Wednesday, September 20, 2017   22:28:14
After SP11, Now Its South Pars Oil Layer Turn

TEHRAN (NIOC) _ Ali Kardor succeeded Rokneddin Javadi as CEO of National Iranian Oil Company (NIOC) in June last year. The state-run oil company has seen numerous events since then; for the first time, recovery started from the oil layer of South Pars gas field and Azar oil field; five phases of South Pars were developed in a single day; oil production in the West Karoun area exceeded 300,000 b/d; a major deal was signed for the development of Phase 11 of South Pars.

In an interview with Iran Petroleum, Mr. Kardor said the oil layer of South Pars would be the next project to be awarded under the formula of waiver of competitive bidding.
Kardor, now 63, also referred to the resumption of crude oil swap after a five-year hiatus, export of 3 mb/d of crude oil and gas condensate last March and agreement for liquefied natural gas (LNG) production.
The NIOC chief also said that Iran would hold talks with potential foreign investors taking into consideration national interests.
Here is Ali Kardor's full text interview with "Iran Petroleum".
It seems that after the signature of the SP11 agreement, NIOC's talks are not on track as expected. Why?
No, that's not so at all! You need to know that the signature of agreement for Phase 11 of South Pars was the first of its kind within the framework of the new model of oil contracts. It was a first experience for both Iran and foreign parties and it lasted long. And regarding oil contracts that we had previously, I have to say that the text of the contracts needed some modifications and it required spending time. Now I can tell you that our draft oil agreements have been finalized.
What changes have you made to oil sector?
The changes mainly applied to the development of fields. Development of fields is likely to be implemented phase by phase. Although we have insisted that we need EOR and IOR methods to increase recovery, the financial model for using enhanced recovery methods is not clear yet. In the first development phase, it is clear what the contractor would do. But after that the contractor must make it clear what enhanced recovery method it plans to utilize for developing the field. Some companies say they prefer water injection and some others gas injection. Some use down hole pumps. Therefore, it can be noticed that enhanced recovery models vary. For example, Phase 11 of South Pars is to be developed in two phases. In the first phase it is clear what we plan to do. For the second phase, which pertains to engineering, NIOC experts have made calculations. In other words, we have finalized the work in Phase 11; for example, installation of compressor on the platform. Therefore, the order of affairs is clear. But for the development of oil fields, as I noted, companies have proposed a variety of methods for enhanced recovery. For instance, some companies have said they would enhance the recovery rate but the plateau would be low.
Does the reservoir's behavior vary in all oil fields?
Yes, that's absolutely right. Technically speaking, our oil reservoirs have certain intricacies which I think are very important. For the time being, we have presented the principles of contracts to companies willing to develop Iran's oil fields. Some companies have expressed their views and we know now what they mean and they also know what we want. Currently, technical proposals are submitted one by one to the NIOC Consulting Committee to win approval.
Technical proposal has been submitted to Consulting Committee for some fields, what are they?
The technical proposal for the oil layer has been submitted to the committee before other fields, and was followed by Mansouri and Ab Teimour fields.
What about Azadegan field?
It is likely that we don’t send the technical proposal of Azadegan field to the technical committee, rather than that we would wait for the tender bid to be held for the field. We have held a pre-tender bid for Azadegan and the list of bidder companies has been finalized. Around 15 companies have expressed interest to bid for the Azadegan field.
Have any domestic companies offered to bid for the Azadegan tender bid?
I have heard conflicting remarks about the interest of domestic companies in the Azadegan tender bid; however, I don't know if they have made any official request. Nevertheless, we have announced that Azadegan is an important field for us. NIOC had even rejected the technical proposal of some famous operators. One of them is Inpex. The Japanese company is a technically powerful. After it studied the field and we had some meetings, we to conclusion that they could not serve as operator in the development of this field as envisaged by Iran.
Could you tell us about the reason?
They believed that development of this field is very specialized and technical, and they lack any experience in water injection in such a big volume. Working in Azadegan field is not easy at all; therefore, NIOC is trying to convince qualified companies to bid for the project.
