	Bonus for signature of contract and production, usufruct, tax revenue, extra profit revenue and renting	Bonus for signature of contract and production, usufruct, tax revenue, extra profit revenue and renting	Bonus for signature of contract and tax revenue
Region of Contract	Location of Contract until Renouncement	Location of Contract until Renouncement	Location of Contract until Renouncement
Renouncement	A segment of the region mentioned in the contract at the end of each stage of exploration and normally completely, except for operated regions	A segment of the region mentioned in the contract at the end of each stage of exploration and normally completely, except for operated regions	A segment of the region mentioned in the contract at the end of each stage of exploration and normally completely, except for operated regions

          

 

Table 2 – HGC Classification Based on Exploration and Production Risk, Bonuses and Received Sums

Host Government	Contractor	Contract
Received from contractor based on production and prices	Entire risk/entire production	CA
Portion of production	Exploration and production risk/ portion of production	PSA
Sharing risks	Sharing risks and production	Joint Venture
Entire production	Exploration and production risk/payment based on production	Share-Risking Agreement
Entire risk/entire production	Without exploration and production risk/payment based on production	Service Contract

 

Conclusion

Specific conditions of the late 20^th century, specifically Iran-Libya Sanctions Act (ILSA), prompted Iranian officials to define the buy-back structure as a model of contract for oil and gas projects. But under the present circumstances as sanctions are eased, other models are required to be devised with a view to attracting foreign investment in the oil and gas sectors. Production sharing agreements, risk sharing contracts and service contracts are much more attractive to international companies now. The unique HGC method applied in the US might have given rise to a misunderstanding about the ownership of oil and gas reserves. But it must be noted that in most countries in the world, HGC rejects any IOC ownership of oil and gas reserves in the host country. Relevant examples are HGC models used in Nepal in 1994 and in Albania in 1998 for the attraction of foreign investment in the oil and gas sectors. All of these PSC-style contracts do not give any right of ownership to the contractor on the hydrocarbon reserves.

Options for Attracting Investment into Oil Sector

By Behrouz Pour-Sina, energy expert  

 

Attraction of foreign investment has been a major cause of concern for government officials and experts in recent years. Upstream oil and gas sectors have been the only one to move dynamically and actively in this regard. In the meantime, oil and gas constitute the most important element of national economy.

Iran’s Petroleum Ministry has adopted methods which will help attract foreign finance through introducing upstream oil and gas projects.

But one may ask why the issue of attraction of investment is of crucial importance for Iran’s petroleum industry. The following reasons could be provided in response:

 

• We need huge investment and state-of-the-art technology to preserve and enhance the level of our oil production from proven reservoirs and also make new discoveries. To that effect, we will need to attract foreign investment.
• Although the Islamic Republic of Iran sits atop the world’s largest natural gas reserves, its share of gas exports in the world is currently standing at nearly zero.
• It is necessary to get familiar with different financial instruments with the objective of offering comparative analysis and choosing the best option within the framework of the country’s legal restrictions with a view to attracting foreign investment.
• Given the prospect of international sanctions relief, it would be reasonable to expect positive changes in favor of cooperation between Iran and international oil and gas companies. Therefore, it is necessary to pay deeper attention to different methods of investment and foreign finance for our country’s oil and gas industries.

 

 

Host Countries and International Contracts

Generally speaking, international contracts could be discussed from two financial and non-financial standpoints. Financial aspects of the contracts deal with their economic dimensions and calculations, but the non-financial aspect focuses on the following points:

 

• Legal issues and aspects
• Acquisition of the necessary skills for negotiations with countries and companies
• Learning the terminology of contracts

 

Host Government Contracts (HGC) constitutes the pattern presented regarding the non-financial aspects of signature of contracts. The HGC is divided into three categories as follows:

 

• Production Sharing Agreements (PSAs) or Production Sharing Contracts (PSCs)
• Royalty and tax on revenues contracts (RTCs) or Common Ownership Agreements (CAs)
• Service Contracts (SCs) or Service Agreements (SAs)

 

Therefore, as far as HGC is concerned, issues related to foreign investment by international oil companies (IOC) in the oil and gas sectors of host countries are discussed in the non-financial section. The methods presented here are based on concepts defined by the non-profit Association of International Petroleum Negotiators (AIPN).

The AIPN is the leading professional organization of commercial negotiators and energy lawyers in the international petroleum industry. It develops petroleum model contracts that are widely used throughout the industry, and provides educational seminars and conferences around the world.

 

Basic Concepts in HGCs

It would be interesting to note that when host government contracts are discussed, they include both oil and gas sectors.

 

Host Government

 

The host government is the government of a foreign country in which an ambassador and diplomatic staff reside while on assignment. The ambassador and staff represent the interests and policies of their own nation while they are guests of the host government.

 

Joint Operating Agreement

 

Any contract, agreement, Joint Venture, or other arrangement entered into by two or more businesses in which the operations and the physical facilities of a failing business are merged, although each business retains its status as a separate entity in terms of profits and individual mission.

 

Objectives

 

The objective of the host government involved in HGC is to attract investment from international companies in the country’s oil and gas sectors in a way that exploration, extraction and production operations along with relevant risks are under authority of the government.

The purpose of a joint operating agreement (JOA) is to protect a business from failure, yet prevent monopolization within an industry by allowing each party to retain some form of separate operation. JOAs are used in the newspaper, health care, gas and oil, and other industries.

 

   

 

     

Diagram 1 - Oil and Gas Projects Finance

Financing Infrastructural Projects in the Oil and Gas Sectors

Low-Risk Finance

High-Risk Finance

Profit Sharing

Contractual Systems

Common Ownership

Loan

Finance

Production Sharing Contracts

Service Contracts

 

Joint Venture		Build-Operate-Transfer

HGC Models

HGCs are divided into three categories:

 

1. Production Sharing Contracts (PSCs): A contract between a multinational oil company and a host government, in which the corporation provides capital investment, in exchange for control over an oilfield, and access to a large share of the revenues from it. This form of contract is common in many places in the world.
2. RTCs and CAs: In this contract, the products are owned by the foreign contractor and the host government receives royalties and taxes. This model of contracts is used in Canada, North America, France, England, the Netherlands, Norway, Italy, Australia, Brunei, Nigeria, Tunisia and the United Arab Emirates.
3. Service Contracts:

• Risk Sharing Contracts: These contracts are a type of production sharing contracts (PSCs). First implemented in Malaysia, the risk sharing contracts (RSC) departs from the production-sharing contract (PSC) first introduced in 1976 and most recently revised last year as the enhanced oil recovery (EOR) PSC which ramps up recovery rate from 26% to 40%. As a performance-based agreement, it is developed in Malaysia for the Malaysian people and private partners to both benefit from successfully and viably monetizing these marginal fields. Brazil, Chile, Venezuela and Peru use this model.
• Service Agreements: In this model of contracts, the contractor of IOC runs no risk with regards to exploration. The contractor provides exploration and production services in return for a predetermined sum. The contractor is paid based on the contents of the agreement, regardless of the volume of production. This payment might be in cash or in the form of products.

 

What mentioned above was a general categorization of HGCs and each category has its own subsections.

 

Diagram 1 expressed the main criteria in the contracts signed for financing oil and gas projects. This diagram studies methods of financing infrastructural projects which include both upstream and downstream oil and gas projects. There is no mention of domestic usance which could not be used in long-term projects. Here, we briefly review concepts related to the finance of projects.

 

Finance is the allocation of assets and liabilities over time under conditions of certainty and uncertainty. A key point in finance is the time value of money, which states that a unit of currency today is worth more than the same unit of currency tomorrow. Finance aims to price assets based on their risk level, and expected rate of return. Finance can be broken into three different sub categories: public finance, corporate finance and personal finance.

Usance is the allowable period of time, permitted by custom, between the date of bill and its payment. The usance of a bill varies between countries, often ranging from two weeks to two months.

In today's Financial World, the term usance denotes the period of time between the date of the bill and the payment of the bill, which is allowed by law. Usance differs from country to country. Some countries may have a usance period of as little as 2 weeks, while some others may have a usance period of up to 2 months. Usance usually applies to items or goods purchased on credit.

Usance may also mean the interest that will be charged on the person who has borrowed some amount of money. Thus, usance here means the profits earned from the lending of principal.

Production sharing contracts (PSCs) have two subsections: 1. Sharing oil 2. Sharing gross production

Service contracts are divided into three categories: 1. Risk sharing 2. Pure service contract 3. Hybrid service contract (like OSA in Kuwait)  

 

Internal Rate of Return (IRR): The discount rate often used in capital budgeting that makes the net present value of all cash flows from a particular project equal to zero. Generally speaking, the higher a project's internal rate of return, the more desirable it is to undertake the project. As such, IRR can be used to rank several prospective projects a firm is considering. Assuming all other factors are equal among the various projects, the project with the highest IRR would probably be considered the best and undertaken first.

IRR is sometimes referred to as "economic rate of return (ERR).

 

Comparative Analysis of HGCs

We have explained the common points as well as differences between different types of HGCs. More details about these similarities and differences between these subcategories are provided in Table 1.

 

Risk-Based Classification of Contracts

If we want to take into account different types of HGCs from the viewpoint of finance, this group will be entirely categorized under low-risk contracts. But a comparative analysis of these contracts has its own classification shown in Table 2 in terms of exploration and production risks.

 

This categorization is based on the views of researchers from the Oxford Institute for Energy Studies and AIPN as well as independent international experts. The service contracts defined by them are similar to Iran’s buyback deal under which the host government agrees to pay the contractor an agreed price for all volumes of hydrocarbons the contractor produces.

The following points are important with regards to service contracts:

 

• These contracts guarantee the exploration and production risk by the host government, but they are considered a high-risk method of finance for the contractor or IOC which will have to fully fund the upstream projects.
• The contractor has struck buy-back deal with Iran at a time the Islamic Republic of Iran has been under sanctions.
• Signature of buy-back exploration contracts does not by itself provide the chance for oil and gas development.
• The contract duration may be three to seven years and it might not be favorable for the IOC.
• Under these contracts, the contractor is paid from the sale of products and if the prices dwindle the government will have to reduce its own share in a bid to avoid any delay in payment to the contractor.
• If prices grow to an unpredictably high level, the volume of production will be less than expected by the contractor.

 

We are not supposed to make a comparison between buy-back and other models of contracts, but we note that buy-back contracts which proved effective when Iran was under sanctions are no longer attractive to foreign contractors as they do not offer any mechanism for optimal oil and gas recovery. Moreover, the nature of these contracts is such that companies will be reluctant to invest in newly discovered fields to explore and produce oil. They will prefer to invest in regions where the objective is development. For instance, everyone is assured that investment in South Pars gas field, which is the largest gas reservoir in the world, will be productive.

In the contracts signed for the development of phases 2 and 3 of South Pars, the contractor enjoys the advantage to be compensated from production in Siri oil region besides from production from this gas field.

In short, compared with foreign investment, finance has certain weak points.

 

 

 

Table 1 – Comparative Assessment of HGCs

Types of HGCs	CA	PSC	SA
Sections	Host government or representative of the government (legal or natural person)	Host government or representative of the government	Host government or representative of the government
	One or several contractors	One or several contractors	One or several contractors
Rights Granted	Exclusive right for exploration and production	Exclusive right for exploration and production	Pure service contract: right to provide services in return for a specific sum
			Risk sharing contract: Exclusive right for exploration and production
Production Ownership	The contractor exercises full ownership of wellhead production provided that usufructs and domestic supply are already agreed upon.	The contractor is entitled to have a specific share of production provided that it is committed to paying share of royalties as agreed upon.	The contractor owns no portion of the production and is only entitled to be paid as agreed upon.
Execution Commitments	The contractor is committed to executing specified exploration operations. (Moreover, it accounts for some financial commitments)	The contractor is committed to executing specified exploration operations. (Moreover, it accounts for some financial commitments)	Pure service contract: nothing
			Risk sharing contract: similar to PSCs
Operations Control	The degree of control varies, but the contractor is entitled to lead its plan of action as it wishes after endorsement from the host government.	The degree of control varies, but the contractor is entitled to lead its plan of action as it wishes after endorsement from the host government.	Pure service contract: The host government controls the operation.
			Risk sharing contract: similar to PSCs
Assets Ownership	The contractor is the natural owner of facilities and assets as long as the assets are not fully restored to the host government.	The contractor is the natural owner of facilities and assets as long as the assets are not fully restored to the host government, but after the installation of equipment, compensation of costs and full amortization, or after the expiration of the contract	Pure service contract: The host government owns all facilities and assets (after compensating costs)
			Risk sharing contract: similar to PSCs
Host government revenues	Bonus for signature of contract and production, usufruct, tax revenue, extra profit revenue and renting	Bonus for signature of contract and production, usufruct, tax revenue, extra profit revenue and renting	Bonus for signature of contract and tax revenue
Region of Contract	Location of Contract until Renouncement	Location of Contract until Renouncement	Location of Contract until Renouncement
Renouncement	A segment of the region mentioned in the contract at the end of each stage of exploration and normally completely, except for operated regions	A segment of the region mentioned in the contract at the end of each stage of exploration and normally completely, except for operated regions	A segment of the region mentioned in the contract at the end of each stage of exploration and normally completely, except for operated regions

          

 

Table 2 – HGC Classification Based on Exploration and Production Risk, Bonuses and Received Sums

Host Government	Contractor	Contract
Received from contractor based on production and prices	Entire risk/entire production	CA
Portion of production	Exploration and production risk/ portion of production	PSA
Sharing risks	Sharing risks and production	Joint Venture
Entire production	Exploration and production risk/payment based on production	Share-Risking Agreement
Entire risk/entire production	Without exploration and production risk/payment based on production	Service Contract

 

Conclusion

Specific conditions of the late 20^th century, specifically Iran-Libya Sanctions Act (ILSA), prompted Iranian officials to define the buy-back structure as a model of contract for oil and gas projects. But under the present circumstances as sanctions are eased, other models are required to be devised with a view to attracting foreign investment in the oil and gas sectors. Production sharing agreements, risk sharing contracts and service contracts are much more attractive to international companies now. The unique HGC method applied in the US might have given rise to a misunderstanding about the ownership of oil and gas reserves. But it must be noted that in most countries in the world, HGC rejects any IOC ownership of oil and gas reserves in the host country. Relevant examples are HGC models used in Nepal in 1994 and in Albania in 1998 for the attraction of foreign investment in the oil and gas sectors. All of these PSC-style contracts do not give any right of ownership to the contractor on the hydrocarbon reserves.

Production Sharing Contract, an Acceptable Model

 

Benefiting from foreign investment in the petroleum industry is among essential measures for the implementation of oil projects in Iran, some analysts believe. However, there are those who reject this idea.

Hassan Sobhani, a senior economist, says the biggest challenge to Iran’s economic development is the country’s flawed banking system.

Sobhani, a three-time former lawmaker, maintains that the banking system needs to be restructured so that capital would be directed to production and oil industry projects. To that end, he said, the first step will be to scupper interest rates.

As far as oil projects are concerned, Sobhani favors production sharing agreement model specifically for high-risk fields and fields which Iran shares with neighboring countries.

Sobhani is among the first graduates of economy at the PhD level from Iranian universities following the 1979 Islamic Revolution. In the parliament, he served as chairman of Planning and Budgeting Committee.

He shares his views in an interview granted to Iran Petroleum.

