Iranian Firms Replace Chinese at S. Azadegan Oil Field

Iranian Firms  Replace Chinese at  S. Azadegan Oil Field Iranian Firms  Replace Chinese at  S. Azadegan Oil Field

After dismissing Chinese contractors from the joint South Azadegan oil field due to underperformance, Iranian companies have dispatched their drilling rigs, in an effort to overcome the deficit and aim to make Iran's largest oil fields profitable again over the course of the next three years.

The Azadegan field, located 80 kilometres (50 mi) west of Ahvaz, near Iraqi border, contains 6 to 7 billion barrels of recoverable crude oil reserves, but its geologic complexity makes extraction difficult. The field is divided into two portions: North and South Azadegan.

The controversial contract with the China National Petroleum Corporation (CNPC) to jointly develop the oil field was signed during the incumbency of previous oil minister, and irreparably damaged the Iranian oil industry, whilst awarding the Chinese hefty profits, IRNA reported Sunday.

The  contract  was initially granted to Inpex, a Japanese state-backed energy group, during Mohammad Khatami's  presidency in 2004.

However, the $2b deal fell apart in 2006 when Inpex fearing possible US sanctions, failed to begin work on the project prompting Iran to cut the company’s stakes to 10 percent from an initial 75 percent.

Inpex eventually relinquished its remaining shares in 2009, which led Iran to sign a buy-back contract with CNPC.

The production yield was to be 320,000 barrels of oil and 197 mcf of gas per day in the first phase, and 600,000 barrels per day in the second phase, according to the contract.  After five years, however, the project had not made the slightest advance.

 The Chinese company was given a three-month deadline in January to accelerate work on South Azadegan or risk losing the$ 2.5b contract.

On April 29 of this year, Iran's oil ministry formally revoked the development contract from CNPC due a five-year delay in delivering the project.

Out of a target of 185 wells to reach production in the first phase, only 7 were drilled.

At the time when CNPC took over the project, production stood at 50,000 barrels per day(b/d).  After five years, not only had production not increased, but had dropped by 21,000 b/d, taking production down to a mere 29,000 b/d.

Abdolreza Haji Hossein-Nejad, the managing director of Petroleum Engineering & Development Company (PEDEC) said the Chinese were charging $6 billion to deliver the project, but the Iranian contract will be far less costly.

PEDEC managing director, said the company intends to develop the oilfield using its own capital. Hossein-Nejad also said in July that "Iran welcomes foreign investment in the development of its South Azadegan oil field."

NIDC plans to drill 50 wells starting in July as part of its first phase with a tender to drill a further 40 wells.

NIDC has installed extra drilling rigs to accelerate the project, said Mohammad-Reza Takaidi,   the head of National Iranian Drilling Company for drilling projects. Five wells have been drilled with a further six in progress.

Rokneddin Javadi, managing-director of National Iranian Oil Company (NIOC), said in August: “Our estimates show that we will witness an acceptable level of progress by December or January."