What do you think of Iranian companies' technical potential?
Iranian companies are expert in drilling wells, laying out pipelines, desalting and production unit. The oil company (currently NIOC and formerly Anglo-Persian Oil Company and Anglo-Iranian Oil Company) has been involved in the above tasks for a century. NIOC can do all this, but we have not done onshore water injection. Iranian companies are not experienced in that field.
How much investment is estimated to be needed for the development of Azadegan field?
We have yet to reach an estimate in this regard because the volume of water injection for enhanced recovery is high. Furthermore, we have not yet reached a model on how to transfer water from the Persian Gulf. Of course we are hiring consultants for this purpose. We need to examine all aspects before being able to say how much capital we need to develop the field.
So can we say that water injection is the model chosen for enhanced recovery in developing Azadegan field?
The technical proposals presented to NIOC are focused on water injection. It is even said that Ab Teimour and Mansouri fields are also hydrophilic. Water injection in onshore fields is a new experience for us. Due to abundant gas reserves we have always used gas injection for enhanced recovery from onshore fields. The development model used by NIOC has been gas injection. But some of our reservoirs are hydrophilic, while we have never applied the water injection model in our onshore oil fields. We have injected water into some of our offshore reservoirs.
Which sectors do you focus on in the transfer of technology?
We intend to develop Azadegan field to reach maximum recovery. At present, the Azadegan recovery rate stands at 6%, which we plan to bring to 20%. Now we must wait and see which technology foreign operators will bring to reach this objective. Of course, some companies have made new statements about this field, saying for example they can increase the recovery rate of this field to more than 20%. However, their statements must be studied carefully before we can express ourselves. For example, in Changouleh field, after applicants conducted technical studies, the oil reserves of the field in place was announced two times above the previous estimate. Naturally, everything will change and technologies needed to enhance the recovery rate will also change. Of course, our expectation is to have a domestic manufacturing share in our oil contracts higher than in our gas contracts, and I think that after planned signature of oil contracts our domestic manufacturers will be flooded with big orders.
Have all these studies and findings been born out of MOUs signed earlier?
Yes, I initiated the issue of MOUs and when I was offering my proposal I mentioned that NIOC would not pay for studying the fields. Some were opposed. I think it was a good method so that foreign companies would conduct their studies gratuitously and submit their results to us. That would also help us achieve different models for the development of fields. Except for fields that would undergo development under the new model of contracts, we are planning to hire foreign consultants to study our own independent fields. In fact I want to say that we are preparing a plan to study all oil and gas fields in Iran based on state-of-the-art technology.
Haven't your fields' technical studies been updated?
We have always tried to update our technical studies, but our views are not updated and we are still following the same old model. Well drilling, laying out pipeline and desalting constitute our traditional methods. Some of those who have installed downhole pumps were initially opposed to using new models. I remember well when Mr. Zangeneh first raised the idea of downhole pumps in the seventh administration, opponents said it was impossible. But at the end of the 10th administration it was proven to them that Mr. Zangeneh was right and they used downhole pumps. Even now they say we have to make investment in order to use downhole pumps. We welcome this issue, but we don’t have financial resources for investment.
Which field do you think will have its contract finalized sooner?
Given the significance of developing the South Pars Oil Layer, I think that the contract for the oil layer will be signed sooner than the Azadegan field agreement. After that, the agreement for the development of Azadegan or Ab Teimour field will be signed. I suppose within two to three months we will start multitudes of oil contracts in such a manner that we will sign contracts every one or two months.
Have foreign operators chosen their Iranian partners?
No, they are currently gathering their information. After final approval they will have three months to choose their Iranian partners.
Doesn't NIOC recommend any domestic company to foreign operators?
No, foreign companies will themselves choose their Iranian partners.
The number of Iranian E&P companies has increased, hasn't it?