 

Q: Let’s start from the necessity for investment in the petroleum industry.

A: The petroleum industry, as an important element of the country’s economy, needs major investment, but this volume of investment must be consistent with other economic sectors.

 

Q: What do you mean by consistency?

A: If investment is to be made its consistency with domestic and international economies must be clarified first. In fact, all aspects of investment need to be analyzed. After this stage, the necessity, the volume and the method of investment are determined. Regarding the method of investment, we must see if we need capital or technology because they differ. As far as these issues are not clarified, we cannot say if we need domestic or foreign investment.

 

Q: To what extent do you think the sanctions are effective?

A: Definitely, the sanctions can cause delays and challenges to investment and technology, but as far as the finance is concerned I believe that mechanisms could be worked out to resolve this problem to some extent. The structure of banking system is such that it is always one of the best sources of investment in all sectors particularly petroleum industry because, unlike banking system in other countries, Iranian banks participate in the projects instead of granting loans.

Our banking system has made it clear that the banks should not borrow money for generating revenues and increasing their profits and that they have to contribute to the projects to help the blossoming of production.

Before entering a sector of the economy, the investor must take into consideration the target market, benefit costs, profits, expertise, etc, and have a precise and reasonable assessment of the project. However, it seems that domestic banks have not conducted any precise assessment of oil projects.

 

Q: What should be done for the successful presence of banks in the petroleum industry?

A: In Paragraph 2 of Article 43 of the Constitution, it has been made clear that the Islamic Republic’s economy must be organized so that to provide facilities to those who are able to operate projects. These facilities must be provided in a legitimate way and illegitimate facilities are not acceptable.

Over the past years, Iran’s economy and petroleum industry have failed to benefit from their material and physical facilities and the endeavors of their manpower in favor of growth. Therefore, I believe that we have to undertake endeavors with a firm determination to erase any unreasonable benefit off the economy.

 

Q: Different economic centers have announced that the country’s liquidity stands at around 5,000 trillion rials. Is it possible to adopt measures to direct this sum into the petroleum industry?

A: I personally believe that the liquidity is not too high and it has just been misplaced. I mean that the money supply is not serving production. Now you may ask why it is misplaced. I have to say that because of the high profitability of its owners. The important thing for liquidity is to make gains for its owners. Definitely, if production proves to be more profitable it will attract the liquidity. If oil proves to be lucrative it will go towards that sector.

 

Q: Is it possible to attract liquidity for oil industry development projects by raising the interest rate of oil bonds?

A: Legally speaking, it is possible, but if such a thing happens, all money from other sectors of the economy will go towards oil. In that event, the country’s economy will lose its equilibrium and another challenge will come up. The petroleum industry is very important for the economy, but not to the extent to weaken other sectors like industry, agriculture and trade. The international economy will benefit if all money goes to the oil sector. That is why I said that we have to see if the investment serves the country’s economy or the international economy.

Definitely we don’t intend to destroy our own economy just to reassure the world about oil production. Oil production enhancement can largely contribute to boosting our position in the world, but it does not cost so much.

 

Q: Based on what you said, we cannot count on domestic resources for investment in the upstream oil sector and development of hydrocarbon fields. We have to move towards attraction of foreign investment. What should be done then?

A: Before anything, we must see why investment needs to be attracted. It may be so urgent that the National Iranian Oil Company (NIOC) would not care whether the Iranian party or the foreign party would gain profits.

 

Q: The NIOC is seeking to raise output...

A: I think that we should always choose the one which would do a better job. If it is Iranian, that would be very good. If not, we have to look for a foreigner. In the meantime, we should see what our laws say on the issue. We have also to take into account the restrictions.

 

Q: Should our contracts be based on our own legal system or international law?

A: The legal system which is effective in the country unless there is a point which does not violate our Constitution. In the joint fields, we have to reach agreement with our partners. Oil contracts are signed between experts and therefore we have to train our experts in the best possible way.

 

Q: You have been in the parliament for several terms and you are well familiar with economic regulations. Do you think that production sharing contracts violate the law?

A: There is no problem if the ownership is not transferred to the foreign party. Concession is strictly forbidden unless the Iranian party is given a minimum 51-percent share.

 

Q: Where should the implementation of production sharing contracts start from?

A: Using production sharing model is reasonable for joint and high-risk fields, but only for some fields not all of them. Noting is more important than national interests and the interests of the Islamic establishment. Therefore, decisions must be made firmly and clearly. Costs and benefits must be studied carefully and viewed from all aspects.

Oil Product Exports Fetch $17b in 9 Months

 

Oil, gas and petrochemical sectors are the most important advantage of Iran and the focal point of its economy. The Union of Oil, Gas and Petrochemical Products Exporters is a private entity involved in this sector. The union has managed to earn more than 17 billion dollars from selling oil, gas and petrochemical exports during the first three quarters of the current Iranian calendar year which ends on March 20.

In order to get further familiar with the latest activities of this union, Iran Petroleum has interviewed Hassan Khosrojerdi, director of this union.

 

Q: Would you please tell us about the objectives of the establishment of this union?

A: The Union of Oil, Gas and Petrochemical Products Exporters started work in 2003 with 54 companies. The objectives of this union include making efforts for the regulation of export and re-export of oil products from the Islamic Republic of Iran and improving the quality of service-providing by members, gathering data about supply and demand as well as consumer markets and production, making this data available for improving knowledge, communicating with banks and credit institutes in the country, international financial and fiscal arrangements for providing financial and credit facilities for member organizations.

 

Q: How many members does this union have now? Which countries does this union export commodities to?

A: The Union of Oil, Gas and Petrochemical Products Exporters has more than 274 active members picked under different regulations. They are mainly export-oriented producers or have commodities for exports. More than 70 percent of exports are destined to Commonwealth of Independent States (CIS) and the rest is bound for Central Asian, African and some European countries. More than 2,000 companies are in contact with this union either directly or under contracts. Marketing of products as well as trading are done through them.

 

Q: Does the private sector have any swapping activities?

A: Swap is an advantage in this industry. The private sector has been doing swap operations for five years. But due to the low price of energy in the Persian Gulf and non-observation of the rules of the market by some energy activists in the region, this method is currently not economical. Energy prices are not the same in the north and in the south and their difference is too much. Therefore, swap is not cost-effective. However, the advantage with swap is that the government will not have to pay for transportation costs. For example, if you deliver 10 million dollars of fuel oil in the north, you will receive 10 million dollars of fuel oil in the south. Gradually, non-similar products could be also swapped.

 

Q: The private sector is said to have been active in building mini-refineries.

A: Given the formation of a consortium comprised of private sectors from several countries, we have managed to make the necessary arrangements for financing mini-refineries in six African and three Asian countries. All constructors of these projects are Iranian and their design has already been done and some of them have been located. Moreover, 51 percent of finance for these nine refineries is local and the rest is provided by the private consortium.

 

Q: How much capital investment and space are needed for these refineries? How long will the return of investment take?

A: The construction of a mini-refinery to process condensate with an output of 20,000 barrels, 20 million dollars will be needed. But if the refinery is defined for oil processing, 35 million dollars will be needed. Earlier, such refineries cost more than 100 million dollars, but the price has declined due to competition between the growing number of builders. For 20,000-barrel mini-refineries, 3,000 ha of land is needed. We are trying to set up these facilities using the minimum space and make them profitable.

Return of investment, which is one of our most important motivations for investment in this sector, is the top priority. Based on plans made to that effect, these refineries will return the investment after three years of operation. It’s an attractive point for investors.

In these refineries, environmental concerns have been taken into account. To that effect, a unit for separating sulfur, which is the main cause of pollution, is envisaged in these refineries. There is no problem with environmental aspects. Regarding the location and cost-effectiveness of construction of industrial and production units, the unit must be near the consumption centers or raw material supply centers. As far as refineries are concerned, they must be near feedstock. There is no obstacle to the development of mini-refineries and they will be able to increase their capacity if they are financed. For instance, in an African country, a 20,000-barrel mini-refinery project was carried out and with that country’s state fund, the capacity increased to 50,000 barrels.

 

Q: What is the difference between mini-refineries and big refineries?

A: Compared with big refineries, the only disadvantage with mini-refineries is that in big refineries you can have around nine cuts, but in mini-refineries only four cuts are possible. For fuel supply, mini-refineries are sufficient, but for more cuts we will have to build big refineries which cost higher.

 

Q: Where does Iran stand among countries owning technology for mini-refineries?

A: At present, Russia and Kazakhstan have done acceptable activities about these refineries and Iran has managed to have a good share in this trade by building 11 mini-refineries in the cities of Tabriz, Qom, Yazd, Khorassan, Ahvaz, etc. Products of these refineries are all exported.

 

Q: What is your assessment of the capability of the private sector?

A: The private sector controlled the downstream industries in the past. But in recent years, the private sector has boosted its scientific level due to the involvement of experienced and veteran managers who have got retired from their government posts. The private sector has employed oil, gas and petrochemical experts.

 

Q: Which activities does the union have under way now?

A: The objective we are currently following is to build a complex of refineries with minimum capacity of 20,000 barrels. Some of them have already been located along northern and southern borders and along border with Iraq. The reason for this choice of location has been access to feedstock. Construction of two desulfurization units in Ilam and Ahvaz are among the activities under way by the union. These units would reduce the sulfur content of products including in sour gas.

Eni Eyes Offshore Mozambique

Eni has provided an overview of its exploration highlights from 2013.

In Area 4 offshore Mozambique, the company appraised the Mamba and Coral gas discoveries and found more gas in Agulha, a new prospect drilled in 2,492 m (8,176 ft) of water in the southern section and the 10th find on the concession.

Management now believes Area 4 may contain up to 90 tcf (2.5 tcm) of in-place gas.

This year Eni will continue appraisal activities, with two or three wells planned on Agulha, and delineation of the Coral 3, Mamba South 3, and Mamba North East 3 gas wells.

In Congo’s offshore block Marine XII (Eni operator with a 65% interest), combined potential from the Nene Marine oil and gas discovery and the Litchendjili Marine gas/condensates field could be around 2.5 Bboe in place.

Results from last year’s Sankofa East-2A appraisal well in Ghana’s Offshore Cape Three Points license (Eni operator with 47.22%) suggest potential recoverable oil in the structure of up to 150 MMbbl.

In the Timor Sea off northern Australia, the Evans Shoal North-1 discovery in the NT/P48 permit could hold in-place gas of 8 tcf (227 bcm).

 

Petronas to Invest in Malaysia

Petronas has reached a final investment decision (FID) for its second floating liquefied natural gas facility (PFLNG 2) project, located off the coast of Sabah in Malaysia. The FID was approved by the Petronas board on Jan. 23.

With this approved FID, Petronas has issued a letter of award for the engineering procurement, construction, installation, and commissioning (EPCIC) contract for the project to a consortium comprising JGC Corp., Samsung Heavy Industries Co. Ltd., JGC (Malaysia) Sdn Bhd, and Samsung Heavy Industries (M) Sdn Bhd.

The EPCIC contract award followed the 2012 dual front-end engineering design (FEED) study for the project undertaken by two consortia – the Modec Inc., CB&I Nederland BV, and Toyo Engineering Corp. consortium, and the JGC Corp., Samsung Heavy Industries Co. Ltd., JGC (Malaysia) Sdn Bhd, and Samsung Heavy Industries (M) Sdn Bhd consortium.

 

$28b Shah Deniz Project Okayed

The BP-led Shah Deniz consortium have taken a final investment decision for the Stage 2 development of the gas field offshore Azerbaijan.

This involves expanding the existing overland South Caucasus pipeline through Azerbaijan and Georgia, and constructing the Trans-Anatolian Gas Pipeline (TANAP) across Turkey and the connecting Trans-Adriatic Pipeline (TAP) through Greece, Albania, and into Italy.

These projects, along with gas transmission infrastructure to Bulgaria, will create a new Southern Gas Corridor to Europe.

Investments at Shah Deniz will include drilling and completion of 26 new subsea wells and construction of two bridge-linked platforms. Onshore there will be new processing and compression facilities at Sangachal.

BP estimates the total cost of Shah Deniz Stage 2 and the various pipeline projects at around $28 billion. These will transport 16 bcm/yr (565 bcf/yr) of gas from the giant offshore field around 3,500 km (2,175 mi) to consumers in Georgia, Turkey, Greece, Bulgaria, and Italy.

The consortium is targeting first gas for late 2018, starting with sales to Georgia and Turkey. Deliveries to Europe will follow a year later.

Condensate production from Shah Deniz should increase from the current level of 55,000 b/d to 120,000 b/d.

Technip Assigned Fasttrack Jalilah Project

Dubai Petroleum Establishment (DPE) has awarded Technip an engineering, procurement, construction, and installation contract for the Jalilah B field development, 90 km (56 mi) offshore Dubai in water depths of up to 60 m (197 ft).

The work scope includes construction and installation of the Jalilah B platform, comprising a 900-ton deck and a 500-ton jacket, along with 13 new risers on existing platforms.

Additionally, Technip will lay 110 km (68 mi) of pipelines ranging in diameter from 6-24-in., using three vessels including the company’s flagship S-lay installation vessel G1201.

Technip’s operating center in Abu Dhabi will manage the project, which is due to be completed in the second half of this year.

In 2012, DPE awarded the company its first subsea work in the Middle East for the South West Fateh and Falah field developments.

Meanwhile, Drydocks World & Maritime World has held talks with shipping group Foresight about developing the latter’s drilling rig business.

These could include building LeTourneau Super 116E rigs at the Drydocks World yard in Dubai.

Foresight currently manages its offshore drilling, tankers, and multi-purpose vessel fleet from Cyprus, but is keen to shift its base to the UAE as a more recognized hub for maritime activity.

 

Kvaerner to Join Aasta Hansteen Spar Preparations

Hyundai Heavy Industries (HHI) has awarded Kvaerner a subcontract for Statoil’s Aasta Hansteen Norwegian Sea project.

Kvaerner will provide hook-up and commissioning assistance for the spar platform’s topsides, with onshore work performed at Stord, western Norway, and the offshore scope at the field center, 300 km (186 mi) west of Bodø.

The onshore work program will take place during the first half of 2016 while the platform is moored at Kvaerner’s deepwater site in Digernessundet, near its offshore yard in Stord.

HHI aims to have the platform ready for tow-out in summer 2016, followed later in the year by mechanical completion.

The spar substructure and topsides will be transported from South Korea to Stord, Norway, on separate heavy-lift vessels.

Last month, substructure engineering contractor Technip commissioned Kvaerner to assist mooring, upending, ballasting, installation of predefined equipment, and preparation of the spar for mating with the topsides.

Statoil says Aasta Hansteen and the associated 480-km (298-mi) Polarled subsea gas line to Nyhaman have created jobs for 200 people on Norway’s Helgeland coast.

Helix Secures Contracts With Petrobras

Helix Energy Solutions Group Inc. has agreed to provide well intervention services offshore Brazil for Petrobras. Helix will use two newbuild chartered monohull vessels, which will be built at the Flensburger shipyard in Germany for Siem Offshore AS.

Helix will provide the topsides and manage the integration of the well intervention equipment onto the vessels, while Siem is responsible for the monohull build and will oversee the construction at the shipyard. Siem will own the vessels, and will charter both the vessels and marine crew to Helix for an initial period of seven years.

Helix’s aggregate investment in the topside equipment for both vessels is expected to be $260 million.

