By: Shahrzad Pourriahi, News Editor

Pars Oil and Gas Company is one of the better known companies to IOCs in Iran. The company commenced operations in early 1999 and is in charge of development of the North and South Pars gas fields. It was established after a structural change in the National Iranian Oil Company (NIOC), when five new entities were created: IOOC, KEPCO, NISOC, ICOF Company, and the POGC.

With Iran’s gas policies gaining shape, Iran Energy Focus interviewed POGC managing director Assadollah Salehiforouz, to talk about POGC’s and developing South Pars’ enormous gas fields. Salehiforouz holds a BSc in Electrical Engineering and has been working at NIOC since 1983.

Iran Energy Focus: To begin with could you please tell our readers about your company?

Salehiforouz: Pars Oil and Gas Company (POGC) has the special task of developing the North and South Pars gas fields. The two fields are completely separate. North Pars is located 120 km southeast of Bushehr and the offshore South Pars is shared with Qatar’s North Field in the Persian Gulf. North Pars has a capacity of 58 tcf of gas and South Pars is a vast reservoir covering an area of 3,700 km² and has more than 500 tcf of gas in its Iranian part.

POGC’s priority and focus is on South Pars gas field at the moment and has already started its development projects of the field. In 1994, Petroleum Engineering and Development Company (PEDEC) was established to develop phase 1 of the field. After about 20 percent completion, due to financial problems, the progress was slowed down. Following the approval of buy-back deals in the Majlis (Parliament), the Petroleum Ministry decided to continue the project with a buy-back scheme.

At that time, responsibility for the North and South Pars activities was transferred to POGC. [PEDEC is currently in charge of supervising all buy-back deals for oil fields.] So far we have signed deals for ten phases of South Pars and all are in various stages of development.

IEF: Could you please tell us more about these projects?

Salehiforouz: As I said before, phase 1 was 20 per cent complete when we signed a buy-back contract for development of the phase in February 1998. A few months after that we signed a buy-back deal for the development of phases 2 and 3.

Phase 1 is 99 per cent complete onshore and 94 per cent complete in offshore portion. The refinery of the phase is in the precommissioning stage, and gas will start flowing to the refinery in the coming weeks. Since the offshore pipe layout is not yet complete, the surplus gas produced in phases 2 and 3 will be sent to phase 1 for final processing.

In the offshore portion, the processing platform was installed last year and the living quarter has been constructed and is sailing out to be installed. Some 70 km of the offshore pipeline have been laid and the remaining 35 km will be laid within the next three months. The phase will produce 25 mcm of sweet gas plus 40,000 barrels of condensates and 200 tons of sulphur per day.

The greatest achievement of this phase is its high percentage of local content. Some 60 per cent of the project was carried out by Iranian companies and a large amount of know how has been brought into the country through this venture. In this phase, the living quarters and processing platforms were constructed inside Iran. For the first time in this country, we could change a crane barge to a laying barge; it was done by the Iranian Offshore Engineering & Construction Company (IOEC). These were considerable achievements and now we are self-sufficient in these areas.

We believe that delays in the project have led us to gain technology and recover for the delay in the other phases. We hope to launch the project by the first six months of the current Iranian year (started on 21st March 2003).

Regarding phases 2 and 3, I should say that a consortium of TFE, Petronas, and Gazprom was awarded the project, with TFE as leader of the team and operator of the project. TFE had a 40 per cent stake in the project and two other companies had 30 per cent each.

The project was officially inaugurated this February in the presence of President Mohammad Khatami. In this phase we had a world record of 8 per cent physical progress in a month. This is what TFE is proud of. In this phase, too, we had 30 per cent local content agreement, which was met during this project.

In the following phase we brought in the very modern technology of three-phase flow, as opposed to the two-phase flow used in the phase 1. In this system, we have unmanned platforms that were constructed in the country. This new system and its requirements could contribute to job creation programs in the area and in locations where the necessary pipelines and platforms are being constructed.

As for phases 4 and 5, the project is being carried out by a consortium of Italian Eni (or Agip Iran), local Petropars, and NICO, having 60 per cent, 20 per cent, and 20 per cent shares respectively.

The project kicked off in August 2002 and the first train is to go onstream in 26 months, which is itself an unprecedented record. The project is going ahead on schedule and has achieved 36 per cent physical progress.

In phases 6, 7, and 8, we again had Petropars. The gas produced in these phases will be used for injection into the Aghajari oil field for an improved oil recovery plan underway in the region.

Norway’s Statoil has been assigned to develop the offshore section of the project of the three phases and the onshore EPC contractors will be awarded soon.

IEF: The agreement for phases 9 and 10 was signed last September but still we see no development. Could you please elaborate on that?

Salehiforouz: Phases 9 and 10 were the first two phases in South Pars to be signed under the finance scheme, and our main problem in the two phases has been to obtain performance guarantees. As you know, 60 per cent of the contractor shares are held by Iranians, and getting guarantees for such volumes was difficult. The down payment was about $40 million provided by NIOC but we had problems securing the contractor’s guarantees up until 20th March.

The contractor is now getting equipped and mobilising at the site. Unfortunately the project has not had physical progress but we hope to step up the activities and make up for the delays.