Yes, that's true. But I would like to highlight that the companies whose qualifications are endorsed by the Ministry of Petroleum to function as E&P companies would not benefit from the advantages of EPC contracts and everything has to be done through tender bid. Moreover, many companies cannot run for bids and they need to change their strategies and they have to become like international oil companies. For instance, Total does not lay out pipelines, nor does it drill wells. This company has knowledge of reservoirs, manages and finances projects and accepts financial risks. In fact, Total is an international operator which concentrates on three elements: reservoir, project management and financing. Iranian companies also plan to become international operators. Now our contractors that have been qualified as E&P companies can no longer bid for projects. I think that some of companies on the E&P list will even suffer losses and they had better remain EPC project operators. Every company is not supposed to be an E&P one.
What about the offshoots of E&P companies. Can they compete in tender bids in which their mother company is a main partner in the project?
Any activity within the framework of new oil contracts will go to tender bid. Now we may tell Iranian E&P companies that their subsidiary EPC contractors should not bid for projects in which they are present.
Will the oil layer be put out to tender?
Probably not. But as I mentioned development of Azadegan field will be put out to tender. The Ab Teimour field development will be also put out to tender if the number of bidders increases. Ab Teimour is not a jointly owned field and we are interested in putting it out to tender.
Of course when the contract was signed for SP11, some started criticizing you saying NIOC has forgotten the oil layer of South Pars which is shared with Qatar and concentrated on other fields.
No, that's not true at all. At present eight groups are negotiating a contract and the oil layer is one of them. The difficulty of development of the field and the companies' lack of experience in developing such a field dissuaded many leading international companies from bidding for the South Pars oil layer. Maersk was the only one to come in. You must know that Maersk has already developed Qatar's al-Shaheen field and is experienced in this regard.
Are you currently just in talks with Maersk?
Yes, that's so. Development of this field is much more difficult than development of Azadegan field. Maersk has submitted its proposal and as I mentioned it has been submitted to the Reservoir Consulting Committee.
How much does the second phase forecast to produce?
Development of this field is on the phase by phase basis, but our figures are not yet final for output. Maersk has offered to develop two to three phases of the oil layer. In the second phase, the production is to reach 65,000 b/d. Maersk has also presented a model for enhanced recovery via water injection. It has specified the modality of work.
So you have started talks for the signature of contract.
Is the existing FPSO (floating production storage and offloading) able to meet the requirements of the next phase of development of the South Pars oil layer?
The FPSO will remain in place. [Maersk] plans to maintain the field's plateau with water injection and clarify the particulars of oil. At the beginning, Maersk is expected to preserve the production level at 35,000 b/d and in the next phases the production will be increased to 65,000 b/d, 100,000 b/d and even more. A stationary platform is to be installed for long-term use, as well.
What technology is needed for the development of the oil layer?
Iranian companies are highly capable in downstream sector, drilling, platform construction and pipelaying. But the issue with the oil layer of South Pars is the drilling of wells, depending on their intention to either have extended reach drilling or make arrangements for border drilling. Furthermore, drilling in some parts of oil layer is totally new for Iranian companies.
In what areas of oil layer development do Iranian contractors have expertise?
They are capable in drilling, construction of platform and to some extent in manufacturing equipment used in the platforms. But Iranian contractors are not capable enough when it comes to designing wells and intelligent devices that conduct drilling. For example, 12 kilometers of horizontal drilling could be done with the help of technical equipment available today, while our equipment can drill up to one kilometer horizontally.
The first phase of recovery from the oil layer of South Pars was inaugurated under the 11th administration.
Yes, we currently have a production capacity of 30,000 b/d of oil from this field, but we are producing 25,000 b/d. Total production from this field stands at 2.5 million barrels. The reason for which we have kept the production at 25,000 b/d is that we do not want the oil specifications to change. Otherwise, we could no longer sell its oil. Therefore, we have asked them to maintain the production level within a specific range so that the oil specifications would not be modified. For the second phase, we initially planned to develop it based on the new model of oil contracts, but the oil layer of South Pars is very hard for development due to its reservoir rock. Furthermore, not many companies have applied for the development of this field.
Is the oil layer to be awarded without competitive bidding?
