Over recent years. the South Pars Phase 11 (SP11) development project has been one of the most controversial projects in Iran. It was the first project for which National Iranian Oil Company (NIOC) signed an agreement with a consortium of France’s Total. China’s CNPCI and Iran’s Petropars under the newly-developed Iran Petroleum Contract (IPC) framework. Total and CNPCI pulled out of the project after the US exited the Iran nuclear deal and re-imposed sanctions on Iran. Petropars is now the sole operator of the project.
Hamid-Reza Masoudi. CEO of Petropars. tells Iran Petroleum SP11 is forecast to start gas production in 2021. He notes that Petropars will implement the method envisaged by Total in SP11.
The following is the full text of the interview Masoudi gave to Iran Petroleum:
SP11 is one of the most important projects that your company is now managing. Could you tell us more about that?
Total pulled out of SP11 due to [US] sanctions. Then. under the terms of the contract. China’s CNPCI had to assume the role of project operator with Petropars as supervising partner in the project. However. the Chinese firm also quit after some time. When the Chinese announced they would not continue their cooperation. Petropars submitted a plan to NIOC and Petroleum Ministry in a bid to be able to extract gas from SP11 as soon as possible under the terms of the same IPC contract. The important condition was to accept Petropars as operator. Otherwise. the project would not materialize. Based on the terms of the contract. Petropars was not able to develop SP11.
How did you resolve this issue?
We signed an agreement with NIOC (as client) and CNPCI to have Petropars recognized as the SP11 project operator. Petropars started its work last October. But we are planning to launch our work seriously at the start of the next calendar year. We have set a timeframe and roadmap for this project.
What was your plan?
Our plan was based on engineering studies. availability of commodities. supply of equipment and the jacket we had built in Qeshm Island.
What conditions is SP11’s jacket in now?
We are making some modifications to it. According to our schedule. this jacket will be loaded out in the final days of the current calendar year to be installed at its location in the Persian Gulf.
When will drilling begin at this phase?
We hope to install the drilling rig on the jacket in May or June 2020 at the latest to start drilling operations.
When will primary recovery begin from SP11?
We are trying to start recovery from this phase within 22 to 25 months. As you know offshore activity depends on numerous factors like supply of vessels. supply of fuel and weather conditions.
When does the timeframe begin?
It started in October 2019. We predict to make the first recovery from this phase in June 2021. Of course. it is the minimum time we have envisaged for bringing this phase into operation.
What is your plan for maximum use of domestic manufacturing and support of domestic suppliers. manufacturers and contractors in this phase?
The law on maximum use of national production and services and supporting Iranian-made commodities has been the basis of Petropars activity. Our efforts are based on maximizing the share of domestic manufacturing in this project. For instance. the law on maximum use of domestic manufacturing potential and services and supporting Iranian-made commodities would be the basis of Petropars’ activity. We are trying our best to maximize the share of domestic manufacturing in this project. For instance. for manufacturing and supplying casings. downhole equipment. pipes. joints. flanges and other commodities we have called on domestic vendors and manufacturers. In the drilling sector. we have invited domestic contractors for drilling rigs and services.
Has any tender bid been launched to pick domestic manufacturers for SP11?
A number of tenders have been held and some others are under way. Our timeframe requires that all tender bids be held up to the end of the current calendar year.
Total had launched several tender bids for domestic manufacturers before quitting. Are they the continuation of those tender bids?
Total had evaluated contractors and manufacturers and held some tender bids that pertained to contractors and manufacturers. too. Petropars has referred to Total-endorsed as well as NIOC-endorsed vendor lists. In any case. the law on maximum use of domestic manufacturing potential and services and supporting Iranian commodity is our basis.
Do you mean that Petropars has a different strategy from Total’s?
It’s a bit different because Total is an international oil company that worked with Iran only under conditions of no sanctions. but we are working under sanctions. We are faced with tough conditions and I dare to say that no foreign manufacturer. contractor or even consultant would cooperate with us. Therefore. Total and Petropars will be a bit different in dealing with the SP11 project.
We have to break down some of our activities because if we want to do big activities and hold a single tender bid we will have to turn to foreign manufacturers and contractors. But under the current conditions of sanctions. we have to reconsider our contracts strategy and hold new tender bids. The point is that we benefit from the findings of assessments conducted by Total on Iranian and foreign contractors and manufacturers. Now we have set aside foreigners.
In fact. Petropars is following the same method adopted by Total in the SP11 project. The only difference is that we have needed to make some changes in the modalities of tender bids due to the sanctions.
The main issue in the SP11 contract is building compressors and pressure compression platforms. for which Iran does not have the necessary technology. How is Petropars dealing with this problem?
Petropars is still seeking to use such platforms in this phase and it has started talks with technical and engineering companies capable of doing so.
Is it possible to build compressors in Iran?
Building compressors to match the SP11 requirements requires high-tech and only several companies own the necessary technology. We cannot claim that we can handle the job from A to Z in the country. The necessary studies have to be done jointly with domestic and foreign specialized companies. but we can handle part of it in the country.
