Wood Mackenzie: low oil investment, upstream progress for Iran

Wood Mackenzie: low oil investment, upstream progress for Iran

Baku, Azerbaijan, Dec. 22

By Dalga Khatinoglu – Trend:

While Iran plans to start delivering 49 oil and gas projects to foreigners based on newly designed contract model to absorb at least $80 billion of foreign investments by 2020, UK-based consultancy firm Wood Mackenzie believes the figure would be far below than Iran’s forecast.

Iran unveiled the generalities of newly designed oil and gas contracts, called Iran Petroleum Contract (IPC) in November 2015, offering 49 upstream oil and gas projects to foreigners.

The country plans to start issuing tenders in early 2017.

In the IPC model, Iran keeps sovereignty over its hydrocarbon reserves, but payment of all direct and indirect expenses, as well as finance and operation costs will be dependent on allocation of a portion (maximum 50 percent) of products or proceeds based on current day sale prices.

Iran's IPC will replace the old buy-back contracts. It is being advertised as a risk service contract which includes integrated exploration, development and production.

Iran says it needs $100 billion of investment to develop the upstream oil and gas sector based on IPC by 2020, of which 80 percent is expected to be attracted from foreign companies.

"We do not expect a major inflow of foreign investment in Iran’s upstream sector in 2017. However, 2017 will be the year of a few major contracts being signed in the country, the front-runners being South Pars Phase 11, South Azadegan and Farzad B," Homayoun Falakshahi, Middle East Upstream Analyst for Wood Mackenzie told Trend.

He added that "between 2017 and 2020 (including 2020) we believe Iran may be able to attract upstream capital investment of between $2 billion and $13 billion under the IPC, depending on the timing and the number of signed deals".

Iran has already signed MoUs with foreigners on South Pars Phase 11, worth $4.8 billion, aimed to produce 56 million cubic meters per day (mcm/d) of gas, as well as South Azadegan oil field whose recovery rate is only 6 percent, to boost both this index to 20 percent and increase production level.

However, the long-delayed talks on Farzad B gas field continue without any results.

Iran has signed 15 MoUs and heads of agreements (HOA) with foreigners on dozen of fields, while it plans to seal another HOAs on development of Tousan, Alfa, Esfandiar, the second phase of Soroush, Band-e Karkheh, Kouhmand, Kaki, Boushkan, Sumar, Sepehr, North Yaran, Kish, Farzad B and Zagheh in 2017.

Iran says it is producing 3.7 million barrels of crude oil, 560,000 barrels of gas condensate as well as nearly 800 mcm/d of gross natural gas. It plans to increase these volumes to 4.2-4.7 mb/d, 1 mb/d and 1.25 bcm/d respectively by 2021.

"Including condensate, we believe Iran will reach close to 5.7 mb/d by 2025, not by 2021," Falakshahi said. "Crude oil production will reach 4.5 mb/d by 2025 in our base case view, although there is an upside if Iran is able to strike more deals."

"Sales gas production could reach close to 23 bcfd (650 mcm/d) by 2021 but is dependent on finding new markets. Gross gas production (including re-injected and flared gas) could reach close to 35 bcfd (1 bcmd)," he said.

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