Upon completion of newly drilled wells in the onshore Azar oilfield, shared with neighboring Iraq, where it is known as Badra, and situated some 25km from the city of Mehran in Iran’s southwestern Ilam province (Anaran exploration block), current early production of 30,000bbl/d will double to 60,000bbl/d by the end of 2018, manager of the project Kayvan Yar-Ahmadi said. He also added that, as soon as the field’s Central Processing Facilities (CFP) unit becomes fully operational, it shall be able to handle final first phase production of 65,000bbl/d. Crude oil output from Azar started in March 2017 at a rate of 15,000bbl/d. Up to the end of the past Iranian calendar year 1396 (March 21, 2017-March 20, 2018), the field had overall pumped a little over 10Mbbl. Should the 65,000bbl/d be met, after the drilling of totally 17 wells, around 70Mcf of associated petroleum gas (APG) will be produced, 50Mcf of which will be delivered to the Dehloran gas refinery in Ilam. According to recent studies, oil reserves of the geologically challenging tight oil reservoir are now estimated to 4bnbbl, exceeding almost twice the formerly disclosed figure (2.5bnbbl).
Because of those promising oil volumes and geological complexity, largely attributed to the field’s high H2S content, the second phase of Azar, which was declared commercial back in 2008, is going to be developed via a tender within the framework of the new upstream oil and gas fiscal regime, dubbed as Iranian Petroleum Contract (IPC), in partnership with international energy firms. IPC brings several positive amendments to the previously applied buyback model, such as a duration of 20 years (with the potential of extension as the case may be), as well as incentives for the development of higher risk fields and IOR/EOR projects, rendering it more favorable to foreign investors. Following a failed series of talks with the Russian Gazprom Neft and the Malaysian Petronas during the nuclear sanctions era, Iran’s Oil Ministry finally signed a $1.9bn buyback contract with the Oil Industries’ Engineering and Construction (OIEC), a partially state-owned oil contractor, and the Oil Pension Fund Investment Company in order for Azar output to top 65,000bbl/d from 2011 to 2016, a goal that remained unattained throughout those five years.
However, adoption of the Joint Comprehensive Plan of Action by Iran and the P5+1 countries in July 2015, with the aim of redressing the crisis about Iran’s uranium enrichment program, reinvigorated the Azar-related strategy, facilitating the drilling of more than 10 wells from the date of the deal implementation, in January 2016. In addition, the progressive lifting of sanctions against Tehran revived international interest in the project. In July 2017, Gazprom concluded a cooperation agreement with OIEC over the development of Azar and in December of the same year the two partners submitted their joint plan to the National Iranian Oil Company (NIOC). As one of the key negotiators of the landmark nuclear pact, Russia could not avoid but to have a say in the opening-up of Iran’s oil and gas industry to international investment initiatives for two obvious reasons. Firstly, a leverage over the Iranian energy sector would help Moscow maintain its dominant position in the European gas market, since Tehran has not hidden its wish to join the Southern Gas Corridor (SGC) via the Trans Anatolian Pipeline (TANAP), at a time when the Kremlin is working on a rival southern supply corridor towards the EU via Turk Stream, and possibly the Interconnector Turkey-Greece-Italy (ITGI) Poseidon. Secondly, exertion of greater influence on Iran’s offshore/onshore business and other aspects of energy policy, could be seen as an effort to carve out a regional axis amid intensifying geopolitical tensions between Iran and the US. The OIEC-Gazprom deal on Azar wherefore constitutes one more step in an evolving energy rapprochement, along with an ongoing interstate oil-for-goods program and a set of memoranda of understanding between NIOC and Gazprom, providing for the realization of integrated projects along the entire gas value chain.
Available online at: http://www.caspianpolicy.org/energy/caspian-energy-insight-april-4-2018/#4