Iran awards key oil projects due to deliver 400,000 b/d

Iran's state oil company NIOC awarded contracts worth a combined $13.4bn to domestic oil and gas contractors to lift the country's crude production capacity at six fields close to Iran's border with Iraq by 350,000-400,000 b/d.

"We are [today] implementing some of the projects defined in the seventh national development plan [2023-28], which will help us achieve our 8pc economic growth target," NIOC managing director Mohsen Khojasteh-Mehr said.

The biggest of the deals, valued at $11.5bn, was signed with a consortium of nine domestic exploration and production companies and banks known as Dasht Azadegan Arvand to develop the giant Azadegan oil field, one of several oil fields that make up the key West Karun cluster.

The Azadegan field shares a reservoir with the Majnoon field across the border in Iraq.

NIOC did not specified to what level the consortium had committed to lift production, saying only that the contract obliged the group "to extract 2.6bn bl" over its 20-year lifespan. But the preliminary agreement NIOC signed with Dasht Azadegan Arvand in 2022, on which this latest deal has been built, called on the group to lift production to 550,000 b/d, from 205,000 b/d.

Azadegan's output has risen since to stand at around 270,000 b/d, according to Argus estimates, implying that an increase of around 280,000 b/d in capacity remains for the consortium to deliver.

The second most significant deal, worth $1.36bn, was signed with Sarvak Azar Engineering and Development for the second phase development of the Azar oil field, also on Iran's border with Iraq, and part of the West Karun cluster. Azar shares a reservoir with the Badra field in Iraq, operated by Russia's Gazpromneft.

Iran's state-owned OIEC delivered first production from the field in March 2017 at a rate of 15,000 b/d, and doubled production by September of that year. By the middle of 2021, output reached its phase one plateau target of 65,000 b/d.

NIOC said that Sarvak Azar was obliged to extract 177mn bl over the 20-year life of the contract. Iran's former oil minister Bijan Namdar Zanganeh in 2021 said a second phase development of Azar would see production rising to "at least 100,000 b/d."

The third agreement was with Iran's Gostar Sina Energy, for the $260mn second phase development of the 6.2bn bl Masjed Soleiman field in Iran's western Khuzestan province.

Production from Iran's oldest field has declined significantly from its peak of above 100,000 b/d, with production now below 10,000 b/d. This 14-year agreement builds on an earlier preliminary agreement signed in 2022 to boost production by 9,000 b/d.

The final two contracts, worth a combined $245mn, were signed with a consortium comprising two companies, Well Services Iran and PetroIranian Arvand, to produce a cumulative 40.4mn bl from three oil fields in Kermanshah province ꟷ Sumar, Saman and Delevaran ꟷ over 20 years.

This agreement builds on an earlier preliminary deal, signed late last year, envisaging a 9,000 b/d increase in production. Light oil from these three fields is typically directed to the 150,000 b/d Anahita refinery as feedstock.

Onwards and upwards

Iran brought several upstream projects online in February taking its crude capacity above 3.9mn b/d, from 3.8mn b/d in late 2023. But output remains well below that at around 3.27mn b/d as the country continues to contend with US sanctions.

This next batch of projects could lift crude capacity further to as high as 4.2mn-4.3mn b/d, a level Iran has not produced at sustainably for several decades. Iran has very ambitious plans to boost its crude capacity to 5.7mn b/d by 2028, but it will struggle to deliver anything close to that unless sanctions are lifted, allowing foreign companies and investment back to the country.

By Nader Itayim