High-Impact Oil in Bay du Nord

Statoil and co-venturer Husky Energy are building a major oil reserves base offshore Newfoundland & Labrador.

Bay du Nord, their third discovery in the Flemish Pass basin, could hold 300-600 MMbbl recoverable, according to Statoil, while Husky’s best estimate of contingent resources is 400 MMbbl.

The semisubmersible West Aquarius drilled the well 500 km (310 mi) northeast of St. John’s, in 1,100 m (3,609 ft) of water. A side track well completed this week confirmed the magnitude of discovery, and further prospective resources have been identified.

Bay du Nord was drilled 20 km (12.4 mi) south of the Mizzen oil find, which could hold 100-200 MMbbl recoverable. Results from this June’s Harpoon light oil discovery well remain under evaluation. Both are in similar water depths.

The Bay du Nord well encountered 34°API light oil and good-quality Jurassic reservoirs with high porosity and high permeability.

Tim Dodson, executive vice president of Statoil Exploration, said: “With only a few wells drilled in a large licensed area, totaling about 8,500 sq km [3,282 sq mi], more work is required. This will involve new seismic as well as additional exploration and appraisal drilling to confirm these estimates before the partnership can decide on an optimal development solution in this frontier basin.” Husky said the discoveries could be developed in tandem.

Iran Speaks with Language of Oil  

Iran’s parliament is the legislative branch of the Islamic government. It has specialized committees for different sectors in the country. Energy Committee of Iran’s parliament has been assigned the task of studying affairs related to oil, gas, electricity, dam construction, hydraulic power plants, atomic energy and new energies.

In the current Iranian parliament, the Energy Committee has 24 members working within the framework of four specialized subcommittees with oil and gas subcommittee being the most important one. Fourteen MPs are members of the oil and gas subcommittee led by Nader Fereidouni. Saeed Heydari, who is a member of this subcommittee, has talked to Iran Petroleum about the necessity for modifying oil contract terms.

“Iran is known with its oil and gas reserves and the world desperately needs energy,” he says, adding that the world economy is convinced that Iran’s energy supply will be secure and low-cost. Here is the full text of the interview Heydari gave to Iran Petroleum:

 

Q: To start the interview, would you please tell us about the status of Iran’s oil sector?

A: Sanctions made conditions difficult for Iran’s oil over the past two years, but let me tell you this promising news that Iran’s oil is faring better since the new administration took office. We must take a look at the World Economic Forum (WEF) in Davos where the president [Hassan Rouhani] presented a favorable image of Iran’s politics and economy.

The president did correctly when he took the petroleum minister [Bijan Namdar Zanganeh] and minister of foreign affairs [Mohammad Javad Zarif] with him. He signaled to the world that Iran seeks interaction with the world through energy diplomacy.

Oil meetings by Rouhani and Zanganeh on the sidelines of the WEF were for that purpose. After the president’s return to Tehran, the grounds are prepared for other countries to send delegates to Iran. Such visits are a kind of interaction. The parliament will carry out its monitoring task with precision. Now we can say that Iran’s oil sector is moving towards “economic blossoming and development”.

 

Q: Why do you think it is necessary to modify oil contract terms in Iran?

A: Due to the geopolitical influence of oil, Iran’s oil fields have promoted Iran’s status. Hydrocarbon substances are located at good depths in Iran, even in the Persian Gulf waters. Consumers are thirsty for low-cost, secure and accessible energy. Iran’s oil fields are currently the best option for the world oil companies. They know quite well that the costs and risk in Iran’s oil fields are ten times lower than in some other places in the world.

Besides the fact that the sanctions are easing under the aegis of Iran’s agreement with the P5+1 group of world powers, the structure of Iran’s oil contracts must become more attractive. Our neighbors have overtaken us in recent years by adopting these tactics [of modifying contract terms]. At present, our oil contract framework is buy-back which need to be revised.

 

Q: Why aren’t buy-back contracts effective any longer?

A: Buy-back deals were effective once for the country and they attracted tens of billions of dollars in investment for the development of oil and gas fields shared with neighbors. With buy-back contracts, Iran managed to recover millions of barrels of oil and a huge volume of gas condensate and gas.

 

Q: So what’s the problem?

A: The oil ambiance in the region and the world has changed drastically over the past 20 years. Oil-rich countries in the region are using any incentive to attract investors. Political conditions have changed in the region and the world. It is a must for Iran, the top holder of hydrocarbon reserves in the world, to acquire its share of the world market.

It is said that investors would not have come even if the country was not under sanctions because the buy-back structure is no longer attractive. They have not been very attractive for us, but they have been our instrument so far. Now, both parliament and government insist on the urgency of Ira’s recovery from joint hydrocarbon fields. The parliament is ready to study new oil contracts and complete them. It can even adopt new laws if necessary.

All MPs n the Iranian parliament are concerned with enhanced oil recovery and more exports because that will bring about economic overhaul and job creation. Therefore, development and growth of oil, gas, refining, distribution and petrochemical sectors are a pivotal demand by the MPs.

 

Q: How is the process of oil contract modifications in Iran?

A: When the petroleum minister showed up in the Majlis to present his ministerial plan, he spoke of energy diplomacy as a priority in his agenda. Bijan Namdar Zanganeh believes that production and exports capacities boost Iran’s energy diplomacy. A committee was established several months ago at the Petroleum Ministry to review the structure of oil contracts. Seasoned experts are working in this committee. They intend to develop a win-win framework for contracts. Experts in this committee are defining a new contract framework which will be compatible with the country’s regulations and interests.

 

Q: Are new oil contracts focusing on the oil production?

A: Experts in the oil contracts revision committee hope that new contracts will attract investment while they are expected to provide the necessary grounds for long-term cooperation, transfer of modern technology for operating oil reservoirs, developing the scientific capacities and boosting the technical knowhow of domestic companies for presence in the world markets.

 

$100b Buy-Back Deal Next Year

Iranian MPs have authorized Petroleum Ministry to invest up to 100 billion dollars under buy-back deals in the next calendar year which starts on March 21, an MP says.

Abdollah Tamimi, member of the Iranian Majlis Energy Committee, told Iran Petroleum that the decision was adopted within the framework of the budget bill submitted by the government for the next calendar year.

The investment has to be made through state-run companies affiliated with the Petroleum Ministry.

The lawmaker said the private sector will get further involved in the development of hydrocarbon fields Iran shares with neighboring states.

He added that the Petroleum Ministry should develop the remaining phases of the mammoth South Pars gas field and other joint fields in cooperation with the private sector.

Moreover, he said, the investor rate of return in the petrochemical projects must be up to 25 percent.

The MPs have also defined framework for the allocation of credit for the development of the remaining phases of joint hydrocarbon fields.

“The parliament seeks maximum investment for South Pars and other joint fields. Therefore, foreign companies can be present in Iran within the framework of the law and upstream documents in attractive, low-cost and low-risk projects,” said Tamimi.

 

Foreign Investors Seek Trade With Iran

Moayed Sadr Hosseini, head of the Petrochemical Subcommittee in the Iranian parliament, has said that the European delegates’ visit to Tehran is indicative of the willingness of international companies for investment in Iran.

He said the recent developments in Iran’s foreign relations and the Islamic Republic’s achievements in different political, international and scientific arenas have promoted the Western governments to opt for a realistic approach vis-à-vis Iran.

He said the change in the policies of foreign governments towards Tehran is visible with the dispatch of parliamentary, political and economic delegates to Tehran. 

Sadr-Hosseini said France’s oil giant Total, engineering services provider Alstom and its leading carmaker Renault were part of the 100-strong delegation of French businessmen who travelled to Tehran in a sign of the opening of a new chapter in Iran’s ties with the world.

“With the presence of main investment companies in Iran, this hope was created that Iran’s agreement with the P5+1 countries will result in the return of foreign investment.

He said that President Hassan Rouhani’s wise diplomacy made the world change its outlook towards Iran and persuaded foreign investors to show interest in trade transactions with Iran regardless of plots by enemies.

President Rouhani said following his return from the World Economic Forum (WEF) in Davos that Iran eyes attracting 75 billion dollars of investment in the petrochemical sector and 100 billion dollars in the oil sector.

Dormant Oil in Caspian Sea  

By Qader Shadivand, energy expert

 

Significant oil and gas reserves in the Caspian Sea and the bright prospect of production along with easy access to consumer markets in Europe and Asia have encouraged the littoral states of the land-locked lake to expand exploration, development and production of crude oil and natural gas in order to give a boost to their economy. These countries are following as quickly the development of their offshore reservoirs as their onshore reservoirs. Over the past two decades, the Caspian Sea has become a lucrative place for international companies to operate projects.

The Caspian Sea states hold two strategically different views of the offshore reserves there. The first view, held by Kazakhstan, Azerbaijan and Turkmenistan focuses on maximum recovery from hydrocarbon resources with a view to accelerating economic development. The second view is favored by Iran and Russia, both sitting atop huge oil and gas reserves. Caspian Sea makes up only a small portion of their hydrocarbon reserves. The difficulty of operation in the offshore sector held by Iran has slowed down development of Caspian Sea reservoirs owned by Iran and Russia.

Here, we review the Caspian Sea’s oil and gas reserves and the activities of littoral states.

 

1. Caspian Sea Oil/Gas

 

Different accounts have been given about oil and gas reserves in the Caspian Sea. The United States’ Energy Information Administration (EIA) estimates the Caspian Sea to hold 68 billion barrels of crude oil and 15.2 trillion cubic meters (tcm) of natural gas. Based on information gained from fields and blocks as well as official remarks, the Caspian Sea is estimated to hold 113 billion barrels of oil and 12.7 tcm of gas.

 

Table 1: Caspian Sea Crude Oil and Natural Gas Reserves

	Crude Oil (billion barrels)	Natural Gas (tcm)
Russia	21.2	3
Kazakhstan	45	-
Azerbaijan	12.5	2.5
Turkmenistan	11	5.5
Iran	23	1.7
Total	112.7	12.7

        

 

2. Activities of Caspian Sea Littoral States

    

Iran’s northern neighbors started their oil and gas exploration and production activities many years ago. Azerbaijan is producing at full capacity from its oil and gas share of the Caspian Sea. Russia launched its exploration and development activities two decades ago. Kazakhstan, which runs a number of huge offshore fields, is seriously pursuing its development programs and is expected to start recovery in the near future. Turkmenistan is also offering its offshore oil and gas blocks of fields to international companies.

 

• Turkmenistan

 

Sitting atop 24 tcm of natural gas, Turkmenistan is the fourth largest holder of gas reserves in the world. It produced more than 62 bcm of natural gas and 222,000 b/d of crude oil in 2012. Turkmenistan produces its natural gas from onshore fields, but its gets more than 80 percent of its oil from Cheleken peninsula in the Balkan province. Turkmenistan has divided its share of the Caspian Sea into 32 exploration blocks to be awarded to international consortiums for development.

Foreign companies are allowed to participate in production sharing agreements or joint ventures with the state-owned Turkmenneft, the largest oil producer in the country, and Turkmengaz, the state-run natural gas company. The main foreign companies participating in Turkmenistan's hydrocarbon sector are the China National Petroleum Corporation (CNPC), Dragon Oil (Dubai), Eni (Italy), and Petronas (Malaysia). The Turkmen government typically restricts foreign investors from developing onshore projects, with the exception of a few CNPC projects, according to IHS Cera.

Turkmenistan has 600 million barrels of proven crude oil reserves as of January 2013. In 2012, total oil production was around 244,000 barrels per day (bbl/d), of which 11 percent was from national gas plant liquids. Recent production growth has come from Dragon Oil's offshore Cheleken block and Eni's onshore Nebit Dag field.

Turkmenistan has two oil refineries, the Seidi and Turkmenbashi, with a total crude oil distillation capacity of almost 237,000 b/d. According to IHS Cera, the refineries typically operate at around 50 percent of capacity, with foreign oil companies exporting their share of crude oil. 

 

• Kazakhstan

 

 

Kazakhstan’s onshore crude oil reserves are estimated at more than 30 billion barrels. It produces 1.7 mb/d. Kazakhstan has divided its offshore reservoirs into 23 blocks of fields for development by international companies.

The key to its continued growth in liquids production from this level will be the development of its giant Tengiz, Karachaganak, and Kashagan fields. Development of additional export capacity also will be necessary for production growth.

KazMunaiGas, Kazakhstan's national oil company, has played an increasingly important role in the country's oil and gas sector.

Kazakhstan's two largest projects, Tengiz and Karachaganak accounted for 40% of the country's total liquids production thus far in 2013.

Most of Kazakhstan's natural gas reserves are associated gas that is located in just four fields: Karachaganak, Tengiz, Imashevskoye, and Kashagan.

The vast majority of Kazakhstan's power generation comes from coal-fired power plants, concentrated in the north of the country near the coal producing regions.

The Kashagan field, the largest known oil field outside the Middle East and the fifth largest in the world in terms of reserves, is located off the northern shore of the Caspian Sea near the city of Atyrau. The field is being developed by the North Caspian Operating Company (NCOC) consortium. The NCOC PSA is led by KMG, Eni, ExxonMobil, Shell, and Total, each with a 16.8% share; and Inpex at 7.56%. In September 2013, CNPC purchased an 8.40% share in the project that had previously been held by ConocoPhillips. The Kashagan contract area includes Kashagan, Kalamkas, Kashagan South West, Aktoty, and Kairan fields. Appraisal work is ongoing at the other fields to determine whether they are commercially viable.

 

• Russia

 

Russia ignored the reserves in its sector of the Caspian Sea due to its huge oil and gas reservoirs. But after the collapse of the Soviet Union and the emergence of independent republics, Russia focused on its share of the Caspian Sea. According to Russian officials, the country owns 21 billion barrels of crude oil and 3 tcm of natural gas in its sector of the Caspian Sea.

.Most of Russia's resources are located in Western Siberia, between the

Ural Mountains and the Central Siberian Plateau and in the Volga-Urals region, extending into the Caspian Sea. Eastern Siberia holds some reserves, but the region has had little exploration.

Most of Russia's oil production continues to originate in West Siberia, notably from the Priobskoye and Samotlor fields. The Sakhalin group of fields in the Far East only contributes about 3% of Russia's total production, although it has yet to fulfill the expectation that it would contribute significantly to Russia's total oil production.

The use of more advanced technologies and the application of improved recovery techniques are resulting in increased oil output from existing oil deposits. Fields in the Western Siberian Basin produce the majority of Russia's oil, with developments at Rosneft's Samotlor and Priobskoye fields extracting more than 1 mb/d combined. Production in the region is dominated by Russian firms, although foreign companies, notably Shell, have secured access to production in Western Siberia.

The potential oil reserves of Eastern Siberia, the Russian Arctic, the northern Caspian Sea, and Sakhalin Island are attracting attention.

 

• Azerbaijan

 

Azerbaijan recovers all its oil and gas (870,000 b/d and 15.2 bcm) from its sector of the Caspian Sea. According to estimates, Azerbaijan’s offshore reserves stand at 12.5 billion barrels of crude oil and 2.5 tcm of natural gas.

The Shah Deniz field, discovered in 1999, is one of the world's largest natural gas and condensate fields. Shah Deniz Full Field Development is expected to have peak capacity of 565 bcf (in addition to the 315 vcf in Phase I), making it one of the largest gas development projects anywhere in the world.