Yes probably. Tender bids will be held based on requests by companies. Professional European companies are not numerous. Furthermore, there are many reservoirs in Iran to be developed based on the new model of oil contracts. Therefore, we need to strike a balance in-between.
Which fields will be put out to tender?
Our objective is to put out to tender the development of several big fields like Azadegan and Yadavaran in order to determine the transparency of field for the market and provide more precise prices and data.
NIOC signed its first HOA with Iranian companies within the framework of new oil contracts with Persia Oil and Gas Industries Development Company (POGIDC) for the development of North Yaran. Now an integrated model is envisaged for the development of Yaran field. So what would happen to POGIDC?
POGIDC has developed North Yaran which is currently producing 22,000 b/d of oil. Oil production from South Yaran is also expected to start at a rate of 10,000 b/d in September. Since Yaran is expected to be developed under an integrated model, POGIDC will conduct a precise seismic test in the field. We have also agreed for this company to install downhole pumps. In other words, POGIDC will continue doing what it had done in North Yaran. They are currently defining phases for the drilling of new wells and installation of downhole pumps. We will continue our negotiations after the results of seismic tests have come out. POGIDC has conducted its studies and it is in talks with a Chinese company for the financing of the project. In case it manages to get necessary financing, it will have no problem for the development of the entire field.
Does NIOC consider more privileges for Iranian companies compared with foreign companies for the development of projects under the new model of oil contracts?
They will enjoy no advantages over foreign companies. Everything has to be done in a competitive atmosphere. It is very important for us that jointly owned fields would be developed at a high quality. But when it comes to Iranian EPC companies, the story will be different. They will enjoy a 10% advantage, which means that they will be winner even if they offer prices $10 higher than their foreign rivals in case of compliance with quality requirements.
In which stage are the negotiations for the development of Azar field?
Early oil production from jointly owned Azar field was done in March 2017. The field is currently producing 30,000 b/d of oil. Oil Industries Engineering and Construction Company (OIEC) is the contractor for the development of this field. OIEC has signed an MOU with [Russia's] Gazprom for the second phase development of Azar. In the second phase, the field is expected to produce 100,000 b/d.
How many international MOUs have you signed?
We have signed some 35 domestic and international MOUs. Once finalized, the proposals will be submitted to NIOC and after technical review we will start talks for agreement.
In the 11th administration, the NIOC main focus was on the development of joint fields. What will you focus upon in the 12th administration?
Development of fields for which MOUs have been signed under the new model of oil contracts will continue during the 12th administration. Therefore, the fate of development of fields will be decided and the development of jointly owned fields will enter a new phase. In this manner we plan to extend the development models based on enhanced recovery. Of course, under the new model of contracts, development of hydrocarbon fields requires enhanced recovery, too. But the point is that enhanced recovery is very important for us in developing independent fields. We will hire consultants for that purpose and study the fields more precisely. We expect a high number of applicants for the development of fields. As far as enhanced recovery is concerned, BP has said that it will exclusively bid for the Ahvaz field, because it has the license to do so and no other company has the BP development model.
You had mentioned that Iran's crude oil export basket is to be regulated. Which stage is this plan in now?
Since oil production in the West Karoun fields has increased and the crude oil produced in this area is heavy, it was decided that Iran's crude oil export basket be regulated based on this crude oil. Currently, composition of Iran's crude oil export basket has not changed; however, the heavy crude oil produced in West Karoun will enter this basket as a new product. I should also note that refineries in the world have been moving towards cocking cracking units in order to have more room for maneuvering and be able to refine a variety of crude oil including heavy crude oil. Heavy crude oil is less expensive; therefore, interest in heavy crude oil will grow while previously the market was inclined further towards light crude oil. I can say that heavy crude oil enjoys a better market. If a pumping station in the West Karoun area becomes operational and we can carry out this separation, new oil will be added to Iran's crude oil export basket for which we are working out necessary mechanisms.
Who are the leading buyers of Iran's crude oil?
