2005/11: Iran – Oil And Gas Industry: Exploration & Production

• mbendi: Oil And Gas Industry: Exploration & Production

Overview

During 2003 Iran increased its oil production by 12.6% to reach 3 852 000 barrel per day with consumption increasing 1.5% to reach 1 132 000 barrels per day, (BP Stats, 2004). During the first six months of 2004, Iran produced 4.1 million bbl/d of oil (of which 3.9 million bbl/d was crude oil), up from 3.9 million bbl/d in 2003.

Iran is the largest heavy fuel oil exporter in the Middle East. Iran exports around 2.6 million bbl/d, with major customers including Japan, China, South Korea, Taiwan, and Europe.

Iran has 32 producing oil fields, of which 25 are onshore and 7 offshore. Major onshore fields include the following: Ahwaz-Asmari (700,000 bbl/d); Bangestan (around 245,000 bbl/d current production, with plans to increase to 550,000 bbl/d), Marun (520,000 bbl/d), Gachsaran (560,000 bbl/d), Agha Jari (200,000 bbl/d), Karanj-Parsi (200,000 bbl/d); Rag-e-Safid (180,000 bbl/d); Bibi Hakimeh (130,000 bbl/d), and Pazanan (70,000 bbl/d). Major offshore fields include: Dorood (130,000 bbl/d); Salman (130,000 bbl/d); Abuzar (125,000 bbl/d); Sirri A&E; (95,000 bbl/d); and Soroush/Nowruz (60,000 bbl/d).

The Doroud 1&2, Salman, Abuzar, Foroozan, and Sirri fields comprise the bulk of Iran’s offshore oil output. Iran plans extensive development of existing offshore fields and hopes to raise its offshore production capacity to 1.1 million bbl/d (from around 675,000 bbl/d currently). It is estimated that development of new offshore Persian Gulf and Caspian Sea oil fields will require investment of $8-$10 billion. Iran’s existing oilfields have a natural decline rate estimated at 200,000-250,000 bbl/d annually and are in need of upgrading and modernization.

Iran subsidizes the price of oil products heavily, allocating about $3 billion per year towards subsidies. Iran also is forced to spend over $2 billion per year to import oil products (mainly gasoline) which it cannot produce locally. In April 2004, as part of an effort to curtail the rise in gasoline subsidy expenditures, gasoline consumption and imports (both of which are growing rapidly), Iran’s parliament voted to more than double gasoline prices, to around 95 cents per gallon. Currently, Iran’s gasoline prices are amongst the cheapest in the world. In November 2003, Iran announced that it might even be forced to start rationing gasoline.

State-owned National Iranian Oil Company (NIOC)’s onshore field development work is concentrated mainly on sustaining output levels from large, aging fields. Consequently, enhanced oil recovery (EOR) programs, including natural gas injection, are underway at a number of fields, including Marun, Karanj, and the presently inactive Parsi fields.

In September 2003, Russia’s Lukoil was granted approval by NIOC to explore for oil in the Anaran block along the border with Iraq. Norsk Hydro is currently in charge of the project.

The Azadegan field contains proven crude oil reserves of 26 billion barrels, but the field is also considered to be geologically complex, making the oil more challenging and more expensive to extract. In January 2001, the Majlis approved development of Azadegan by foreign investors. In February 2004, a Japanese consortium led by Inpex signed a final agreement on the $2-$2.8 billion project. Inpex, which has no upstream experience of its own, hopes to bring in an international partner as the field’s operator. Initial production of medium-sour crude oil from Azadegan could come in 2007, ramping up from 50,000 bbl/d to 260,000 bbl/d by 2012. At its peak, Azadegan production could account for as much as 6% of Japan’s oil imports.

In late June 2001, Eni signed a nearly $1 billion, 5 1/2-year buyback deal to develop Darkhovin onshore oilfield, with the added incentive of a limited risk/reward element (payment is to be linked to production capacity). Eni has a 60% stake in the project, with NIOC holding the remaining 40%. Production at Darkhovin is expected to reach 160,000 bbl/d. NIOC also would like to develop five oil and natural gas fields in the Hormuz region: Henjam A (known as West Bukha by Oman; the two countries are discussing possible joint development); the A field near Lavan Island; the Esfandir field near Kharg Island; and two structures near the South Pars natural gas field. According to NIOC, the five Henjam fields hold an estimated 400 million barrels of oil and have a production potential of 80,000 bbl/d.