Oil production in Azerbaijan increased from 288,000 b/d in 2000 to 1.1 mb/d in 2010. Monthly data through December 2011 show that this year's production thus far has decreased slightly. The Azeri government and BP expect that Azerbaijan's total oil production will peak by 2012.

The ACG field covers 167 square miles and located 62 miles east of Baku in the Caspian Sea. Peak production was expected to reach 1 mb/d. The ACG field has an estimated 5 billion barrels of reserves and is operated by BP on behalf of AIOC. ACG produced mostly Azeri Light, a  medium-light and sweet crude that is valued for its high middle-distillate yield.

Azerigaz, a SOCAR subsidiary, is responsible for natural gas processing, transport, distribution and storage, mainly in the domestic market. Azneft, another SOCAR subsidiary, is responsible for exploration, development, and production from the older onshore and offshore natural gas fields owned directly by SOCAR.

AIOC is the largest foreign joint venture in association with SOCAR, and is involved in the development of the ACG oil and gas fields and the Shah Deniz gas field. Statoil and BP operate the Shah Deniz gas field, and are the largest shareholders in the Shah Deniz consortium, each holding 25.5 percent. Other shareholders include Total, LUKoil, SOCAR, OIEC of Iran, each at 10 percent, while TPAO holds 9 percent.

 

• Iran

 

Exploration activities in Iran’s sector of the Caspian Sea started in 1997 by Khazar Exploration and Production Company (KEPCO). In this first step, KEPCO conducted comprehensive and systematic studies on Iran’s sector of the Caspian Sea with the collaboration of Shell, London and Scottish Marine Oil (LASMO) and VIA Oil from 1998 to 2000. The studies identified 46 small and large-sized oil structures located 400 to 800 meters deep in the sea. In order to explore possible oil reserves, seismic testing was conducted on 10,000 kilometers up to March 2003. Appraisal wells were also drilled for getting data about the Caspian Sea’s oil and gas reserves.

Alborz oil block, holding 20 billion barrels, is located 500 meters deep in the Caspian Sea. It is shared by Iran and Azerbaijan. Chalous block, with three billion barrels of oil in place, is at the depth of 800 meters. Most oil blocks are far from Iran, and only Roudsar and Ramsar are near Iran’s coasts.

Iran now has the necessary data to extract oil and gas from the Caspian Sea. In recent years, Alborz semi-submersible platform has been launched in the first step towards drilling in Iran’s deep waters.

 

Conclusion

 

Over the past two decades, huge oil and gas reserves have persuaded Caspian Sea littoral states to develop their resources. Each company has defined its own development programs in cooperation with international companies as they lack the necessary technology and finance to do so. International companies are active in this region and the Russians are not happy with the massive presence of foreign entities. Russia is trying to boost its position in the Caspian Sea by expanding its presence in the oil and gas projects in the breakaway republics of the former Union of Soviet Socialist Republics (USSR). However, the newly independent republics prefer cooperation with international companies in a bid to avoid Russia’s dominance on their resources.

Iran used to not pay too much attention to its Caspian Sea’s sector whose hydrocarbon reserves are nothing compared with the country’s southern oil-rich regions. Add to this the difficulties of recovery from Caspian reservoirs. But today, Iran believes that its presence in the Caspian Sea will have political and economic advantages.

Iran is now ready to broaden its energy cooperation with its northern neighbors as it seeks international reaction. To that effect, a good opportunity has been provided by the land-locked countries of Central Asia and Caucasus to supply their oil and gas to international markets through Iran.

Dormant Oil in Caspian Sea  

By Qader Shadivand, energy expert

 

Significant oil and gas reserves in the Caspian Sea and the bright prospect of production along with easy access to consumer markets in Europe and Asia have encouraged the littoral states of the land-locked lake to expand exploration, development and production of crude oil and natural gas in order to give a boost to their economy. These countries are following as quickly the development of their offshore reservoirs as their onshore reservoirs. Over the past two decades, the Caspian Sea has become a lucrative place for international companies to operate projects.

The Caspian Sea states hold two strategically different views of the offshore reserves there. The first view, held by Kazakhstan, Azerbaijan and Turkmenistan focuses on maximum recovery from hydrocarbon resources with a view to accelerating economic development. The second view is favored by Iran and Russia, both sitting atop huge oil and gas reserves. Caspian Sea makes up only a small portion of their hydrocarbon reserves. The difficulty of operation in the offshore sector held by Iran has slowed down development of Caspian Sea reservoirs owned by Iran and Russia.

Here, we review the Caspian Sea’s oil and gas reserves and the activities of littoral states.

 

1. Caspian Sea Oil/Gas

 

Different accounts have been given about oil and gas reserves in the Caspian Sea. The United States’ Energy Information Administration (EIA) estimates the Caspian Sea to hold 68 billion barrels of crude oil and 15.2 trillion cubic meters (tcm) of natural gas. Based on information gained from fields and blocks as well as official remarks, the Caspian Sea is estimated to hold 113 billion barrels of oil and 12.7 tcm of gas.

 

Table 1: Caspian Sea Crude Oil and Natural Gas Reserves

	Crude Oil (billion barrels)	Natural Gas (tcm)
Russia	21.2	3
Kazakhstan	45	-
Azerbaijan	12.5	2.5
Turkmenistan	11	5.5
Iran	23	1.7
Total	112.7	12.7

        

 

2. Activities of Caspian Sea Littoral States

    

Iran’s northern neighbors started their oil and gas exploration and production activities many years ago. Azerbaijan is producing at full capacity from its oil and gas share of the Caspian Sea. Russia launched its exploration and development activities two decades ago. Kazakhstan, which runs a number of huge offshore fields, is seriously pursuing its development programs and is expected to start recovery in the near future. Turkmenistan is also offering its offshore oil and gas blocks of fields to international companies.

 

• Turkmenistan

 

Sitting atop 24 tcm of natural gas, Turkmenistan is the fourth largest holder of gas reserves in the world. It produced more than 62 bcm of natural gas and 222,000 b/d of crude oil in 2012. Turkmenistan produces its natural gas from onshore fields, but its gets more than 80 percent of its oil from Cheleken peninsula in the Balkan province. Turkmenistan has divided its share of the Caspian Sea into 32 exploration blocks to be awarded to international consortiums for development.

Foreign companies are allowed to participate in production sharing agreements or joint ventures with the state-owned Turkmenneft, the largest oil producer in the country, and Turkmengaz, the state-run natural gas company. The main foreign companies participating in Turkmenistan's hydrocarbon sector are the China National Petroleum Corporation (CNPC), Dragon Oil (Dubai), Eni (Italy), and Petronas (Malaysia). The Turkmen government typically restricts foreign investors from developing onshore projects, with the exception of a few CNPC projects, according to IHS Cera.

Turkmenistan has 600 million barrels of proven crude oil reserves as of January 2013. In 2012, total oil production was around 244,000 barrels per day (bbl/d), of which 11 percent was from national gas plant liquids. Recent production growth has come from Dragon Oil's offshore Cheleken block and Eni's onshore Nebit Dag field.

Turkmenistan has two oil refineries, the Seidi and Turkmenbashi, with a total crude oil distillation capacity of almost 237,000 b/d. According to IHS Cera, the refineries typically operate at around 50 percent of capacity, with foreign oil companies exporting their share of crude oil. 

 

• Kazakhstan

 

Kazakhstan’s onshore crude oil reserves are estimated at more than 30 billion barrels. It produces 1.7 mb/d. Kazakhstan has divided its offshore reservoirs into 23 blocks of fields for development by international companies.

The key to its continued growth in liquids production from this level will be the development of its giant Tengiz, Karachaganak, and Kashagan fields. Development of additional export capacity also will be necessary for production growth.

KazMunaiGas, Kazakhstan's national oil company, has played an increasingly important role in the country's oil and gas sector.

Kazakhstan's two largest projects, Tengiz and Karachaganak accounted for 40% of the country's total liquids production thus far in 2013.

Most of Kazakhstan's natural gas reserves are associated gas that is located in just four fields: Karachaganak, Tengiz, Imashevskoye, and Kashagan.

The vast majority of Kazakhstan's power generation comes from coal-fired power plants, concentrated in the north of the country near the coal producing regions.

The Kashagan field, the largest known oil field outside the Middle East and the fifth largest in the world in terms of reserves, is located off the northern shore of the Caspian Sea near the city of Atyrau. The field is being developed by the North Caspian Operating Company (NCOC) consortium. The NCOC PSA is led by KMG, Eni, ExxonMobil, Shell, and Total, each with a 16.8% share; and Inpex at 7.56%. In September 2013, CNPC purchased an 8.40% share in the project that had previously been held by ConocoPhillips. The Kashagan contract area includes Kashagan, Kalamkas, Kashagan South West, Aktoty, and Kairan fields. Appraisal work is ongoing at the other fields to determine whether they are commercially viable.

 

• Russia

 

Russia ignored the reserves in its sector of the Caspian Sea due to its huge oil and gas reservoirs. But after the collapse of the Soviet Union and the emergence of independent republics, Russia focused on its share of the Caspian Sea. According to Russian officials, the country owns 21 billion barrels of crude oil and 3 tcm of natural gas in its sector of the Caspian Sea.

.Most of Russia's resources are located in Western Siberia, between the

Ural Mountains and the Central Siberian Plateau and in the Volga-Urals region, extending into the Caspian Sea. Eastern Siberia holds some reserves, but the region has had little exploration.

Most of Russia's oil production continues to originate in West Siberia, notably from the Priobskoye and Samotlor fields. The Sakhalin group of fields in the Far East only contributes about 3% of Russia's total production, although it has yet to fulfill the expectation that it would contribute significantly to Russia's total oil production.

The use of more advanced technologies and the application of improved recovery techniques are resulting in increased oil output from existing oil deposits. Fields in the Western Siberian Basin produce the majority of Russia's oil, with developments at Rosneft's Samotlor and Priobskoye fields extracting more than 1 mb/d combined. Production in the region is dominated by Russian firms, although foreign companies, notably Shell, have secured access to production in Western Siberia.

The potential oil reserves of Eastern Siberia, the Russian Arctic, the northern Caspian Sea, and Sakhalin Island are attracting attention.

 

• Azerbaijan

 

Azerbaijan recovers all its oil and gas (870,000 b/d and 15.2 bcm) from its sector of the Caspian Sea. According to estimates, Azerbaijan’s offshore reserves stand at 12.5 billion barrels of crude oil and 2.5 tcm of natural gas.

The Shah Deniz field, discovered in 1999, is one of the world's largest natural gas and condensate fields. Shah Deniz Full Field Development is expected to have peak capacity of 565 bcf (in addition to the 315 vcf in Phase I), making it one of the largest gas development projects anywhere in the world.

Oil production in Azerbaijan increased from 288,000 b/d in 2000 to 1.1 mb/d in 2010. Monthly data through December 2011 show that this year's production thus far has decreased slightly. The Azeri government and BP expect that Azerbaijan's total oil production will peak by 2012.

The ACG field covers 167 square miles and located 62 miles east of Baku in the Caspian Sea. Peak production was expected to reach 1 mb/d. The ACG field has an estimated 5 billion barrels of reserves and is operated by BP on behalf of AIOC. ACG produced mostly Azeri Light, a  medium-light and sweet crude that is valued for its high middle-distillate yield.

Azerigaz, a SOCAR subsidiary, is responsible for natural gas processing, transport, distribution and storage, mainly in the domestic market. Azneft, another SOCAR subsidiary, is responsible for exploration, development, and production from the older onshore and offshore natural gas fields owned directly by SOCAR.

AIOC is the largest foreign joint venture in association with SOCAR, and is involved in the development of the ACG oil and gas fields and the Shah Deniz gas field. Statoil and BP operate the Shah Deniz gas field, and are the largest shareholders in the Shah Deniz consortium, each holding 25.5 percent. Other shareholders include Total, LUKoil, SOCAR, OIEC of Iran, each at 10 percent, while TPAO holds 9 percent.

 

• Iran

 

Exploration activities in Iran’s sector of the Caspian Sea started in 1997 by Khazar Exploration and Production Company (KEPCO). In this first step, KEPCO conducted comprehensive and systematic studies on Iran’s sector of the Caspian Sea with the collaboration of Shell, London and Scottish Marine Oil (LASMO) and VIA Oil from 1998 to 2000. The studies identified 46 small and large-sized oil structures located 400 to 800 meters deep in the sea. In order to explore possible oil reserves, seismic testing was conducted on 10,000 kilometers up to March 2003. Appraisal wells were also drilled for getting data about the Caspian Sea’s oil and gas reserves.

Alborz oil block, holding 20 billion barrels, is located 500 meters deep in the Caspian Sea. It is shared by Iran and Azerbaijan. Chalous block, with three billion barrels of oil in place, is at the depth of 800 meters. Most oil blocks are far from Iran, and only Roudsar and Ramsar are near Iran’s coasts.

Iran now has the necessary data to extract oil and gas from the Caspian Sea. In recent years, Alborz semi-submersible platform has been launched in the first step towards drilling in Iran’s deep waters.

 

Conclusion

 

Over the past two decades, huge oil and gas reserves have persuaded Caspian Sea littoral states to develop their resources. Each company has defined its own development programs in cooperation with international companies as they lack the necessary technology and finance to do so. International companies are active in this region and the Russians are not happy with the massive presence of foreign entities. Russia is trying to boost its position in the Caspian Sea by expanding its presence in the oil and gas projects in the breakaway republics of the former Union of Soviet Socialist Republics (USSR). However, the newly independent republics prefer cooperation with international companies in a bid to avoid Russia’s dominance on their resources.

Iran used to not pay too much attention to its Caspian Sea’s sector whose hydrocarbon reserves are nothing compared with the country’s southern oil-rich regions. Add to this the difficulties of recovery from Caspian reservoirs. But today, Iran believes that its presence in the Caspian Sea will have political and economic advantages.

Iran is now ready to broaden its energy cooperation with its northern neighbors as it seeks international reaction. To that effect, a good opportunity has been provided by the land-locked countries of Central Asia and Caucasus to supply their oil and gas to international markets through Iran.

Persian Gulf, Paradise of Oil and Gas

The strategic position of Persian Gulf, which is already rich in oil and gas, has added to the significance of this watercourse as a main source of energy supply to the world.

Persian Gulf has long been a center of international trade. Historical documents show that different tribes and nations – Persians, Turks, Indians, Arabs and Europeans – have referred to this waterway as Persian Gulf.

Having enjoyed political and economic significance, the Persian Gulf has been the birthplace of ancient civilizations. Many centuries ago, the Elamites living in this region used the Bushehr Port and Kharg Island for settlement as well as shipping and trading.

Marine navigation in the Persian Gulf dates back to many years ago. The first evidence of navigation dates back to fourth century BC. Darius I established the first navy fleet in the world in the Persian Gulf. At that time, Iranian ships patrolled the Indian Ocean, the Sea of Oman, the Persian Gulf and the Red Sea.

Historians say Darius I ordered that a canal be drilled so that Iranian ships could find their ways into the Mediterranean Sea. That canal is today known as Suez Canal. An inscription unearthed in this canal says: “I am Persian, I opened Persia to Egypt, I ordered the drilling of this canal so that the river flowing from Egypt would flow into a sea coming from Persia. After this canal was drilled, I ordered vessels from Egypt to come to Persia as I wished.”

The significance of the Persian Gulf is not limited to its two millennia of history. Today, it is coveted for its oil and gas reservoirs. The hydrocarbon reserves in the Persian Gulf are like its vertebral column.

