OVL, partners drop plans to develop oil field in Iran

Last Updated: Tuesday, September 15, 2009 - 12:12

New Delhi: ONGC Videsh Ltd and its partners
Indian Oil Corporation and Oil India Ltd have dropped plans to
develop an oil field in Iran after the discovery was found to
be commercially unviable.

The joint venture of OVL, Indian Oil Corp and Oil India
(OIL) had in 2006 made an oil discovery in the Farsi offshore
block which was, in the initial estimates, thought to contain
one billion barrels of reserves.
"The oil discovery has been found to be commercially
unviable primarily due to high sulphur content in the oil," an
official in the consortium said.

The joint venture has informed the same to National
Iranian Oil Company and have decided to abandon the project.

"The oil discovery has been held to be non commercial and
we are not pursuing development of the discovery," he said.

The three have, however, submitted a master development
plan envisaging an investment of USD 5 billion over 7-8 years
in developing a massive gas field they discovered in Farsi.

The discovery, which was subsequently named Farzad-B gas
field, has inplace reserves of up to 21.68 trillion cubic
feet (Tcf), of which recoverable reserves may be 12.8 Tcf.

OVL holds 40 percent interest in the Farsi offshore
block located in the eastern part of the Persian Gulf off the
coast of Iran near the Saudi Arabian border and covers an area
of 3,500 square kilometres.

The Indian consortium wants to liquefy the gas and ship
it back home in the form of liquefied natural gas (LNG).

OVL, the overseas arm of state-run Oil and Natural Gas
Corp, IOC and OIL have a service contract for the Farsi block
where they will be reimbursed 35 per cent plus USD 90 million
investment they made during the exploration phase.

If the consortia gets the developmental rights, they will
be paid a 15 percent rate of return over and above the
investments they make.

In the commercial viability report to NIOC, OVL -- the
operator of the field -- has said the least gas volume was
9.48 Tcf and the high-case estimate was 21.68 Tcf after
independent studies by Fugro Robertson Ltd of the UK and
ONGC`s Institute of Reservoir Studies.

OVL and IOC have 40 percent stake each in the Farsi
offshore block that was awarded to the consortium in 2002. OIL
has the remaining 20 per cent.

The official said the commercial viability study of the
gas discovery in Farsi block was completed in November 2007
while the report of commercial viability of the oil find was
completed in April 2008.

Under Iranian rules, the project promoters are not
allowed to take oil or gas out of the country. OVL had to fund
all exploration operations that would be reimbursed only after
ascertaining commerciality.
"The commerciality study for the gas discovery was
submitted to the National Iranian Oil Company (NIOC) in
December 2007 and accepted by the NIOC in September 2008,
whereupon the gas field was named the Farzad-B offshore gas
field," the official said.

The approval, however, did not include any timeline or
deadlines for further discussions.

"In the event that the NIOC and the consortium fail to
reach an agreement in respect of the master development plan
for the Farzad-B offshore gas field within six months from
October 1, 2008, the first date of the month following the
date on which NIOC approved the commerciality study, either
party may elect to withdraw from the negotiations unless the
period is extended by agreement between the parties," he said.

Thereafter, NIOC may invite other companies and the
Indian consortium to submit their proposal for the master
development plan under competitive conditions, although
priority would be given to the proposal submitted by the
consortium.

"No timeline has been established for the implementation
of the master development plan," he said.

Once the agreement on the master development plan is
reached, NIOC will invite the consortium to negotiate the
development services contract.

Bureau Report



First Published: Tuesday, September 15, 2009 - 12:12

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