Volume 2, issue #25 - 13-11-1997

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Iran might invite foreign participation for ageing onshore oil fields

Oct. 20, 1997 Iran has signalled its intention to further embrace foreign oil company participation in the country's oil sector by saying it planned to open its prime onshore crude reserves to foreign investors.
An official with the state National Iranian Oil Company (NIOC) said new legislation would be prepared to permit foreign operators to run enhanced recovery projects on some of Iran's ageing oilfields.
Analysts said Iran's hardline Islamic establishment would present strong opposition to any fresh moves by newly-elected President Mohammad Khatami's moderate government to liberalise its oil sector. But they said that the first fruits of newly-developed offshore projects, soon to come onstream, would provide impetus for the legislative changes needed to boost Iran's flagging upstream oil sector.
"The hardliners will try to prevent this but once people start seeing the financial benefits of the projects already underway the political restraints will start to ease," said research director Mehdi Varzi at finance house Dresdner Kleinwort Benson.
Iranian oil output capacity, little changed at a sustainable 3.6-3.7 million bpd over the past five years, relies heavily on mature onshore fields with only 500,000 bpd produced offshore.
"Iran needs capital, technology and expertise," said Varzi. "If you apply sufficient capital production capacity will surely rise fast -- the alternative is that exports will decline."
Iran's new oil minister Bijan Namdar Zanganeh said Tehran wanted to increase the recovery rate of onshore fields by reviving and developing fields. Iran also planned to announce its own projects in the Caspian Sea, the report added.
Iranian law currently restricts foreign operators to offshore oil and gas developments.
Tehran in 1991 first readmitted outsiders after blanket nationalisation at the time of the turbulent 1979 Islamic revolution.
Strong domestic opposition and increasingly tough United States sanctions meant it was another four years before French oil company Total signed a groundbreaking deal to develop the offshore Sirri A and E oil- and gasfields. Total followed up this year with an agreement to develop the huge offshore South Pars gasfield, ignoring the threat of U.S. sanctions designed to prevent foreign companies from investing in Iran.
Iran, with the world's fourth-largest oil reserves at 93 billion barrels, is a key target for most international oil explorers.
"You'd find most of the world's major oil companies, including the Americans, would be in the queue for the Iranian onshore," said an executive. Many though have been discouraged by Washington's 1996 Iran-Libya Sanctions Act designed to punish any significant investments in the two countries. Sanctions could still play an important part in how large a part foreign companies take in Iran.
Washington's decision not to immediately implement sanctions against Total has been welcomed by the oil industry but many companies remain wary.