Over the past thousands of years, businessmen from across the globe have been crossing the Persian Gulf. At present, 20,000 oil tankers and vessels pass by this sea every year.

According to the latest estimates, the Persian Gulf holds 730 billion barrels of proven crude oil reserves and more than 70 trillion cubic meters of natural gas. These figures indicate that the Persian Gulf alone contains more than half of oil and 40 percent of gas reserves in the world.

Persian Gulf is one of the most attractive zones holding oil and gas reserves in the world. It water is shallow, warm and calm, and therefore seismic testing becomes easier while wellhead equipment and drilling rigs could be installed more quickly, not to mention faster pipe laying.

World oil giants like Italy’s Eni and Agip, France’s Total, Royal Dutch Shell, Norway’s Statoil, the US’s Chevron, Russia’s Lukoil, Malaysia’s Petronas, Brazil’s Petrobras, China’s Sinopec, Japan’s Inpex and South Korea’s Hyundai are operating 20 megaprojects in the Persian Gulf.

The American and European oil companies active in this region have mainly operating offshore projects, but in the past five decades, these international companies have been extracting oil and gas from offshore reservoirs in the recent decades.

But most of these oil fields are currently in the second half of their life and governments have to find solutions to keep oil flowing. That has led oil producers to concentrate their activities on offshore Persian Gulf fields.

Iran, Saudi Arabia, Qatar and the United Arab Emirates hold most of hydrocarbon reserves in the Persian Gulf. Saudi Arabia is the largest producer of oil from the Persian Gulf while Iran and Qatar are mainly extracting gas.

Iran owns 13 independent fields and shares 6 with other Persian Gulf states. A total of 35 hydrocarbon fields have been explored in the Persian Gulf. Iran has so far been proven to hold 34 trillion cubic meters of natural gas (16% of world’s total gas) and more than 155 billion barrels (11.5% of world’s total oil), 96 billion barrels of which in the Persian Gulf. Iran shares Esfandiar, Foruzan, Farzad A, Farzad B, Arash, South Pars, Balala, Reshadat, Salman, Farzam and Nosrat fields with neighbors.

Iran’s first exploration well in the Persian Gulf was drilled in 1959 in Bahregansar. Bahregansar oil field was discovered in 1961 by Agip and started oil production a year later.

Persian Gulf continues to be an attractive source of oil and gas in the region. The Red Sea and the Mediterranean Sea could be considered as new opportunities for trade in the coming decades. These high seas will be able to satisfy the world’s appetite for energy.

The advantages with oil reserves in the Persian Gulf include easy extraction, low production cost, surplus production, high quality of crude oil, easy transportation and the possibility of discovery of new oil reservoirs. There are also important and strategic ports in the Persian Gulf like Bandar Abbas, Bushehr, Bandar Lengeh, Kish, Khorramshahr and Mahshahr of Iran, Sharja, Dubai and Abu Dhabi of the UAE and Basra and Fav of Iraq.

The significance of the Persian Gulf for the Western governments is linked to its huge oil and gas reserves. The Persian Gulf holds more than 60 percent of the world’s proven oil reserves and handled 30 percent of the world’s oil trade.

 

Strategic Importance of Strait of Hormuz

 

The Strait of Hormuz, the second most crowded strait in the world, has added to the significance of the Persian Gulf. Every day, more than 17 million barrels of crude oil pass by this strait by tankers. Iran, Iraq, Kuwait, Saudi Arabia and the UAE export their crude oil through this route. The Persian Gulf is a semi-locked sea which is of special importance in international energy equations and the Strait of Hormuz is considered as the key for entry into this sea. There are more than 100 straits connecting oceans and watercourses across the world, but they are wide less than 40 kilometers. Only five straits are of strategic importance. They are Hormuz, Gibraltar, Bosporus, Dardanelle and Bab-el-Mandeb with Hormuz being the most important one at the international level. Persian Gulf will continue to remain significant although some Arab states in the Persian Gulf are seeking other routes for exporting their crude oil.

More than one sixth of the world’s oil is transited through this strait. Every day, some 20 million barrels, or 25 percent of the total world supply, passes by this watercourse. Moreover, the US Energy Information Administration has forecasted the volume of oil exports by this strait to reach 30 to 34 million b/d by 2020.

Meanwhile, ships carrying grain, iron ore, sugar and other products are also carried through this vital corridor and its nearby ports.

The history of Persian Gulf littoral states and the stories of regional conflicts between Iran and Iraq as well as between Iraq and Kuwait, and international competition between Portugal, Britain and the US for controlling this region bear proof to the significant background of the Persian Gulf.

The growing energy consumption simultaneous with the decline in the oil reserves further highlight the importance of Persian Gulf as a major source of energy supply. It must be also taken into consideration that energy plays an instrumental role in the security of the Persian Gulf. Oil is an effective factor in the political stability, economic welfare and survival of Persian Gulf countries. There is no other region as rich as the Persian Gulf in oil and gas to be able to provide energy to industrial and developing countries in the new century.

IOTC Labs Globalized  

The Chemical Department of Iran Oil Terminals Company (IOTC) is the administrator of controlling the quality of crude oil as well as imported and exported oil products and gas condensate. The department has three well equipped labs in Kharg, Neka and Assaluyeh for monitoring the quality of crude oil and oil products.

These labs have become globalized after winning several prestigious international certificates. Besides accomplishing their main tasks, these labs are ready to provide lab and specialized services overseas.

Boroumand Shahbazi, head of the Chemical Department of IOTC, says the IOTC labs have made great achievements thanks to specialized manpower, training its veteran staff and using the newest equipment.

“Since, we have foreign customers, we had to receive international certificates to reassure them about our exports,” he said.

“Therefore, we made long-term planning during a decade and by observing the required standards, we managed to receive ISO 17-025” from a European institute for the first time in the Middle East, he added.

Shahbazi said the certificate was recently obtained for Assaluyeh and Kharg labs, adding that the certificate must be renewed every five years.

ISO/IEC 17025 General requirements for the competence of testing and calibration laboratories are the main ISO/CASCO standard used by testing and calibration laboratories. Originally known as ISO/IEC Guide 25, ISO/IEC 17025 was initially issued by the International Organization for Standardization in 1999. There are many commonalities with the ISO 9000 standard, but ISO/IEC 17025 is more specific in requirements for competence. And it applies directly to those organizations that produce testing and calibration results. Since its initial release, a second release was made in 2005 after it was agreed that it needed to have its quality system words more closely aligned with the 2000 version of ISO 9001.

Laboratories use ISO/IEC 17025 to implement a quality system aimed at improving their ability to consistently produce valid results. It is also the basis for accreditation from an accreditation body. Since the standard is about competence, accreditation is simply formal recognition of a demonstration of that competence. A prerequisite for a laboratory to become accredited is to have a documented quality management system. The usual contents of the quality manual follow the outline of the ISO/IEC 17025 standard.

 

CRM

Shahbazi said the acquisition of this certificate has increased IOTC’s customer relationship management, adding that the grounds have been prepared for the IOTC labs to be recognized by international standard institutes and foreign countries.

“We are currently ready to provide lab services and technical consultation at national and international levels. We are among the global labs following the acquisition of this certificate,” he said.

The ISO/IEC 17025 - The ISO/IEC 17025 standard itself comprises five elements that are Scope, Normative References, Terms and Definitions, Management Requirements and Technical Requirements. The two main sections in ISO/IEC 17025 are Management Requirements and Technical Requirements. Management requirements are primarily related to the operation and effectiveness of the quality management system within the laboratory. Technical requirements include factors which determines the correctness and reliability of the tests and calibrations performed in laboratory.

 

Membership to Standard Committees

Shahbazi said ISO DAKKS was received from Europe’s DAKKS institute and IOTC become members of ASTM and IP standard committees.

“Therefore, we can attend in all meetings of international committees and bodies as a qualified member,” he said.

Regarding the process of crude oil and oil products testing in these laboratories, Shahbazi said: “When a consignment is ready for exports, automatic sampling vessels take samples automatically from any consignment which is loaded on the ship. This sample will be transferred to the lab to be studied under supervision of the buyer company for comparison with documents.”

He added that the labs are operating like a mini-refinery and the crude oil will exit like gray after being studied.

 

NPC-RT Develops Strategic Catalyst

Researchers at Iran’s Petrochemical Research and Technology Company                 (NPC-RT) have developed the technology for producing the strategic catalyst “reactor oxo-alcohol”.

Oxo alcohols are alcohols that are prepared by adding carbon monoxide (CO) and hydrogen (usually combined together as synthesis gas) to an olefin to obtain an aldehyde using the hydroformylation reaction and then hydrogenating the aldehyde to obtain the alcohol. An intermediate step of adding two aldehydes together to obtain a larger aldehyde (the aldol condensation reaction) can precede the hydrogenation.

This catalyst is used at the diethyl hexanol unit of Shazand Petrochemical Plant with an annual capacity of 55,000 tons a year.

Iran consumes 10 kilograms a year of this catalyst now, but its high price and monopolized production justifies its indigenization and commercialization as a petrochemical product.

The cost price of this catalyst is 40 percent lower than foreign ones and its quality is equal.

NPC-RT is moving towards development of a generation of these catalysts.

Oxo alcohols are used as solvents and are reacted with phthalic anhydride to form phthalates, which find use in commerce as vinyl plasticizers.

Laser-Based Gas Leak Detection

National Iranian Gas Company (NIGC), which seeks to indigenize technologies needed for gas industry, has launched a project for remote detection of methane leakage. To that effect, a research project for “active and remote detection of gas leak by laser absorption spectroscopy (LAS) jointly with the Physics Department of the University of Tehran.

This technology is desperately needed in regions to which access is difficult. A few countries are currently enjoying this technology. Japan is one of them. It has supplied a model which can detect leaks at 30 meters distance.

Laser absorption spectrometry (LAS) refers to techniques that use lasers to assess the concentration or amount of a species in gas phase by absorption spectrometry (AS).

Optical spectroscopic techniques in general, and laser-based techniques in particular, have a great potential for detection and monitoring of constituents in gas phase. They combine a number of important properties, e.g. a high sensitivity and a high selectivity with non-intrusive and remote sensing capabilities. Laser absorption spectrometry has become the foremost used technique for quantitative assessments of atoms and molecules in gas phase. 

The most appealing advantages of LAS is its ability to provide absolute quantitative assessments of species. Its biggest disadvantage is that it relies on a measurement of a small change in power from a high level; any noise introduced by the light source or the transmission through the optical system will deteriorate the sensitivity of the technique.

 

Leak Detention at 100 Meters

In the indigenized system, the signal is so strong that gas leaks are detectable at 100 meters of distance. The system is currently being optimized and when the signal restriction range increases very weak signals and small leaks could be also detected.

The advantage with this technique is not summarized in the leak detection of methane molecules. The important thing is that important molecules in the oil, gas and defense industries could be identified by changing the wavelength and the type of laser.

Industrialized countries like France are currently replacing traditional methods with modern ones. Traditionally, flame ionization detector (FID) is used. FID is a scientific instrument that measures the concentration of organic species in a gas stream. It is frequently used as a detector in gas chromatography. Standalone FIDs can also be used in applications such as landfill gas monitoring and fugitive emissions monitoring in stationary or portable instruments. 

But, flame ionization detectors cannot detect inorganic substances. In some systems, CO and CO2 can be detected in the FID using a methanizer, which is a bed of Ni catalyst that reduces CO and CO2 to methane, which can be in turn detected by the FID.

Another important disadvantage is that the FID flame oxidizes all compounds that pass through it; all hydrocarbons and oxygenates are oxidized to carbon dioxide and water and other heteroatoms are oxidized according to thermodynamics. For this reason, FIDs tend to be the last in a detector train and also cannot be used for preparatory work.

 

Crude Oil Refining Technology Mastered

 

A main challenge to countries holding hydrocarbon resources is their optimal use of heavy crude oil reserves. But since most refineries in Iran and in the world have been designed to treat light crude oil it would be necessary to take advantage of modern technologies for better processing of crude oil.

Given its reservoirs of heavy crude oil, Iran is focusing on Developing of these technologies. Recently, the Research Institute of Petroleum Industry (RIPI) managed to develop two processes for the production of high-quality bitumen from asphaltene crude oil as well as thermal asphaltene removing for the optimal use of asphaltene-based crude oil.

Asphaltenes are molecular substances that are found in crude oil, along with resins, aromatic hydrocarbons, and saturates.

Asphaltenes are today widely recognized as dispersed, chemically altered fragments of kerogen, which migrated out of the source rock for the oil, during oil catagenesis.

Heavy oils, tar sands, bitumen and biodegraded oils (as bacteria cannot assimilate asphalten[e]s, but readily consume saturated hydrocarbons and certain aromatic hydrocarbon isomers - enzymatically controlled) contain much higher proportions of asphaltenes than do medium-API oils or light oils. Condensates are virtually devoid of asphaltenes.

Mahmoud Bayat, director of downstream industries project at RIPI, says studies on the asphaltene-based crude oil started in 2006 with a view to prevent the sale of superheavy crude oil recovered from Soroush and Norouz oil fields.

Topping is an easy process which can optimize the hidden advantages of asphaltenic crude oils. It can also give rise to a high rate of return on investment. In this process, asphaltene is used for improving the quality of bitumen.

Bayat said RIPI has registered the patent of bitumen production from asphaltine-based crude oil, adding: “At present, we are ready to provide all domestic and foreign investment companies with the aforementioned technical knowledge. Potential investors from Asian and African countries have shown interest in this technology and have held talks with RIPI to that effect.”

He said that these countries are concerned with supplying their necessary feedstock.

“With the help of [Iran] Petroleum Ministry, their anxieties will be removed and these countries will be able to acquire these processes through Iran. As talks are finalized with foreign countries demanding these two processes, we will no longer sell crude oil, we will create jobs and Iran will be also able to sell technical knowhow,” said Bayat.

The Topping process requires a low level of investment and its middle distillate products are naphtha and diesel. Neither of these products could be sold as final products, but they could be traded as middle products. The process has been welcomed warmly by the private sector due to its simplicity and low cost.

Bayat said Iran’s first superheavy crude oil refinery is under construction in the Persian Gulf island of Qeshm with a capacity of 30,000 b/d. The Plant has been designed by RIPI.

 

Thermal Removing of Asphaltene

RIPI has also developed another technology for thermal removal of asphaltene from superheavy crude oil. This technology is being patented for the first time in the world under RIPI name. In this process, more than 90 percent of asphaltene and heavy metals existing in crude oil are separated and could be added to bitumen for better     quality. The main product obtained from this process is a light crude oil with an API degree which is 10 to 15 degrees more than feed stock. The best feedstock for this process is asphaltenic crude oil with an API degree of 10 to 20 .The heavier the crude oil, the better the output will be. Thermal removal of asphaltene will save between two and three dollars per barrel of crude oil.

Bayat said RIPI is now ready to provide the private sector with these two technologies which will have a good rate of return on investment.

In the RIPI-developed process for thermal removal of asphaltene, the asphaltene in the crude oil is transformed from collide state to particles before being separated.

According to Bayat, combining this technology with Topping will be more profitable and the period for the return of investment will be less than two years. Moreover, the volume of investment needed for this process is between 500 and 700 dollars per barrel. By combining Topping and thermal removal of asphaltene technologies, it will be possible to mix the asphaltene-rich residue with bitumen to improve the quality of bitumen.