For phases 11 to 13, Iran is planning to produce LNG and each of the trains in the phases will produce 4.5 million tons of LNG per year. The tender for phase 11 has already been held and we will announce the winners within a few weeks. TFE (in partnership with Petronas) as well as BP, Agip, and Statoil have bid for the project. The financial bids have already been opened in the presence of the bidders, but the winner is not yet determined.

An appraisal well will be drilled for phase 12 and we will issue tender documents as soon as the results from the well are analyzed.

Phase 14 is specifically for GTL.

IEF: For phases 11 to 13, some large companies would like the project to be integrated. That is, they want to win both the development of the field and construction of LNG plants together, whereas in the Iranian system, POGC awards the upstream part and NIOC awards the downstream portion. Has this point been taken into consideration in your awarding the projects?

Salehiforouz: Well, this is to some extent integrated. The priority is with the contenders that have integrated upstream and downstream bids. NIOC has also been following the issue very closely. But we are more involved in the upstream project and have advanced accordingly. That is, in other phases POGC was involved up to the production valve, but here in the LNG projects we transfer the gas from sea to land, separate the condensates, and construct jetties for export of the condensate. At that stage we deliver the sour gas to the National Iranian Gas Export Company (NIGEC) and it will follow the LNG process.

IEF: Has there been any coordination between POGC and the Petroleum Ministry for integration of the project?

Salehiforouz: Yes, there are joint commissions between us and NIGEC since upstream results have almost been determined and we are waiting for the downstream part to be finalised.

IEF: How about phases 15 and 16? We heard that you will issue tender documents for the two phases.

Salehiforouz: Yes, we have prepared the tender documents and we need to correspond with the Management and Planning Organisation (MPO) to determine the local content volume in the project. The gas is to be used for domestic consumption.

IEF: Please tell us more about your plans for the South Pars oil layer. POGC has changed the scope of the job for the third time to attract foreign companies to the project. Could you please explain more about this new scope?

Salehiforouz: The POGC put the layer on tender more than three years ago and even reached an awarding stage. But because of the high risk and some conditions put forward by the contractor, NIOC decided not to award the project but to get drill appraisals for more information.

We drilled three appraisals and the data were delivered to the contenders. The data added to the concerns of some of the bidding companies and we had to hold negotiations with them. Finally in the third attempt, we decided to reduce the risk and defined two phases for development of the layer.

Phase 1 of the project is more a study of the field along with production of 30,000 bpd of oil. In phase 2 the contractor develops the field with a total production of 60,000 bpd. To make the tender attractive, we have embedded an option for the contractor to leave the project in phase 1 if it finds it economically unfeasible. NIOC undertakes to refund all the investments made by the contractor. As the contractor continues with phase 1, we ask them also to offer their bids for phase 2 and the plans they have for the oil layer.

Norway’s Statoil, Australian Santos, and local Naftkav are the frontrunners in the tender, whose deadline has been extended to 20th May. Norsk Hydro and Australia’s BHP were among the bidders but seem to have lost interest.

IEF: When do you think the results of the tender will be announced?

Salehiforouz: It will depend on the bids, but we don’t think it will take too much time. We hope to sign a deal by the end of the current Iranian year (March 2003-March 2004).

IEF: Back to your comments about local content and the achievements of Iranian companies. You have worked with different companies of different nationalities and each have their own characteristics and disciplines. What kind of characteristic does Iran want its foreign partners to have, and which of these companies have been more in accordance with your ideals of technology transfer and local content?

Salehiforouz: Well in phases 2 and 3, because Gazprom and Petronas were not very involved in the project execution, the main party we had to deal with was TFE. In our other phases we had to negotiate with Agip Iran, so these are the two companies we worked with during the South Pars projects.

But as for their cooperation, there were some shortcomings in the very first days of our work with TFE. That was partly because of TFE’s experience in Sirri, but everything was settled, the company cooperated well with us and contributed to the transfer of technology inside the country, which was one of our main goals.

This was a cornerstone and model for Agip Iran’s activities. That is, Agip followed TFE and welcomed our goals and did not resist our demand.

IEF: But you have worked with Korean and Norwegian companies as well. How well have these small and medium-sized companies been cooperating with you?

Salehiforouz: Companies like Hyundai or LG are our EPC contractors and cannot be considered as investors in Iran. The nature of their job is different from the others, but anyhow, they have been cooperating well.

IEF: Let us move to Qatar as the third biggest gas reservoir in the world and Iran’s possible rival in gas exports. With Iraq normalising its relations with its neighbouring countries, is there any possibility that a Qatar-Iraq-Turkey-Europe gas pipeline will be reactivated, threatening Iran’s export plans to the West?

Salehiforouz: Well, we have not heard about that plan. What we know is that Qatar’s main problem is access to the world market and not having enough routes to transfer its gas. That is why they have turned to LNG production. As a strong rival, I believe that we will catch up to Qatar by 2007, considering the huge investments we are making in South Pars.

IEF: Finally, are there any other comments that you would like to add for our readers?

Salehiforouz: Yes, about our achievements in the past four and a half years. We created job opportunities, we brought in technical know-how, we trained our local forces, and we gained national self-sufficiency. Each phase of South Pars translates into $1.25 billion of income per year.

IEF: Thank you very much for your time.