Iran Oil Minister Defends Gas Deal With Total in Parliament

Iranian Oil Minister Bijan Namdar Zanganeh said the gas contract signed with energy major Total this month will be a technological milestone that will help Iran lift its gas production and revenue from the joint South Pars Gas Field in the Persian Gulf.

Zanganeh made the statement in a parliamentary hearing on Wednesday over criticisms concerning a $5-billion contract signed with the French company to develop Phase 11 of the South Pars Gas Field, IRNA reported.

The deal, seen as the first major collaboration with a western firm in Iran's energy sector after last year's lifting of sanctions, also includes China's CNPC and Iran's state-owned Petropars as minority stakeholders.

Opponents of President Hassan Rouhani and his government have criticized the terms of the contract, casting the deal as a major concession by Tehran and a victory for the supermajor that is also involved in exploration and production in the Qatari extension of South Pars.

However, Zanganeh firmly defended the gas deal.

"Total will employ new technology that is unrivaled in the region. Plans are in place to construct and install a 20,000-ton platform in South Pars … No country in the region has ever carried out an operation of this proportion," Zanganeh said.

The largest offshore gas platform in South Pars weighs about 3,000 tons.

The minister added that implementing Total's know-how in the gas project will allow Iran to keep pumping gas at peak levels for a longer period and offset a natural decline in production from the joint gas reservoir.

Production

"Without increasing the recovery factor, gas production [from Phase 11] will slump after reaching a peak in 2022-23. But raising the recovery rate will help maintain production at a peak of 2 billion cubic feet daily [56 million cubic meters per day] by 2033. We need to obtain this technology and use it in other South Pars phases," Zanganeh said.

Under the 20-year contract, Total is expected to invest about $6 billion in the South Pars project, including $1 billion in tax payments.

According to the oil minister, the world's fourth-largest oil and gas company will be remunerated only after production begins at Phase 11.

A total of 335 billion cubic meters of natural gas are expected to be produced under the 20-year deal with Total, as well as 290 million barrels of condensates and 14 million tons of liquefied gas, among other products.

"Total will earn close to $13 billion by the end of the contract's 20-year term and with crude oil at $50 per barrel and gas at 20 cents per cubic meter, Iran's revenues from South Pars Phase 11 revenues are estimated to reach $85 billion," he said.

Cost-Cutting

Zanganeh pointed to lower development costs of Phase 11 compared to those in other South Pars projects.

The drilling costs of each well in Phase 12, the largest South Pars project to date, as well phases 15-17, have been above $41 million, "but Phase 11 drilling costs are estimated at $31 million for each well, or about 25% cheaper".

The top oil official said each year of delay in developing South Pars can cost Iran up to $5 billion. He added that Iran has lost some $22 billion because of delays in developing South Pars, Reuters reported, citing him as saying by Shana.

"The deal with Total increases Iran's energy security and is likely to encourage other foreign companies to invest in Iran," Zanganeh told parliament.

Majlis Speaker Ali Larijani also said on Wednesday Iran is forming a government commission to oversee its deal with France’s Total to develop the South Pars field.

The commission will include representatives from the judiciary, the head of Majlis Energy Commission and of its Planning and Budget Commission.