But some companies claim they can manufacture compressors.
As Minister Zangeneh said it is not technologically possible to design compressors in the country. Some companies may say they have made achievements in the initial procedures of engineering. but we have so far not built any compressors to be able to run automatically for 25.000 or 50.000 hours and match the SP11 specifications. I don’t say it is impossible as industrial synergy makes everything possible. but we are not obliged to invent every tool ourselves. In fact. the advantage with the SP11 development deal with Total and CNPCI lay in this fact. Had this project been implemented by these companies. Petropars and other Iranian contractors would have mastered the necessary knowhow as it has been the case with other South Pars projects.
The objective sought by the Petroleum Ministry was to acquire new technologies from our foreign partners. As long as they were present in Iran we tried our best to get necessary information. but the job was not fully done.
What about the gas compression platforms?
Regarding the gas compression platforms. we have no problem in engineering. But we have not yet built such a platform in Iran. therefore. infrastructure is not ready. We have to provide facilities at our yards in order to build giant compression platforms. We have to learn how to build such platforms. how to carry them to sea and how to install them. As long as sanctions are in effect. our capacities remain limited. We have to think of all engineering aspects of this project. However. as I mentioned everything is possible in the country.
How much gas will flow from SP11 by 2021?
According to our schedule. 400mcf d to 500mcf d. or 14 mcm d.
How is Petropars planning to provide the $4.8 billion finance required for SP11?
We are trying our best to use a financial basket for this project. One of these resources are banks which we are in talks with now. Another option is to tap the National Development Fund of Iran (NDFI). Some liabilities pertaining to previous projects remain unpaid. There is nothing to worry at least for stage 1 of this project.
SP11 remains the most disputed South Pars project. It was waiting for an investor for years. Petropars once agreed to develop this phase and it even built a jacket. but it was finally set aside. Now. it is set to serve as the project operator. The question is to know whether or not Petropars could operate the SP11 project in 2012.
Well. the petroleum industry over recent years has changed like many other sectors. Big projects are no longer implemented like EPC contracts. The generation of contracts has changed in the world and there is inclination for production sharing agreements in the world so that both client and contractor would benefit from the development project without damaging the reservoir. Iran’s petroleum industry had no option but to join this cycle. The other point is that Iran’s petroleum industry had to learn how to use modern technologies in interaction with IOCs. besides financing a project or contract. in order to reduce necessary time and set the price for implementing projects. In fact. Petroleum Ministry was determined to teach Iranian E&.P companies how to work in interaction with IOCs.
Iranian first-class E&.P companies like Petropars came to existence when foreign companies like Total. Statoil. Agip and Eni were working at South Pars. These facts are undeniable. Without these companies. no action would have been taken. and Iranian E&.P companies would have never taken shape. Therefore. what was expected to be done was to empower Iranian companies. SP11 was aimed at the transfer of technology and knowhow into the country in order to be able to build compressors and pressure compression platforms. In fact. this knowhow was planned to be transferred to Petropars and other Iranian contractors. We have to learn financing with relying on an international agreement similar to the SP11 development project. We have to learn how to minimize CAPEX for a project as large as SP11 with all its sophistications. how to minimize time. We have to learn which method we must choose to minimize time and costs. There are undeniable facts.
But you didn’t answer our question!
At that time. NIOC was responsible for financing 35-month projects alongside other South Pars projects. for which EPC agreements had been signed with contractors. Do you think it could finance the SP11 development? That’s what I think. Petropars was already developing SP19 within the framework of a 35-month agreement. It had taken over SP12 too. therefore. it was difficult to finance the SP11 development project. But as I mentioned. the first phase of this project is not complicated and we can handle it. But the second phase is technically sophisticated. Such thing has not been done yet and it needs technology.
There are criticisms that SP11. the only phase of the South Pars gas field with the longest joint border. is being developed so late.
SP 11is not the phase with the longest joint border. SP12. SP15 &. 16. SP11. SP19. SP17 and SP18 are all located along the borderline. So we cannot compare them in terms of being located along the border or not. Petroleum Ministry is determined to accelerate the development of phases with joint border in order to recover gas from them as soon as possible.
Petropars is currently developing SP11. but some contractors are still demanding that the fate of this phase be decided and are unwilling to develop it. Is it expected to be signed to any other company?
The SP11 development project is entirely clear and Petropars. which has been involved since the very beginning. is now the operator of this phase. Our objective at Petropars is to implement SP11 and make maximum use of domestic potential.
If conditions in Iran change and foreign resume work. will Petropars continue to serve as the operator of the second phase of SP11?
This issue has to be enshrined in the mechanisms of the agreement to allow decision-making. But as Petropars. we prioritize our national interests. Of course. I believe that Petropars should not suffer any losses throughout the implementation of phase 1.
In case the conditions become still tougher. will you consider any changes in the SP11 scenario?
