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Iran Oil Industry Bullish Despite Lukoil Exit

By Reihaneh Mazaheri, Paris (Source: Mianeh)


Iran still shows confidence after Russian company pulls out over US sanctions.


Iran says following a decision by major Russian oil firm Lukoil to halt all activities in the country that its oil industry can cope without foreign expertise. The Islamic republic was prepared for the move and Russia is still considering a role in Iranian oil and gas projects.


Lukoil was developing an important oil exploration block named Anaran, which is located in western Iran in Ilam province along the Iran-Iraq border. The firm was also due to carry out research projects in two other Iranian blocks, Laleh and Moghan, but there have been no reports on the fate of these studies.


Lukoil vice president Leonid Fedun says that continuing work in the Iranian gas and oil sector is impossible while United States sanctions against Iran are in place. The company said it had cost 63 million US dollars to abandon its projects in the country. Lukoil has also stopped all gasoline exports to Iran.


The Iranian oil ministry's latest estimates say that the Anaran block, which includes the Azar and Changouleh oilfields, has about eight billion barrels in oil reserves, making it a world class resource.


As the Azar oilfield is connected to the Iraqi Badra oilfield, which is being developed, Iran has stepped up efforts to begin exploitation as soon as possible to avoid losing oil to its neighbour.


The Azar oilfield was an important battleground during the Iran-Iraq war of the 1980s and it took Iran some time to clear it of mines and other explosives. The oilfield's reserves have been estimated to be around 400 million barrels.


The Anaran project was originally developed by a consortium of Lukoil with 25 per cent and Norway's Statoil with 75 per cent. However, in 2007 the project was hit by the imposition of US sanctions. Statoil formally withdrew but Lukoil said it would carry on.


Lukoil has not explained in detail its formal decision to withdraw now but said in its earnings statement on March 24 that Anaran "was abandoned due to international sanctions".


Fedun was quoted as telling a news conference the same day, "We had to write off Anaran, which we can't develop despite excellent reserves, purely for political reasons. This is because we have large investors from the US, so we had to comply with the sanctions."


An informed source with the oil ministry says Iranian oil officials have been looking to replace Lukoil in the project for some time. Contrary to what some analysts have said, Lukoil's withdrawal from Iranian gas and oil projects does not signal Russia's support for international sanctions on Iran and Moscow would like to play a more active role in Iranian projects.


Russian energy minister Sergei Shmatko, who travelled to Iran in late November 2009, described the prospects for Russian cooperation in Iranian oil and gas projects as very positive.


At the time, Iran also signed a memorandum of understanding for the development of the Azar gas field with another Russian oil giant, Gazprom.


Unlike Lukoil, with its US connections, Gazprom has few concerns about having a presence in Iran. ConocoPhillips, the third largest integrated energy company in the US, owns 20 per cent of Lukoil's shares and Lukoil owns a string of petrol station franchises in America.


Gazprom chief executive Alexander Dyukov said last December that US sanctions would not impact the firm's activities in Iran. Gazprom has received requests from Iran to participate in 16 different oil and gas projects in the country.


Last January, a delegation headed by deputy oil minister Hossein Noghrehkar Shirazi travelled to Moscow to finalise negotiations with Gazprom on the development of the Azar oilfield.


Following the trip, Bahman Soroushi, the oil and gas production director with the National Iranian Oil and Gas Company , NIOGC, announced that a contract would be signed in Tehran in the middle of March 2010. That date passed without a deal and negotiations continue.


However, Iran is not waiting for Gazprom to respond. In February, the country signed a 188.3 million dollar deal with the Iranian company Global Petro Tech Kish, GPTKish, for drilling seven oil wells and repairing another one. The National Iranian Drilling Company was also tasked with drilling another seven wells in the Azar oilfield.


The chief executive of the Petroleum and Development Engineering Company, Naji Sa'adouni said, "We are looking for a foreign contractor but this does not mean that Iran would otherwise lack the necessary technology, capacity and knowledge for its development."


Gholam Hossein Zourmand, the NIOGC executive in charge of developing the Azar oilfield, describes it as one of the most difficult oil and gas fields to drill in Iran but an important one.


GPTKish was blacklisted by the US Treasury in 2006 after rumours about it being purchased by the Iranian Revolution Guard Corps. In fact, it lost the bidding to the Iranian Offshore Engineering and Construction Company, IOEC, and the privately-owned Iranian contractor Stratus International Contracting Company.


GPTKish is one of the few Iranian companies with the capacity to undertake the development of the Azar oilfield


Zourmand expressed hope that the Azar oilfield can produce 20,000 barrels of oil a day by 2012. The Iranian authorities hope that this will rise to 50,000 to 65,000 barrels of light crude oil per day for 25 years. However, experts say this can only happen if a contract can be signed with Gazprom or another foreign company by the end of the spring.



About the author: Reihaneh Mazaheri is an Iranian economic journalist based in Paris.


This article is an abridged and translated version of the full original text published on the Farsi pages of Mianeh, with editorial adjustments agreed with the writer made to provide clarity for English-language readers.


About Mianeh: Mianeh is a new independent web-based initiative run as a project by the Institute for War & Peace Reporting ( the award-winning non-profit media development organisation that works across the globe to platform local voices and promote international learning and engagement. Mianeh aims to be an open space for ideas, news and debate where writers in Iran can reach out to each other as well as to those outside the country who are interested in learning more about the vibrant and dynamic society that is Iran today.

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