Currently, 60% of Iran's crude oil is exported to Asian markets and 40% to European markets. Of course, in some months this ratio becomes 50-50. At present, we are trying to preserve this market. But East Asia is better for Iran because it offers better rates and a more diverse market than Europe. Furthermore, markets in China, South Korea, Japan and India need more energy. If you look at Europe's energy diagram you will see that the European market crude oil need has remained unchanged for years and has even been in decline. Therefore, we intend to preserve our status in the East market. Of course, we plan to activate our storage facilities in Rotterdam in order to deliver 35,000 to 50,000 tons of oil to smaller buyers.
Could you update us about NIOC's negotiations with Austria's OMV for the annual purchase of 40 million barrels of crude oil from Iran for Tehran's outstanding debt to the Austrian company?
Iran has delivered an oil cargo to OMV and this company has collected the bulk of its money from Iran. Of course, we have proposed that it receives oil from NIOC's 14.5% share in order to settle Iran's debt.
Has Iran collected its oil debts completely?
We have collected almost all our debts. Greece and an Indian company have yet to settle their oil debts. Of course, we have restructured the low oil debt of some companies.
Haven't we had problems for selling Iran's oil post-JCPOA?
No, we have no post-JCPOA oil liabilities and we have received petrodollars for post-JCPOA sales. We receive them during 30 or 60-day periods. The pre-JCPOA debts have been paid as much as possible.
How much gas condensate has Iran sold?
As I mentioned earlier, Iran has no gas condensate parked on water and after implementation of the JCPOA, we sold all our gas condensate.
What do you plan to do for the development of Farzad B field?
Our negotiations with Indians are still under way. Meanwhile, we have awarded the Farzad-B Mc to a domestic consultant (Petropars) to define packages for the field. In case our negotiations with the Indians fail to produce results we will develop Farzad-B on an EPCF basis. The consultant is expected to see if gas injection from Aghajari field is possible. We should also see to what extent the installations of this field must change as the gas in the reservoir is sour. In fact Petropars will conduct a complete study on Farzad-B field. In case our talks fail to reach conclusion we will hold a tender bid for an EPCF project.
This year, how much will be our production hike?
We will have an approximately 70,000 b/d production hike this year, the bulk of which will come from South Azadegan and North Yaran fields. In this way, Iran's oil production capacity will reach 4 mb/d by the end of the current calendar year [in March 2018].
How much foreign investment do you think Iran's petroleum industry can attract?
Throughout the 6th Development Plan we will need $100 to $120 billion in investment. We must be able to attract this amount of investment and sign agreements. Meantime, I have to note that chief among Iran's advantages for productivity the low cost price of oil production in Iran, are reservoir diversity in our country, the depth of technical knowhow about reservoir in Iran that could not be compared with neighboring countries, several institutes and petroleum college which were established thanks to Mr. Zangeneh, while in Iraq there is not as much as in Iran and inexpensive specialized manpower. I think that we have only one problem: productivity. If we resolve the problem of productivity, Iran will become a paradise for work because our useful working hours are very low and I think that this issue will be resolved through interaction with competent companies that are compliant to international standards. When it comes to working it means useful hours and discipline. I have to note that many Iranians who have been working with leading international companies are willing to return to Iran. For instance, a deputy CEO of Shell told me that when this company decided to operate projects in Iran a large number of Shell's Iranian employees announced that they would be ready to work in Iran.
How do you assess the atmosphere of international interaction in the petroleum industry today?
I believe that we must watch out so that our cycle would not be harmed. What happened in the wake of the JCPOA was that the cycle of our activities in the petroleum industry became positive. It means that development has started in the petroleum industry. Earlier sanctions had created a flawed cycle in the petroleum industry; therefore, our production rate had declined. After that investment in the petroleum industry dropped and this cycle was continuing its way. But when the cycle becomes positive you can see that even manpower working outside Iran becomes willing to return to the country. I think that what president Rouhani did with the JCPOA was that he reserved a flawed cycle in the country. In certain periods it might have been slow, but I believe that its process has been positive.
What do you think is the most important achievement of the NIOC in the 11th administration?