“It is predicted that in the coming years, the rate of asphaltene superheavy crude oil production in Iran would increase significantly. Therefore, it is necessary for Iran to consider achieving technologies used for this type of crude for more value-added generation,” said Bayat.

Azadegan and Kuhmund oil fields are rich in superheavy crude oil reserves. RIPI has developed the appropriate technologies for using this category of crude oil.

Bayat said other processes could be also developed for using asphaltene residues, adding that RIPI is conducting more studies on this issue. “But at present, the best way will be to add it to bitumen,” he said.

He said domestic investors are recommended to merge Topping and thermal asphaltene removal in order to achieve a higher rate of return on their investments.

RIPI is now ready to offer these technologies to the private sector and potential investors could acquire these technologies from RIPI.

Final Steps Towards Gas Turbine Manufacturing

By Javad Asghari

 

Iran’s 105-year-old petroleum industry and the toughening of international sanctions against Iran’s energy sector in recent years resulted in the “indigenization and domestic manufacturing revolution” in the country for meeting domestic needs stemming from the shortage of widely used equipment. Access to many items was restricted due to international sanctions and restrictions. In the near future, Iran is expected to become a leading manufacturer of oil and gas equipment.

To that effect, rotary machinery and specifically turbines are among the important, essential and sensitive equipment in the oil and gas industries. Since the very existence of petroleum industry in Iran, the country has been largely dependent on foreign manufacturers for the procurement of equipment. Since turbines are very important in the production and transfer of crude oil and natural gas as well as other sections of the oil industry, it was imagined that restricted supply of this equipment by foreign manufacturers will practically paralyze Iran’s energy sector soon. But relentless efforts by Iranian engineers and manufacturers neutralized all these efforts.

Two years ago, Iran’s Petroleum Ministry signed contracts with Iranian knowledge-based companies for the design and manufacturing of components of gas turbines. Iranian petroleum industry officials believe that domestic manufacturing of turbines will be economical as the country is under sanctions by Western countries. Even after sanctions are lifted, domestic manufacturing of turbines will be still cost-effective because of its lower price and equal quality compared with foreign turbines.

Design and manufacturing of gas turbines in Iran have five stages, three of which have so far been tested and finalized. The manufacturing of gas turbines is likely to be fully nationalized in a year. Turbine is a rotary mechanical device that extracts energy from a fluid flow and converts it into useful work. A turbine is a turbomachine with at least one moving part called a rotor assembly, which is a shaft or drum with blades attached. Moving fluid acts on the blades so that they move and impart rotational energy to the rotor. Early turbine examples are windmills and waterwheels.

In the gas industry, nearly 60 percent of the cost price of a gas pressure booster station is for the package of turbocompressors. Turbine is like the beating heart of a gas pressure booster station. Gas turbines make up 85 percent of the price of a turbocompressor package. Only six countries have the knowledge to design turbocompressors which are produced by only 11 countries.

Recently, National Iranian South Oil Company (NISOC) – the largest producer of crude oil in the country – signed for the first time a contract with Turbine Machine Middle East Company – an Iranian industrial group – for the full manufacturing of turbines.

Kaveh Qorbanian, managing-director of Turbine Machine Middle East Company, says gas turbines are divided into three categories known as 1-15 megawatts, 25-40 megawatts and over 40 megawatts.

“In the oil and gas industries, most often under-25 and 25-megawatt turbines – known as industrial turbines – are often used,” he said.

Turbine Machine Middle East Company started manufacturing sensitive and semi-sensitive components, doing basic reparation, installing and operating equipment for the oil, gas and petrochemical industries in 2001.Over the past 12 years, the company has managed to master technology for the manufacturing of 70 percent of the components of turbines.

Iranian companies have not yet had any plan to manufacture under-25-megawatt turbines for the oil and gas industries, but Turbine Machine Middle East Company has invested in the scientific and technical infrastructures, equipment and potential manpower in the country in order to manufacture this category of turbines.

With the help of Iranian engineers, this company has managed to leave behind the stage of manufacturing components. Its activities include receiving certificates for manufacturing, satisfying customers’ needs, replacing obsolete alloys and offering products with new materials.

When the company offered to manufacture turbines with new components, owners of technology announced that the products might not operate properly with alternative alloys and components. Then, it decided to design and manufacture gas turbine test stand.

In a bid to increase the turbine’s power from 4002 to 4502 horsepower, engineers at Turbine Machine Middle East Company have undertaken such effective measures as using coatings of higher quality, modifying airfoils to increase the compression power and using better materials. The new product by this company will be registered under a brand because it takes into account new requirements like modifications in the control system as well as the flow of air.

Since ten years ago, Iran’s petroleum industry took serious steps towards domestic manufacturing of components. At that time, hardware and software facilities were not as many as they are today. However, many companies were active in this sector.

Qorbani said the technical knowhow for the manufacturing of turbines is to be given to South Turbines Company, which is affiliated with NISOC, to manufacture components as well as the full package of turbines.

South Turbine Company will accelerate the growth of private companies so that turbines will be manufactured domestically for the country’s oil and gas industries.

NISOC is mainly tasked with extraction, production, processing and transfer of crude oil. Five operators and four service companies are working for NISOC.

Continuous reparations on key machinery like turbines, compressors, pumps, electromotors, processing equipment, high-pressure and low-pressure storage facilities, thermal transducers, safety valves as well as equipment used in oil and gas processing and transfer at NISOC are due to the technical knowledge mastered by Iranian engineers at South Turbine Company.

Quality Certificate for Iran Oil Equipment

More than a century after the discovery of oil in Iran, Iranian oil industry officials have mainly focused on oil production. Other domains related to this vital industry like research, technology and manufacturing commodities and equipment have been overshadowed.

But in recent years and due to influential events like the imposition of unreasonably tougher sanctions against Iran’s energy sector, further attention has been focused upon domestic manufacturing. Despite difficulties which emerged in the beginning, Iranian manufacturers have made progress in supplying equipment for the petroleum industry. At present, the bulk of equipment and commodities needed by Iran’s petroleum industry are provided by domestic manufacturers.

However, an important issue to that effect is the quality of domestically manufactured products. Are domestically manufactured products of the same quality as foreign products?

To allay concerns of manufacturers and contractors, the Department for Research and Technology of Iran Petroleum Ministry has implemented a comprehensive system for issuing quality certificate for oil industry commodities and equipment based on international standards. It has achieved positive results in this regard.

Tasked with steering the implementation of this system, Iran’s Deputy Petroleum Minister for Research and Technology Mohammad-Reza Moqaddam says the activities for integration of the issuance of quality certificate for oil industry equipment started three years ago. “This system was established with the cooperation of Research and Technology Directorate of Petroleum Ministry, National Iranian Oil Company, Iranian Petroleum Institute and Research Institute of Petroleum Industry,” he said.

“In the first step for the establishment of issuance of quality control certificate for petroleum industry equipment, quality certificate for pump and mechanical seal was issued,” he added.

Moqaddam underscored the point that an integrated system for quality certificate issuance can revive Iran’s petroleum industry, saying: “This system has been established in line with famous systems in the world and with the objective of striking a balance between consumer and producer for defining standards.”

He said that the programs for integration of issuing quality certificate for oil industry equipment include standardization, assessment of manufacturers of valves, thermal transducer and flowmeters.

Hamid-Reza Katouzian, head of RIPI, said Iranian companies have managed to manufacture a large number of equipment used in the petroleum industry.

“Standardization and manufacturing of high-quality products constitute a significant index of self-sufficiency in the petroleum industry,” he said.

Katouzian said the equipment manufactured by Iranian companies must be in compliance with internationally acceptable standards for more durability. “Otherwise, they will inflict irreparable damage on the economy. Therefore, standardization and high-quality manufacturing must be taken into account,” he added.

Mohammad-Ali Emadi, director of research and technology of NIOC, said the private sector can upgrade standardization, adding that definition of standards will create competition.

“By equipping Iran’s laboratories to conform to standards of the day in the world, we will be able to export equipment,” he said.

Emadi said a requirement for standardization and upgrading technology will be to define laws and pay attention to manpower.

He said the pilot project for issuing quality certificate for mechanical seals and pumps cost 8.6 billion rials, adding that NIOC has sponsored this project for establishing a system of integrated quality certificate.

Presalt Oil Reserves Surge in Brazil Santos Basin

Petrobras’ proven presalt reserves increased 43% last year compared to 2012.

In 2013, the company drilled 42 wells in the presalt layer which extends from the south of the state of Espírito Santo to the state of Santa Catarina. All indicated the presence of hydrocarbons. The results, combined with performance of production platforms in the Campos and Santos basins, led to the large reserves increase.

Last week a second production well came onstream through the Cidade de Paraty facility on the Lula field, lifting production to 58,000 b/d of oil.

On the same day (Jan. 14), the company’s presalt oil production reached a new high of more than 390,000 b/d.

In the Santos basin, which provides 51% of presalt oil output, nine production wells are in operation. Average production per well in the presalt Santos basin hub is around 25,000 b/d.

Last month the company issued declarations of commercial viability for three more Santos basin presalt areas: Lapa (Carioca), Búzios (Franco) and Sul de Lula (Sul de Tupi).

This year Petrobras expects to connect 17 new wells will be connected to platforms already installed in the presalt Santos basin hub.

In the second half of 2014, two new FPSOs will come onstream: the Cidade de Ilhabela platform in the Sapinhoá Norte field, and the Cidade de Mangaratiba platform in the Iracema Sul field, increasing presalt oil production capacity in the basin by 300,000 b/d.

 

Norway January oil output at 1.568 mb/d

Norwegian crude oil production in January averaged 1.568 million b/d of oil, up 5.7% from 1.484 million b/d for January 2013, according to preliminary figures released by the Norwegian Petroleum Directorate.

The latest figure also bettered the figure of 1.543 million b/d for December 2013.

The improvement was despite technical problems which reduced output at the Draugen, Ekofisk, Gullfaks and Skuld fields offshore Norway, the NPD said in its statement.

It said oil production was about 2% above its forecast for the month, but gave no further details.

Norway produced 379,000 b/d of NGLs and condensate in January, down 3% from 392,000 b/d a year earlier, NPD said.

Last December Norway produced 373,000 b/d of NGL and condensate, down from 415,000 b/d for December 2012.

The NPD Director of Prognosis, Jan Bygdevoll, in December pointed to a late upward burst of production positively impacted by new fields coming on stream, including Skarv which started at the beginning of 2013 and continued to ramp up through the year.

In recent years Norway has seen its production steadily erode from peaks of over 3 million b/d a decade ago to barely one third of that, although major recent discoveries are set to contribute more production when they come in stream in the next few years, including the massive Johan Sverdrup oil and gas discovery which will start producing late 2019.

The NPD, releasing the annual update to its forecasts on Wednesday, said oil production would average 1.463 million b/d for 2014, in line with the 2013 level of 1.464 million b/d but down from its previous estimate for 2014 production made last year of 1.52 million b/d.

 

Argentina YPF-Apache Deal Boosting Gas Output

Argentina's government expects the deal announced for state-run YPF to buy Apache's local operations will boost natural gas production and keep a lid on prices, a senior official said Thursday.

YPF agreed to buy the assets for $852 million, a deal that is expected to close in mid-March.

The acquisition will boost YPF's share of gas production to around 30% from 26%, making it the top producer in the country, according to data from the Argentine Oil and Gas Institute, an industry group.

With the purchase of the assets, YPF plans to ramp up spending on gas development, Presidential Chief of Staff Jorge Capitanich said in a televised press conference.

"In the next 60 days, YPF will launch a sustained increase in investment in developing gas," he said. "This will double production in some fields."

YPF launched a $37.2 billion, five-year investment program after it was brought under state control in 2012. The goal is to increase oil and gas production 36% by 2017, including by ramping up drilling to squeeze more out of conventional reservoirs and putting into production shale resources estimated at among the world's largest for oil and gas.

Capitanich said that with the acquisition and subsequent increase in output, Argentina will move closer to "eliminating a growing energy trade deficit" by substituting energy imports with local supplies and increasing energy exports.

This is part of a wider strategy to return the country to the energy independence it largely enjoyed in the late 1990s and early 2000s after a private investment boom. However, output sank and imports surged in subsequent years as private companies reined in spending as shaky regulations, price caps, capital controls and export restrictions cut profits and made it harder to do business. This led to energy shortages and a surge in imports, now a major drain of dollars from the money-tight economy.

"YPF's strategy for obtaining financing and investing will make it possible for the country to achieve energy self-sufficiency," Capitanich said.

He added that YPF's increased share of gas production will allow the country to sustain competitive energy prices for industry to make the economy "globally competitive."

 

Continental Coal Gets $4.5m Bridge Funding

South African junior miner Continental Coal said it had received A$5 million ($4.48 million) in bridge funding to make key payments to creditors and was progressing well with its larger recapitalization plans.

It said in a statement that its escrow agent had received the funds which, if all conditions were met, would be released to pay creditors and ensure a three-month standstill period to recapitalize and restructure the company's financial arrangements.

"Importantly the company will focus on, and ensure, stability at an operational level with the company's current mining operations whilst saving significant costs at the corporate level," Continental said.

Interim Chairman Paul D'Sylva said that the company remained well-positioned to supply the domestic and global market from two operating coal mines, Vlakvarkfontein and Penumbra, producing about 2 million mt/year of thermal coal.

"We have received interest from a number of globally recognised energy investors/traders to participate in the company going forward, which we expect to finalise shortly," he said.

Continental added that it would look to generate stronger partnerships with state-owned utility Eskom, logistics group Transnet and the Richards Bay Coal Terminal to move forward and grow.

As part of the bridge funding agreement, chief executive officer Don Turvey, chief financial officer Lou van Vuuren and non-executive directors Mike Kilbride and Johan Bloemsma have left the company, with non-executive directors Ron Chamberlain and Bernard Swanepoel having also resigned.

Continental said that joint company secretaries Dennis Wilkins and John Ribbons had resigned and would be replaced by Jane Flegg, adding that coal marketing specialist Dr Lars Schernikau -- who is associated with entities that subscribed for $2 million of the bridge funding -- had also been appointed as a non-executive director.

The junior miner is looking to develop and has completed a feasibility study for a proposed third mine, the De Wittekrans coal project.

 

Robust Demand Tightening Oil Market: IEA

Stronger-than-expected demand has drained oil inventories to the lowest level since 2008, tightening the market and defying predictions of a glut, the West's energy watchdog said.

The International Energy Agency (IEA) said oil inventories in the developed world plummeted by 1.5 million barrels per day (bpd) in the last three months of 2013, the steepest quarterly decline since 1999.

The IEA, which advises most of the largest energy-consuming countries on energy policy, becomes the third major forecaster this week to predict higher oil use as economic growth picks up in Europe and the United States.

"Far from drowning in oil, markets have had to dig deeply into inventories to meet unexpectedly strong demand," the IEA said in its monthly oil market report.

The IEA raised its forecast for global oil demand growth this year by 50,000 bpd to 1.3 million bpd.

That was boosted by a rebound in demand in North America and Europe after several years of declining consumption.

The Paris-based agency increased its estimate of the demand for oil from the Organization of the Petroleum Exporting Countries (OPEC) from last month's report by 100,000 bpd to 29.6 million bpd .

"Demand has been stronger than expected, and we're operating with low stock levels right now, which has been supportive for prices," Antoine Halff, head of the IEA's oil industry and markets division, told Reuters.

