$20bn Investment Projects on Offer in Caspian Sea

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$20bn Investment Projects on Offer in Caspian Sea
In late March, Iranian President Hassan Rouhani visited the Republic of Azerbaijan where he and Azeri President Ilham Aliyev presided over the signing of protocols for the development of a jointly owned oil field in the Caspian Sea by Iranian Minister of Petroleum Bijan Zangeneh and Azeri Minister of Energy Parviz Shahbazov.


Under the protocols, Irans state-run NIOC and Azerbaijans SOCAR agreed to recover oil on a 50-50 basis. Khazar Exploration and Production Company (KEPCO) is assigned by NIOC to improve Irans share of oil and gas fields in the Caspian Sea.

To know more about the Iran-Azerbaijan agreement, "Iran Petroleum" has conducted an interview with the CEO of KEPCO Mohsen Delaviz.


Q: How will KEPCO and SOCAR cooperate in the development of the oil field shared by Iran and Azerbaijan in the Caspian Sea?

A: Since Iran and the Republic of Azerbaijan jointly own an oil field in the Caspian Sea, intensive talks had been held in recent years for joint recovery from this field. The talks were held at the presidential level and finally on March 28, 2018 a protocol of cooperation was signed between the National Iranian Oil Company and Azerbaijans SOCAR for 50-50 recovery from this field. The document was signed by the Iranian minister of petroleum and the Azeri minister of energy. The signature of this document is a breakthrough in the interest of the two nations because in addition to historical commonalities between Iran and Azerbaijan, the two countries share interest in this field. Furthermore, that has helped the two countries have strategic interests in common and gain economic benefits. As far as the implementation of the letter of intent is concerned we are examining a variety of options, one of which would be to set up a SOCAR-KEPCO joint venture in order to be able to attract investment and technology in this sector.


Q: When do you think the KECPO-SOCAR joint company would be established?

A: We are still waiting. I think over six months to one year we would be able to lay the foundation for such cooperation.


Q: Do you have any estimation of necessary capital to develop this jointly owned field?

A: We will need at least $10 billion to develop this field. This field owns 30 billion barrels of crude oil equivalent in place and since Caspian Sea reservoirs are from sandstone they are likely to have a higher rate of recovery so that we would recover more oil. Meantime, due to the necessity of deepwater drilling in the Caspian Sea we need companies which are experienced in operating in deepwater. Add to this our prioritization of environmental concerns in the development of Caspian Sea.


Q: Have you defined a framework of cooperation with SOCAR?

A: Were still at the beginning of road and I think that the two companies would define their framework for cooperation in one month. As per the letter of intent, we had to announce the start of agreement, which has been done on the part of Iran. We are now waiting for them (SOCAR) to follow suit. After that, we will probably sign an outline agreement with SOCAR to officially start doing activities together. Of course we maintain our unofficial contacts with them and use their data. There is no specific problem in this regard and we have good relations with SOCAR.


Q: When will joint recovery from the field start?

A: We will need at least two years to finalize the agreement between the two companies. Once the agreement has been signed I think we will need three to four years for development. Therefore, production from this field may begin after seven years.


Q: In November 2017, NIOC and Norways ORG signed a memorandum to study Sardar-e-Jangal oil field and three exploration blocks in the Caspian Sea. Has NIOC received the results of these studies?

A: In late February, ORG officially submitted its written proposal to NIOC for the development of Sardar-e-Jangal. In the proposal, ORG has made it clear that it will accept all investment risks for the development of the field. When I asked them why, they said that they had been surprised by the volume of the Sardar-e-Jangal reserves. Shell had earlier studied the southern basin of Caspian Sea, but prospects were bleak. However, now ORG is very optimistic that the Caspian Sea deposits are much more than thought.


Q: Do you think that a consortium will be established to develop the oil field?

A: Nothing is clear yet and NIOC is yet to express its views. Technical talks are still ongoing, but I think that a consortium would be established for the development of this field. ORG needs to interact with companies like Petrobras that have good experience in deepwater drilling. We have handed a letter to ORG on this issue and they have embarked on talks with Petrobras with a view to establishing a technical consortium.


Q: There are still some people who believe that investment in Caspian Sea development is not economical due to high technology needed for deepwater drilling. Do you agree?

A: I disagree. The Caspian Sea is intact and an important area for Iran. As the Iranian Minister of Petroleum has said we hold a strategic and national look at the Caspian Sea. During years when Iran gained nothing from the Caspian Sea our neighbors have made good recoveries there. Now with oil prices above $50, recovery from the Caspian Sea is definitely economical. Therefore, I say firmly that Caspian Sea development is certainly economical and we need to attract foreign investor to develop these fields.


Q: Do you have any estimation of investment for the development of Caspian Sea oil fields?

A: We dont have yet a precise estimate. We still need more activities to have a clear estimate and know how much capital we need. However, preliminary estimates indicate that we will need at least $10 billion for the [Iranian-Azeri] joint oil field and between $7 billion and $10 billion for Sardar-e-Jangal oil field. We are open to foreign investment in the development of Caspian Sea. After the JCPOA (Irans nuclear deal with six world powers), we announced that all companies, including American companies, can come to invest in Iran. As Mr. Zangeneh said, US President Mr. [Donald] Trump has deprived only American companies from investment gains in Iran. But we are ready to attract foreign investment, and we have always ensured foreign companies that we guarantee the security of their investment in Iran.


Q: What are your priorities for Caspian Sea development?

A: Attracting investment and addressing environment issues. Since we have to carry out drilling in deep waters we need special technology. Furthermore, we are landlocked in the Caspian Sea and environmental concerns are among our priorities which must be respected when it comes to recovery from the Caspian Sea. Therefore, companies that are technically endorsed by Iran and that have experience of working in the Caspian Sea would be allowed to cooperate with Iran in Caspian Sea development projects.


Q: Do you have any plans to empower Iranian companies to operate in deep waters?

A: After we can attract so much investment in the Caspian Sea we will definitely benefit from the experience of Iranian companies. These companies will learn from the experience of foreign companies and state-of-the-art technology. KEPCO will stand by Iranian contractors and make necessary planning to benefit further from the Iranian companies potential. However, we are still at the beginning of road and the framework of cooperation with companies and modalities of investment must be specified.


Q: How will Caspian Sea development change northern Iran?

A: You must know that the economy of northern Iran depends on tourism and agriculture and rarely is there any industry involved in this part of Iran. Caspian Sea development will change the economy of this region. Giant oil facilities will be established, the private sector will be boosted and jobs will be created. When the private sector is bolstered, Iranian contractors and manufacturers will get a boost. Meantime, I believe that if we want to bolster national production we have first to strengthen the economy and that would need new investment in Iran. In the oil sector, we need foreign investment urgently for two areas; in the renovation of oil installations we need at least $40 billion and for development we need at least $200 billion in investment. Such figures are lucrative for investors. Major companies have experienced working in Iran and they are well aware of the attractiveness of investment in Iran. Therefore, by attracting investment and bolstering the economy we can support our economy.


May 20, 2018 12:33
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KEPCO amid many other companies is a subdivision of National Iranian Oil Company (NIOC) founded in January 1998. KEPCO is an authority in exploration, development and production of oil and gas in Iran concerning South Caspian Sea and three littoral provinces of Golestan, Mazanderan and Gilan in Iran. KEPCO supervises all the contracts signed by local and international companies regarding exploration and development of hydrocarbon reserves in the area including the pertinent environmental matters. KEPCO is committed to the development of Caspian Sea oil and gas reserves as well.