We go ahead as planned. I don’t think that the conditions would become tougher. In any case. problems of money transfer. LC opening and lack of cooperation on the part of foreign manufacturers. contractors and consultants continue to exist. We engage all domestic contractors and welcome their contribution to this national megaproject.
Will phase 1 of SP11 come online on time in light of the fact that rarely has any South Pars project come on-stream on schedule?
When the petroleum minister announced at the ceremony of signing the agreement for development of Belal gas field that Petropars is the best Iranian E&.P company and has met its obligations entirely in terms of time and price. it shows that the first phase of this project would come online until July 2021.
Have you received approval of Department of the Environment (DOE) for developing this phase?
A tender bid was held for environmental studies and a consultant was chosen for this project. We hope to receive the DOE approval in the first half of the next calendar year.
Minister Zangeneh recently said that Farzad B development project had been assigned to Petropars. Where does this project stand now?
We are drafting the pre-agreement text in order to embark on basic studies for the downstream sector. bring modifications and install the available jacket. In addition. we need to drill an appraisal well in order to conduct master development plan (MDP) studies. and then an agreement will be signed with Petropars.
How well do you know this field?
Farzad B field is jointly owned by Iran and Saudi Arabia. and Petropars know this field entirely. Before answering your question. I have to acknowledge that Petropars takes in pride in having drawn up the pre-MDP for this project. In fact. NIOC Exploration Directorate conducted feasibility studies on the Farzad A field and then we (Petropars) signed an HOA with the Iran Offshore Oil Company in 2012 to continue the job. When these fields were assigned to Pars Oil and Gas Company (POGC) for development. we signed an agreement with POGC and studied development to of the Farzad A and Farzad B fields. In addition to domestic potential. we also benefited from the technical and engineering capability of foreign companies. Thanks to such good cooperation. we managed to finalize the pre-MDP of Farzad fields. As Farzad fields are very complicated it was the first time we did something like this. Due to their 40.000 ppm sulfur content (South Pars has sulfur content of less than 5.000 ppm). development of these fields has become difficult. Fortunately. the fundamentals of onshore and offshore development have been drawn up and we know how to develop a field. In the next phase. we will focus on MDP. As I mentioned we would have to drill an appraisal well prior to being able to finalize an agreement with Petropars.
When did you seriously start work on Farzad field?
The agreement for studying Farzad A and Farzad B and conducting the feasibility of sour gas injection from these fields into Aghajari oil field was signed in 2017 in cooperation with a foreign consultant and Petropars. but serious work started in 2018 and managed to develop an economic development plan for this field in collaboration with Iranian and foreign consultants. It would not be exaggeration if I claim that no company in Iran has had as much information as Petropars on Farzad. We have provided the client with all information.
Why was this project awarded to Petropars?
As I mentioned Petropars has prepared MDP for Farzad A and Farzad B despite all challenges including high impurity of gas (4% H2S content and 8% CO2 content). solid sulfur (in Farzad A) that have made this field among the most sophisticated ones in the region. Petropars has also conducted 3D geomechanical studies for the first time in Iran under IOOC’s full supervision and at the highest quality. Such studies have. so far. been merely conducted in Farzad A. and we have used the results in working out a development strategy. Environmental Impact Assessment (EIA) permits for Farzad A and Farzad B have been obtained from DOE by Petropars. It is the first project whose EIA permit has been obtained prior to commencement of construction operations.
Due to the existence of gas traps and the possibility of drilling hazards. high-resolution seismic survey (HRSS) is being implemented for the first time by Petropars on Farzad A and Farzad B. That would produce valuable information on the upper layers in order to contain drilling hazards. Therefore. Petropars is the only company to have experienced work at Farzad gas field by relying on its own capabilities and specialists.
How much is the contract valued at?
The contract is valued at about $1.78 billion. which will most probably increase. For the time being. the job will start with a $75 million pre-agreement.
What stage is Belal gas field development project in now?
The agreement for the development of this field was signed at $440 million. We started working on the project as soon as we received notification. The EIA studies have been done and we are at the final stages of receiving the DOE confirmation. In the next stage. we had to process data. We received data from NIOC and a tender bid is under way for data processing. The commodities needed for building the jacket in Qeshm Island are ready and the jacket construction has been assigned to a domestic contractor. The documents of the tender bid for drilling an appraisal well are attached to the contract. which are in the client’s possession. As soon as they are confirmed. a tender bid will be held. Following drilling an appraisal well and drawing up the MDP for the field. we will launch tender bids for Belal gas field development for drilling development wells. designing a platform with a capacity of 500 mcf and laying pipelines.
Petropars is looking to make maximum use of domestic potential in the development project. Therefore. we welcome the presence of Iranian companies whose qualifications have been confirmed. I have to recall that we have conducted complete planning for all of the activities I highlighted and in order to expedite the process. we are preparing necessary documents for building pipes and platform. Then as soon as MDP studies are complete and the client gives confirmation. we will hold a tender bid for the development of the field and start construction.