"Demand for OPEC crude looks stronger."

Both OPEC and the US Energy Information Administration raised their forecasts for 2014 demand in monthly reports this week.

Growing oil production in North America had led some to predict international crude prices would fall in 2014, after averaging around $110 a barrel in each of the past three years.

But robust demand and supply problems in a number of OPEC countries have kept prices supported, the IEA said.

While output from Libya recovered in January to 500,000 bpd, Iraqi output fell by 140,000 bpd to 2.99 million bpd, the IEA said, and warned that exports from Libya were likely to continue to be constrained by political unrest in the country.

Output in Saudi Arabia, OPEC's largest producer, fell by 60,000 bpd in January to 9.76 million bpd, the IEA said.

The IEA kept its estimate for supply growth from countries outside of OPEC unchanged from last month, forecasting an increase of 1.7 million bpd this year.

Repsol to Extend Contract in Ecuador

Repsol SA, Spain’s biggest crude producer, signed a deal with Ecuador’s government to expand an oil operation in the South American country’s eastern Amazon region, two people with knowledge of the deal said.

The new arrangement for Block 16, reached in November, also gives Repsol an additional four years, until 2022, to pump crude from its existing fields, one of the people said. Both asked not to be identified as terms haven’t been made public.

The agreement represents a change of strategy for Repsol, which in 2010 renegotiated its Ecuadorean contracts under threat of expropriation, after attempting to sell its local operations last year, one of the people said. Now the Madrid-based company is trying to get more use out of existing infrastructure and investments by extending the contract, the person said.

Repsol’s press office in Madrid referred questions to the company’s local officials, who declined to comment. Ecuador’s Non-Renewable Natural Resources Ministry’s press office declined interview requests when contacted by Bloomberg News.

Repsol has started building roads into the area, known as Wati, on the southern end of the license. The field holds an estimated 5.43 million barrels, one of the people said. The company agreed to drill two new wells and will perforate an additional five if exploration is successful, the person said.

The first two wells probably will be finished by April 2015 and production could begin as early as June 2015, the person said. The company will also need to extend its pipeline to transport the oil, according to the person.

Repsol produced an average 31,400 barrels of crude a day in Ecuador in January.

 

 

Colombia to Sweeten Deepwater Contract Terms

Colombia is working to sweeten contract terms for oil and gas companies looking to exploit its harder-to-reach deepwater reserves at an auction this year.

Royal Dutch Shell Plc (RDSA), Exxon Mobil Corp. (XOM) and ConocoPhillips are among foreign producers interested in bidding at the July auction of 97 offshore and onshore blocks, Javier Betancourt, head of the Hydrocarbons Agency, said. Terms for conventional and unconventional contracts will remain the same as a 2012 bidding round.

“Our current offshore position isn’t the most competitive; we’re working to improve it,” Betancourt said in an interview in Cartagena. “There’s a marked interest from the big players in Colombia’s unconventional and offshore.”

The 2014 auction will include about 10 offshore blocks in the Caribbean and three in the Pacific, as well as 19 unconventional blocks, located primarily in Colombia’s La Luna shale formation, Betancourt said. Exxon Mobil, Shell and ConocoPhillips (COP) “have shown interest in the round in general, not only in unconventional but also offshore,” he said.

The three companies declined to comment when contacted by Bloomberg.

“In reserve volume terms, the big discoveries in the last few years have been offshore, as well as the unconventional revolution in the US,” Betancourt said.

Some 57 conventional blocks are set to be auctioned in the round, with locations mainly spread across Colombia’s southern Putumayo province, the Middle Magdalena Valley, the Llanos plains and Pacific and Atlantic coastal areas, Betancourt said.

The hydrocarbons agency also plans to auction six to eight coal-bed methane blocks after the main July round, seeking to follow in the footsteps of the US and Australia where the energy source is being exploited.

Mexico’s imminent energy industry opening means the country will become an important player, with the additional supply contributing to a “buyers’ market” for energy companies looking for new contracts, Betancourt said.

 

 

Iraq Considers More Action Against Exxon

Iraq is considering additional measures against Exxon Mobil Corp. over deals the company signed with the semi-autonomous Kurdish region, Deputy Prime Minister for Energy Affairs Hussain al-Shahristani said.

The Oil Ministry is “studying other measures” against Exxon after requiring the company to reduce its involvement in the West Qurna-1 field last year. Authorities in Baghdad have received a reply from the Kurdistan Regional Government, or KRG, on proposals for ending an impasse over oil exports from the region, al-Shahristani told reporters in Baghdad.

“Exxon violated Iraqi law, they were informed about that, and Iraq started to take measures regarding it,” Shahristani said. Now, the “ministry is studying other measures for violating Iraqi laws,” he said.

Iraq’s Kurds have halted crude flows via the national export pipeline to Turkey amid a dispute with authorities in Baghdad on the legality of deals the Kurds signed with international companies, such as Exxon and Total SA. The KRG has announced plans to sell crude it has pumped through its own new pipeline to Turkey.

Shahristani didn’t give details of the KRG’s response to the central government’s proposals for settling the dispute.

National oil production is also being constrained by insufficient storage space in the south, Shahristani said. Iraq will be unable to maintain production levels at full capacity of 3.5 million barrels a day unless it increases handling capacity at the southern port of al-Faw, Shahristani said.

Iraq pumped as much as 3.524 million barrels on one day in January, he said. Monthly production in January was 3.05 million barrels a day, according to data compiled by Bloomberg. The nation said it pumped an average 2.85 million barrels in direct submissions to the Organization of Petroleum Exporting Countries in a report.

Sports, Health, Work

A Review of Sports Position in Iran Oil Industry

 

Iran’s petroleum industry, which is the country’s main industrial and economic sector, has not ignored such peripheral issues as sports, culture and arts. Sports activities have long occupied a special position in the petroleum industry.

Many branches of sports have become famous across Iran after they entered Iran’s petroleum industry. For instance, when oil production started in oil-rich regions in southern Iran, golf, badminton and tennis emerged in Iran for the first time. Football, which is now the world’s most famous sports, also found its way to Iran through petroleum industry. This issue dates back to oil exploration in Masjed Soleyman. As oil industry progressed in Iran, sports also grew significantly. Sports teams in different disciplines like football, boxing and golf were formed in the oil-rich cities of Abadan and Masjed Soleyman in the 1970s.

At present, the significance of sports in the oil industry is such that all sports activities in this sector are managed by the Directorate of Sports Affairs at Iran’s Petroleum Ministry.

The main four subsidiaries of Petroleum Ministry – National Iranian Oil Company (NIOC), National Iranian Gas Company (NIGC), National Petrochemical Company (NPC) and National Iranian Oil Refining and Distribution Company (NIORDC) – have their own department of sports affairs. These four companies have set up teams in football, basket, weightlifting, wrestling, cycling, water polo, etc. They have won trophies inside and outside of Iran.

 

International Championship

Weightlifting is one of sports disciplines Iran’s petroleum industry has heavily invested in over the past years. It won gold medals abroad by recruiting internationally acclaimed weightlifters Hossein Rezazadeh, the champion of the 2000 Olympics in Sydney, and Behdad Salimi, the champion of the 2012 Olympics in London. Rezazadeh competed for the National Iranian Drilling Company (NIDC) and Salimi for the National Iranian South Oil Company (NISOC).

The NISOC weightlifting team bagged five gold, five silver and three bronze medals in 2009 in the Asian weightlifting championship held in South Korea. In the junior and adult categories, the NIDC weightlifting team finished runner-up.

A year after, NISOC became once again the Asian champion in Uzbekistan’s Tashkent. For its part, the NIDC team claimed the top spot in the youth category.

Other honors for Iranian petroleum industry’s weightlifting teams include the NIDOC team’s success in the 2011 Asian championship in Tashkent. In that year, Jaber Behrouzi, Rasoul Taqian, Sohrab Moradi, Navab Nassir Shalal, Asghar Ebrahimi, Mohammad-Reza Barari, Bahador Molaei and Rosha Ashourizadeh secured Iran 15 gold, 8 silver and one bronze medals.

Ahvaz’s NIDC weightlifting team secure the country’s championship title for the fourth consecutive year in 2012-2-13 Iran championships.

Behdad Salimi, the world’s strongest main in the 2012 Olympics in London, Kianoush Rostami, Asia’s runner-up in 2011 and 2012 and world’s 2011 champion, are members of NIDC weightlifting team.

After weightlifting, cycling is the highest profile sports in Iran’s petroleum industry. The cycling team of Tabriz Petrochemical Plant was established in the northwestern city of Tabriz in 2002. It competed in regional tours, national leagues as well as international tours in Turkey and Malaysia. The cycling team was registered by in the list of continental teams of the Union Cycliste Internationale (UCI). This team started its 2007-2008 season with local cyclists. It was the first time it competed as a continental team, but it became the champion of Asian tour by gaining 909 points in five foreign and two domestic tours.

This team recruited a Kazakh cyclist and several local cyclists for the 2008-2009 season to hold its top position. They gained 1,015 points after competing in five foreign and two domestic tours. The runner-up got points half of them. There is also a mountain biking team in the Tabriz Petrochemical Plant.

 

Soccer Leagues

Football has long been a popular sports discipline in the petroleum industry. It has achieved remarkable success over the years. Currently, Iran’s petroleum industry has the following soccer teams: Tehran Petroleum, Abadan Petroleum Industry, Masjed Soleyman Petroleum, Gachsaran Oil and Gas and Omidieh Petroleum.

However, the main focus is on the NIOC football team. Although its background in the Premier League does not date back to long time ago and it has not recruited internationally renowned players this team has achieved valuable results inside the country. Over the past two years, it has always been among the top five teams.

The petroleum teams are more determined than ever to win title inside the country in order to reserve a seat in Asia. They have gone most of the way by hiring Yahya Gol-Mohammadi, a former national team player, as their coach.

Tehran Petroleum team is currently ranked the third in Iran’s premier league and it hopes to berth in Asia soon.

 

Basketball

Basketball has been a popular game in Iran’s petrochemical industry. The basketball team of Bandar Imam Petrochemical Plant became Iran’s champion last year, outperforming Tehran Mahram team.  This team, which will represent Iran in the Asian championships, is led by Mehran Hatami. It has also hired Mehdi Kamrani, Hamed Afaq and Hamed Sohrabnejad. It is likely to claim the top spot.

 

Wrestling

Wrestling has been common at Iran Petroleum Ministry. This sports discipline has always been popular. Not long ago, wrestling teams of Petroleum Ministry made good achievements in wrestling leagues.

Tehran Petroleum was ranked the champion four times in Iran’s Freestyle Wrestling League. Mazandran Gas won the championship twice.

Sports managers at Iran Petroleum Ministry are interested in wrestling which is popular across Iran.

 

Sportswomen in Iran Petroleum Industry

Alongside men, women have also been present in the petroleum industry sports activities. NIGC is among companies whose sportswomen have shined in basketball and volleyball championships in recent years.

NIGC volleyball team finished runner-up in Iran in 2012-2013. In the new season, it has fared well.

NIGC female basketballists have gained good titles in the Super League A in the past years. In the new season of these competitions, they are lucky to win the championship title.

Besides the aforesaid sports activities, karate, table tennis, water polo, tae kwon do, futsal, volleyball, wushu, badminton, judo, gymnastics and marksmanship are also among other disciplines in which Iran’s petroleum industry has invested in recent years. Hossein Ojaqi in wushu, Rouhani brothers in karate, Noshad Alamian in table tennis and Msoud Haji Akhundzadeh in judo are among famous figures.

 

Sports for All

The Department for Sports Affairs of Iran’s Petroleum Ministry is encouraging oil staff and their families to participate in sports for all activities. The ministry has defined long-term plans like holding sports Olympiads for men, women and disabled in different age groups.

Moreover, in order to achieve the aforesaid objectives, such mechanism as development and renovation of sports places, hiring specialists and applying scientific mechanisms in sports have been worked out.

Iran’s Petroleum Ministry is seeking to be active in sports disciplines for which there are sufficient infrastructure, equipment and facilities.

Since one of the main objectives of the Department for Sports Affairs of Petroleum Ministry is to make maximum use of the oil staff families in sport championships, sports managers in the ministry are planning to set up academes for football, volleyball, basketball, karate, etc. across the country.                         

Sports, Health, Work

A Review of Sports Position in Iran Oil Industry

 

Iran’s petroleum industry, which is the country’s main industrial and economic sector, has not ignored such peripheral issues as sports, culture and arts. Sports activities have long occupied a special position in the petroleum industry.

Many branches of sports have become famous across Iran after they entered Iran’s petroleum industry. For instance, when oil production started in oil-rich regions in southern Iran, golf, badminton and tennis emerged in Iran for the first time. Football, which is now the world’s most famous sports, also found its way to Iran through petroleum industry. This issue dates back to oil exploration in Masjed Soleyman. As oil industry progressed in Iran, sports also grew significantly. Sports teams in different disciplines like football, boxing and golf were formed in the oil-rich cities of Abadan and Masjed Soleyman in the 1970s.

At present, the significance of sports in the oil industry is such that all sports activities in this sector are managed by the Directorate of Sports Affairs at Iran’s Petroleum Ministry.

The main four subsidiaries of Petroleum Ministry – National Iranian Oil Company (NIOC), National Iranian Gas Company (NIGC), National Petrochemical Company (NPC) and National Iranian Oil Refining and Distribution Company (NIORDC) – have their own department of sports affairs. These four companies have set up teams in football, basket, weightlifting, wrestling, cycling, water polo, etc. They have won trophies inside and outside of Iran.

 

International Championship

Weightlifting is one of sports disciplines Iran’s petroleum industry has heavily invested in over the past years. It won gold medals abroad by recruiting internationally acclaimed weightlifters Hossein Rezazadeh, the champion of the 2000 Olympics in Sydney, and Behdad Salimi, the champion of the 2012 Olympics in London. Rezazadeh competed for the National Iranian Drilling Company (NIDC) and Salimi for the National Iranian South Oil Company (NISOC).

The NISOC weightlifting team bagged five gold, five silver and three bronze medals in 2009 in the Asian weightlifting championship held in South Korea. In the junior and adult categories, the NIDC weightlifting team finished runner-up.

A year after, NISOC became once again the Asian champion in Uzbekistan’s Tashkent. For its part, the NIDC team claimed the top spot in the youth category.

Other honors for Iranian petroleum industry’s weightlifting teams include the NIDOC team’s success in the 2011 Asian championship in Tashkent. In that year, Jaber Behrouzi, Rasoul Taqian, Sohrab Moradi, Navab Nassir Shalal, Asghar Ebrahimi, Mohammad-Reza Barari, Bahador Molaei and Rosha Ashourizadeh secured Iran 15 gold, 8 silver and one bronze medals.

Ahvaz’s NIDC weightlifting team secure the country’s championship title for the fourth consecutive year in 2012-2-13 Iran championships.

Behdad Salimi, the world’s strongest main in the 2012 Olympics in London, Kianoush Rostami, Asia’s runner-up in 2011 and 2012 and world’s 2011 champion, are members of NIDC weightlifting team.

After weightlifting, cycling is the highest profile sports in Iran’s petroleum industry. The cycling team of Tabriz Petrochemical Plant was established in the northwestern city of Tabriz in 2002. It competed in regional tours, national leagues as well as international tours in Turkey and Malaysia. The cycling team was registered by in the list of continental teams of the Union Cycliste Internationale (UCI). This team started its 2007-2008 season with local cyclists. It was the first time it competed as a continental team, but it became the champion of Asian tour by gaining 909 points in five foreign and two domestic tours.

