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Iran’s state-run National Iranian Oil Company (NIOC) has decided to invest in crude oil processing projects through implementing build-operate-own (BOO) method.
Under BOO, although NIOC is the full owner of crude oil and refined petroleum products, private companies enjoy full freedom in all affairs related to designing and installing equipment. BOO agreements are signed for a period of 10 years. Utilization of this model of contract indicates that NIOC has revised its view with regard to contractors to facilitate their more active role by the private sector aimed at safeguarding the interests of both contractor and client.
Under the terms of law, NIOC exercises a 100% ownership on crude oil and petroleum products in Iran and is the sole body authorized to sell them. Therefore, in upstream oil contracts, NIOC enjoys full ownership of projects, which reduces the attractiveness of investment in the oil sector. That is why Petroleum Ministry has always sought to develop contract terms so as to be attractive to potential investors, ranging from buyback to IPC.
Furthermore, Article 44 of Iran’s Constitution stipulates that all affairs have to be assigned to the private sector with the government having a sovereign role. The law insists on the fact that the government is the main proprietor of crude oil and the only body authorized to sell petroleum products.
As long as authorized under the law, NIOC has engaged the private sector in oil projects and boosted the attractiveness of investment in this sector.
BOO for Skid-Mounted Refineries
NIOC has recently hosted a meeting of private sector oil managers and investors in Tehran in order to introduce opportunities for investment in crude oil processing projects offered by National Iranian South Oil Company (NISOC) and Petroleum Engineering and Development Company (PEDEC).
NIOC has decided to use BOO in these projects and enhance the private sector’s involvement. In fact, given the present circumstances and amid the current restrictions, NIOC has sought to benefit further from domestic capacities and resources. BOO is a project delivery mechanism in which a government entity delegates to a private sector party the right to construct a project according to agreed design specifications and to operate the project for a specified period of time.
Farrokh Alikhani, deputy CEO of NIOC for production affairs, said PEDEC’s successful experience of skid-mounted processing facilities justifies this method of investment for other crude oil processing units.
The skid-mounted processing installations used in the South Azadegan oil field have been provided by the private sector in Iran under BOO. Remuneration is based on the delivery of crude oil to contractor and receipt of refined product.
Alikhani said: Given the competitive prices, the process of cooperation between contractor and client in other such contracts would be pursued more optimally.
Sadeq Fathollahi, NISOC technical director, said: Within two years, 225,000 barrels of oil recovered from Gachsaran, Lali Bangestan and Mansouri fields would be processed via skid-mounted facilities.
He said that the BOO model had been used in associated gas gathering contract under NIOC’s supervision.
Four skid-mounted crude oil processing projects will come online in NISOC-run areas within two years. One of them started last year. The other three – Gachsaran 4 desalination, Lali Bangestan production and desalination and Mansouri production and desalting – are under way, he added.
Fathollahi said the Gachsaran 4 desalination, Lali Bangestan production and desalination and Mansouri production and desalination projects would process 110,000 b/d, 40,000 b/d and 75,000 b/d of crude oil, respectively.
NIOC Policy Shift
Applying this method of investment could be a starting point in NIOC’s policy shift in the framework of BOO contracts because within this new framework of investment cooperation, supply of commodity and services by investors and processing contractors will be simultaneously done.
Zahra Goodarzi, NIOC Board member, said the Directorate of Investment, while relying on Article 44 of the Constitution, aimed to interlink development projects, upstream and downstream sectors, engages the private sector with a view to reducing costs.
Until recently, NIOC used to apply the EPC model for such projects, but now it has decided to shift to the BOO model, too. Goodarzi; however, said this new model takes into consideration such key indices as capacity, quality and cost.
Another important point for investors is that in this model of contract, there is no template.
Goodarzi said: Since it is our objective to make the processes more agile and identify significant sectors and resources, in this model of contract we have no template. Everything depends on the necessary investment.
In the BOO model, the specifications of products are endorsed by NIOC, but on the issue of investment, the contractor enjoys more authority. It is also possible to take facilities from banks and financial institutes based on the installations, he said.
Investment Framework
What does the framework of investment consist of in crude oil processing projects using skid-mounted equipment within BOO framework?
Talin Mansourian, director of investment and business at NIOC, said NIOC was paying maximum attention to a balanced distribution of interests and risks between the client and investor as advantages of the new framework.
He said these contracts are service-based, adding that fees would be calculated based on the number of oil barrels expected to be delivered.
The maximum time envisaged for operation is 10 years and the number of working days would take into account the periods of overhaul and crude oil processing capacity.
The received guarantees will be for one year, which can be renewed at the end of each year. In the meantime, up to 25% of the processing fees for one year will be paid within the framework of pre-purchase of processing services by NIOC.
Mansourian said arrangements had been made for investors to facilitate the process of investment, which would be of great help to relevant companies. In the meantime, in order to support the domestic private sector and reduce the risk of presence of investors, the timeframe for the first phase of the contract is set at 12 months, starting from the effective date. He added experience had shown this period may be reduced to 6 months.
Crude oil, processed oil and every other product lie within the hands of NIOC and the processing facilities belong to investors, he said.
According to Mansourian, establishing these processing units would cost lower than old ones and NIOC was enhancing the attractiveness of investment through this model.