I am personally interested in smashing records. Even at high school and university I used to solve the most difficult problems and I did not answer simple questions. That was my mentality. I have to say that the record 3 mb/d crude oil and gas condensate export was achieved under my management. I am still interested in what I did when I first became the NIOC chief. The first upstream contracts with Total, the resumption of swap oil after a seven-year break and signature of deal for the first FLNG vessel in Iran are among records set during my term. We will be the top LNG player in Iran, which I was always dreaming of.
Who is expected to sell this FLNG to Iran?
A Norwegian company will provide the FLNG (floating liquefied natural gas) to Iran. It will be for 20 years with a capacity of 500,000 tons a year. Currently, the NIOC Board of Directors has given its go-ahead for this agreement and following long talks the final agreement between NIOC and this Norwegian company will be made soon.
When will this vessel enter Iran?
It will enter into Iran's waters seven months after the finalization of the agreement. It is expected to be installed in Phases 17 and 18 of South Pars to convert gas of these phases into LNG. The Norwegians will themselves make an assessment of LNG in Iran; therefore, I can say that Iran will become the top LNG player in the region. It might be interesting to note that there are currently three FLNGs in the world. One of them was built by Samsung for Shell to be delivered in 2018. The second one has been built by Malaysians and the third one is to be used in Iran.
You said that Iran resumed crude oil swap after seven years. Have you signed a long-term agreement?
We have not yet signed a long-term agreement, but we have started our tests. We plan to assess ourselves because no swap has been done for seven years. Under an agreement we have now signed, we will swap six 50,000-tonne vessels every three days. Meantime, our talks with companies in Kazakhstan, Turkmenistan and Russia are becoming serious. These companies are examining the profitability of oil swap via Iran's route after seven years. After Iran's oil swap project was halted the companies that used to work with Iran shifted to the Baku-Ceyhan route. That is why it took us one year to finalize negotiations.
Now that seven years have passed since oil swap was halted, what do you think was the main reason?
Some people like Mr. Zangeneh always find a solution and turn threats into opportunities, but some others do not react quickly and when they face a problem they have to choose between going through a short and easy path and going through a difficult way. When Iran's crude oil was parked on oil, the swapped amount was added to this volume. The then minister of petroleum was panicked about how to move so much crude oil from northern waters to the Persian Gulf and even pay for its transfer. Therefore, the best option he chose was to halt it. But it was possible to modify the swap model by telling the oil suppliers for example to find an independent market. I think 50 million barrels of oil was parked on water and the then minister of petroleum did not want to add the swapped oil to that.
Until one or two years ago, the NIOC had to negotiate with low-rated foreign companies for purchasing equipment or developing oil industry. What changes have happened to your negotiations after the implementation of the JCPOA and what is the NIOC's standing in the negotiations with oil companies?
To be honest international sanctions had prepared the ground for so-called sanctions busters and dealers to take advantage of oil industry. Due to the conditions of the time, these people exploited Iran and no reputed company was ready to come to Iran. But after the implementation of the JCPOA, due to the NIOC's expertise and experience it entered talks with foreign companies from a position of strength. It would be enough to take a look at the vendor list of foreign companies and you can see that we have brought in powerful companies. Even three big Russian companies that produce 4 mb/d of oil were not included in the list. Of course, after receiving new data from Russian companies this issue has been resolved. In fact, I intend to say that after the implementation of the JCPOA, the NIOC has imposed tough vetting procedures for the entry of foreign companies into Iran. We will not cooperate with just one company. I believe that NIOC is still one of big oil companies in the world and it complies with international professional standards. Today, all our standards are strict. For instance as I am talking to you all equipment used in South Pars is imported from European countries. Equipment of the best quality is being imported anew. Of course, we buy equipment from qualified Asian companies in Japan or South Korea and even China, but we will definitely not use Chinese commodities of low quality.
Is quality of importance to you?
In addition to boosting the quality, NIOC's activities have grown significantly in terms of quantity. Enhancing production and export or crude oil and increasing gas and condensate exports are cases in point. Currently we are producing 630,000 b/d of gas condensate.

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