This team recruited a Kazakh cyclist and several local cyclists for the 2008-2009 season to hold its top position. They gained 1,015 points after competing in five foreign and two domestic tours. The runner-up got points half of them. There is also a mountain biking team in the Tabriz Petrochemical Plant.

 

Soccer Leagues

Football has long been a popular sports discipline in the petroleum industry. It has achieved remarkable success over the years. Currently, Iran’s petroleum industry has the following soccer teams: Tehran Petroleum, Abadan Petroleum Industry, Masjed Soleyman Petroleum, Gachsaran Oil and Gas and Omidieh Petroleum.

However, the main focus is on the NIOC football team. Although its background in the Premier League does not date back to long time ago and it has not recruited internationally renowned players this team has achieved valuable results inside the country. Over the past two years, it has always been among the top five teams.

The petroleum teams are more determined than ever to win title inside the country in order to reserve a seat in Asia. They have gone most of the way by hiring Yahya Gol-Mohammadi, a former national team player, as their coach.

Tehran Petroleum team is currently ranked the third in Iran’s premier league and it hopes to berth in Asia soon.

 

Basketball

Basketball has been a popular game in Iran’s petrochemical industry. The basketball team of Bandar Imam Petrochemical Plant became Iran’s champion last year, outperforming Tehran Mahram team.  This team, which will represent Iran in the Asian championships, is led by Mehran Hatami. It has also hired Mehdi Kamrani, Hamed Afaq and Hamed Sohrabnejad. It is likely to claim the top spot.

 

Wrestling

Wrestling has been common at Iran Petroleum Ministry. This sports discipline has always been popular. Not long ago, wrestling teams of Petroleum Ministry made good achievements in wrestling leagues.

Tehran Petroleum was ranked the champion four times in Iran’s Freestyle Wrestling League. Mazandran Gas won the championship twice.

Sports managers at Iran Petroleum Ministry are interested in wrestling which is popular across Iran.

 

Sportswomen in Iran Petroleum Industry

Alongside men, women have also been present in the petroleum industry sports activities. NIGC is among companies whose sportswomen have shined in basketball and volleyball championships in recent years.

NIGC volleyball team finished runner-up in Iran in 2012-2013. In the new season, it has fared well.

NIGC female basketballists have gained good titles in the Super League A in the past years. In the new season of these competitions, they are lucky to win the championship title.

Besides the aforesaid sports activities, karate, table tennis, water polo, tae kwon do, futsal, volleyball, wushu, badminton, judo, gymnastics and marksmanship are also among other disciplines in which Iran’s petroleum industry has invested in recent years. Hossein Ojaqi in wushu, Rouhani brothers in karate, Noshad Alamian in table tennis and Msoud Haji Akhundzadeh in judo are among famous figures.

 

Sports for All

The Department for Sports Affairs of Iran’s Petroleum Ministry is encouraging oil staff and their families to participate in sports for all activities. The ministry has defined long-term plans like holding sports Olympiads for men, women and disabled in different age groups.

Moreover, in order to achieve the aforesaid objectives, such mechanism as development and renovation of sports places, hiring specialists and applying scientific mechanisms in sports have been worked out.

Iran’s Petroleum Ministry is seeking to be active in sports disciplines for which there are sufficient infrastructure, equipment and facilities.

Since one of the main objectives of the Department for Sports Affairs of Petroleum Ministry is to make maximum use of the oil staff families in sport championships, sports managers in the ministry are planning to set up academes for football, volleyball, basketball, karate, etc. across the country.                         

Harold Wilson and Dream of OPEC Top Post

Edwin Laurentine Drake, also known as Colonel Drake, was an American oil driller, popularly credited with being the first to drill for oil in the United States. He drilled the first oil well in the world in 1859. After that drilling, the fever of oil discovery spread across the world and no region in the world has been immune from oil explorers. Even North Sea, reserved to fishermen, has been searched for oil.

West Europe, which could not produce more than 250,000 b/d of oil despite its growing demand, increased its exploration activities following the Suez Canal crisis which threatened energy supply routes. The focus of exploration activities was on North Sea waters between Norway and Britain.

North Sea waters had become crowded with drilling rigs, oil platforms, pipe-laying ships and logistics vessels in the mid-1970s.

The US company Phillips was very active in oil exploration in North Sea. It had drilled numerous wells in North Sea since 1962, but they had proven to be failure. Managers of the company finally ordered a halt to drilling in North Sea. But Phillips had already started drilling a well before the order was issued. It had no option but to continue drilling with the rig it had leased.

The drilling rig continued its operation despite bad weather and tumultuous sea. As American astronauts landed on the Moon in November 969, a huge oil field was discovered in North Sea. Phillips persuaded other companies to increase their exploration activities in North Sea. It was late 1970s when the British Petroleum explored a huge reservoir in Ekofisk. In 1971, the huge Brent field was discovered by Hub Shell and Exxon.

Drilling oil wells in North Sea was very difficult and costly, but the 1973 oil crisis had made the development of oil resources a must in the region and continuation of oil production there had become possible with the development of a new generation of petroleum technology.

Development of North Sea oil reservoirs had become a major investment project in the world. But due to high costs, it accelerated the global inflation rate growth. However, no major could ignore such a huge investment project.

On June 18, 1975, the first oil cargo from North Sea’s Argyll oil field was delivered to a refinery in Britain.

The Argyll field was the first field to produce oil in the UK in 1975. It produced 72.6 million barrels of light sweet crude oil with 37° API over a 17-year period.

Europe which considered North Sea oil ad a shield against energy supply threats was seeking to make the global world oil balance shift in its favor through increasing oil production. Then British prime minister, Harold Wilson, believed that oil prices should not fall sharply although the US government was fighting against oil price hikes. Wilson, who considered himself the leader of an emerging oil power, dreamt of becoming secretary-general of the Organization of the Petroleum Exporting Countries (OPEC) in 1980.

Pleasure of Skiing in Iranian Alps

By Parisa Sadeqieh

 

After days of long waits for watching snowy scenes in a big city like Tehran whose winters are often cold and dry, we move towards a resort which is covered with snow for at least nine months of the year.

The Dizin skiing report is not so far from Tehran and a one-day trip will be a good idea to enjoy its winter nature. But the fact is that Tehran and Dizin are largely different in nature.

After experiencing heavy traffic snarl in Tehran – which not unexpected and uncommon at all – we head to Alborz province. Some 40 kilometers from Tehran, we reach the historic Chalous Road, which is one of the four most beautiful roads in the world.

We ask for the Dizin skiing resort from a local inhabitant. We are told that we have to go 70 kilometers farther to the north to reach an intersection. Then, we will read on a road sign which direction we have to take. We are now seven kilometers away from Dizin, a tourism and recreational city. During the 70 kilometers, we enjoyed the beautiful nature of Chalous Road. On the way, we had Amir Kabir Dam whose water was partly frozen and colorful birds were flying there.

 

Hot Āsh

After we reach the intersection located in the mountainous region, we got off our car. The temperature is always subzero here, both in winter and summer. A village there is famous for its āsh.  Āsh is part of Iranian cuisine, similar to soup but thicker, which is usually served hot. Depending on the type of āsh, it could contain different types of grain, legumes (chick peas, black-eye beans, lentils), vegetables, herbs (parsley, spinach, dill, spring onion ends, coriander, dried mint), onions, oil, meat, garlic, reshteh (in Ash Reshteh) and spices, such as salt, pepper, turmeric, saffron, etc.

We had āsh and we got enough energy to continue our way towards Dizin.

 

Dizin Honey

On the way to Dizin and before reaching a small village, we ran across tents where apiculturists were living. The honey produced in Dizin is famous in Iran. There were long lines of beehives near the tents. The apiculturists were waiting for snow to melt so that flowers will grow in the mountains. The flowers often grow in the summer and are fed with water streaming in river located just behind the tents. The river originates from snow-capped mountains. Due to heavy snowfall, the river is semi-frozen. This river is always full of water because it flows from Dizin heights. The temperature of the water falls even to minus 30 degrees Centigrade.

After enjoying this beautiful and charming scene, we continued our way along the river to Dizin. From long distance, we were seeing red cable cars visible against the white background of snow-covered mountains. The cable cars are used by skiers and visitors to go up. These scenes encouraged us further to continue our way towards this historic recreational place. As we approached we started fearing that we might get cold because of inappropriate clothes. But, nothing could keep us from experiencing pleasure in a snowy day.

 

Foremost Skiing Resort in Iran

We finally reach the entrance of Iran’s first and leading skiing resort. The Dizin ski complex is the first ski and winter sport resort in Iran which has been officially recognized and granted the title by the International Ski Federation for its capability in administrating official and international competitions.

 

Residence in Historic Hotel

Dizin Hotel, constructed 46 years ago, awakens our nostalgia. Dizin Hotel is an old one, but everyone residing there gets familiar with the facility very soon. The hotel was decorated with beautiful mirrors. Our room was located in the second floor. The walls were painted beautifully, the furniture and lampshades were marvelous. We soon left the hotel for the resort. Dizin climatologic condition offers the longest time for skiing, normally begins in November and typically runs through the end of May. Dizin ski amenities included two hotels, 19 cottages and 5 restaurants. The ski activity in Dizin complex is not confined to winter season. There are many other spring, summer and fall activities. The snow quality at Dizin is fantastic powder and rivals that of many European and Rocky Mountain snow areas.

 

Snowy Day

The temptation of pleasure in the skiing resort did not leave us any time to think about cold weather which we were worried about. There were many people queuing to get on the cable car, some were skiing and some others were descending on tubes. There were also those who threw snowballs at each other to enjoy themselves. Everyone has his own way of getting pleasure from snow. But we wanted to experience pleasure differently. We preferred to use chair lift instead of cable car to go up. In the line, there were people holding skateboards. The chair lift crossed over a river whose temperature was below zero. Finally, we got the chance to get on the chair lift. We could no longer escape this joyful trop. We had a sense of fear when we were getting on the chair lift and we could not look what was happening down there. When the chair lift stopped at the first station we got the chance to take a look at the river. We found big stones in the river. We had still fear and we could not keep looking down at the river. We preferred to look forward in order to calm our nerves down.

The installation of ski-lifts at Dizin dates back to 1969, which include three cabel cars, two ski-lifts, seven dish tele-skis and one Hammer tele-ski, the lowest point of the region is 2,650m, while its highest point is 3,600m (which equates to 11,811 feet above the sea level.)

 

Sun at Lowest Altitude

The more we approached the mountains, the more we felt the sun’s heat. We had the impression that the Sun was waiting for us in the cap of the mountains. We finally reached our destination and we got of the chair lift. There were people of different ages preparing for skiing. Some were learning and some others were playing. There were those who had sat and watch while drinking hot tea and coffee. Up there, one feels very close to the sky. Wherever you look you see the sky and the distance between the sky and the mountain is nearly zero. The sunlight is reflected on the snow-capped mountains and hits faces. While the entire body is feeling cold, the face is hot. That’s so pleasant. We walked with a group of mountaineers. The weather was clean and pleasant around the resort. We reached Dizin-Shemshak Road which connects the skiing resort to Tehran. Some passengers who had chosen to travel in their own cars stopped over there before resuming their way towards the capita.

Shemshak is the second largest ski area in Iran after Dizin and came into operation in 1958. It includes two ski lifts, three dish teleskis and two Hammer teleskis. The slopes lie at an altitude of 2550m to 3050m above sea level. The resort includes two main slopes each with a chair lift that apex at the top and several lifts. There are also lighting facilities for night skiing.

 

Building Snowman

Dizin remains covered with snow even up to the end of spring. No difference is felt in the summer and winter temperatures there. That is why the climatic conditions are so pleasant for winter sports. Cold weather is by no means annoying there. We had no experience in skiing and therefore we decided to enjoy watching professional skiers. At the same time, we saw some visitors were making a big snowman 1.5 meters high. We went to help them. Everything had been planned in advance. Buttons were available for the eyes of the snowman and a carrot was installed as his carrot. Someone even put a shawl around the snowman’s neck. But, nobody had any idea for the snowman’s mouth to show him smile. Nothing was available there because of snow. Out of the sudden, an idea struck my mind. I went to a nearby teahouse and picked a leaf from a thyme bush. I stuck the leaf on the snowman’s face and covered it with snow so that it would not fall.   

 

Reflection of Violet on the Snow

We took several photos with the snowman. It was 4 pm. The Sun was close to setting. Everyone was moving down the mountain to take a rest in the hotel or wooden cottages. We got on the cable car to reach the hotel. The sunset was reflecting violet on the snow. It was one of the best sunset scenes I had ever experienced. The hotel’s lights were starting to turn on. Those who preferred cottages had set on fire around to make snowy scenes more beautiful.

 

A Calm Night

Everyone was hectic in the hotel’s restaurant. They were waiting for colorful food after a full day of pleasure. The restaurant’s staff were serving guests with food. After dinner, everyone went to his place of residence. The night was calm. There was no sound of frolicking. Drinking hot tea in the hotel after a full day of activity is a good experience for everyone. We were thinking of the snowman who had to pass the night alone in the mountains. Maybe the following day, new passengers will make someone so that he would not be alone.

 

Dizin in Summer

Dizin is covered with grass in the summer. Every year, professionals from across the world come to this skiing resort in the summer.

Grass skiing was started in France in 1966 as a method for training for alpine skiing. Short skis that were actually continuous treads, much like those on tanks, or wheels were used. These skis were attached to the skiers boots and a grassy downhill slope was found. Depending on the skill of the grass skier, high speeds and jumps could be navigated.

Many skiers have created their own pistes as an alternative to grass ski centers or grassy mountainous regions. Moreover, aspiring alpine skiers or skiing beginners in general can try this skiing variation to learn skiing moves and techniques even before the onset of snow.

There are also other facilities such as tennis courts, mountain climbing, mountain biking.

NIOC-Run Abali Sports Complex

National Iranian Oil Company (NIOC) has provided recreational and sports facilities for its employees at Abali region which is located 45 kilometers east of Tehran. Beautiful residential compounds have been constructed in Abali so that NIOC employees could make trips there and enjoy themselves.

The facilities are winter destination of NIOC employees. At the weekends, a large number of visitors go there.

Due to its short distance from Tehran, Abali is a proper tourism center. Abali Sports Complex welcomes a large number of ski fans every winter. Due to the proximity of this sports complex to historic and pilgrimage sites, other visitors also go there. The historic monuments there are Qajar-era houses in Mobarakabad village, Abbasi Caravanserai, mineral water springs as well as mausoleums.

Abali has three mineral water springs. One of them flowing from Mobarakabad River is located 60 kilometers northeast of Tehran. This spring is one of the most important tourist attractions for visitors. It is also the fist mineral water spring identified in Iran in 1928. The water from this spring is said to be helpful for digestive system, liver, pancreas and intestines. It can also help regulate cholesterol and uric acid in the body.

The second one is Alborz, 60 kilometers northeast of Tehran in the Abali village. It is along Tehran-Amol road.

The third one is Ab Ahan, 300 meters away from Abali spring. Water flows out of a small spring before flowing back into the river. Besides a beautiful nature in winter, this recreational complex has pleasant weather in the summer. Iranian oil industry staff can visit there with their families. In the summer, mountaineers and grass skiers can also pass their time.