Iran 'seeking new oilfield partner after Japan deal collapses'

Oct 16, 2006, 14:58 GMT

Nicosia - The National Iranian Oil Company (NIOC) is looking for new partners to undertake the two billion dollar-development of the southern sector of the Azadegan oilfield after Japan's Inpex lost the contract awarded two-and-a-half years ago, the Middle East Economic Survey reported Monday.

The Cyprus-based weekly publication said that the decision to cancel the deal was announced after another failed round of negotiations led by NIOC to kick-start a project which first earmarked for development by Japanese companies six years ago.

The MEES report said NIOC was trying to revive the deal while the contractor was raising every possible obstacle to stall it.

The Azadegan discovery, with five to six billion barrels of oil thought to be recoverable from estimated oil-in-place of 26 billion barrels, was viewed as a cornerstone of NIOC's oil production capacity expansion programme.

A phased development of South Azadegan was expected to be able to deliver 260,000 barrels per day of oil, while another large-scale development was envisaged for North Azadegan.

The importance of Azadegan can be judged by the fact that Irans oil ministry aims to increase national production capacity from the current four million barrels per day to 4.6 million barrels per day, while the country's reservoir decline was recently confirmed at 500,000 barrels per day, the MEES report added.

The collapse of the South Azadegan development team will create a further headache for an already hard-pressed NIOC, which is working to make progress despite the unpopularity of existing buyback contract terms, and a government requirement to have 51 per cent Iranian content in all projects, which has in turn overstretched domestic contractors and slowed work on numerous projects.

However, the failure of the deal opens up the prospect of Azadegan being offered again under revised buyback terms being prepared by NIOC and the oil ministry.

The MEES report concluded that the deal went sour after the initial partners in the Inpex-led team pulled out and cost levels were subsequently unacceptable, as the terms of the deal were later regarded as unsustainable and any renegotiation was out of the question.

Another serious reason was that the potential field lied along the border with Iraq that was still riddled with minefields from the 1980-1988 war with the neighbouring country, a problem that is hampered by frequent flooding that could bury explosives and make work in the area extremely hazardous.