IOC-led group to put $3 bn in Iran block

Three state-owned oil companies "� ONGC Videsh, Indian Oil Corporation (IOC) and Oil India (OIL) "� together expect to spend $3 billion if they get the right to develop the Farsi block in Iran.

The consortium, which got the intial exploration rights, discovered both oil and gas in the block last year. ONGC Videsh, the overseas investment arm of Oil and Natural Gas Corporation (ONGC), and IOC hold 40 per cent stake each in the block, while OIL owns the remaining 20 per cent

AIMING HIGH

The consortium, which got the initial exploration rights, discovered both oil and gas in the block last year.

ONGC Videsh, IOC and OIL have completed the exploration contracts awarded to them with the submission of the feasibility report.

The consortium spent $90 million during the exploration phase of the Farsi block.

The block is estimated to hold over a billion barrels of oil, around 10 per cent of which is recoverable.

A senior IOC official said, "The consortium has submitted the feasibility report to the Iran government, which estimates recoverable gas reserves of 12.8 trillion cubic feet (tcf) in the block." This is almost equal to the recoverable reserves from Reliance Industries' block in the Krishna-Godavari basin. Gas from Reliance's block is expected to double the availability of the fuel in India.

Of the $3 billion investment, IOC's contribution would be around $1.2 billion. The company, which is currently facing a financial crunch due to revenue losses from retail sales of subsidised petroleum in India, said that it would be able to leverage the money it needs for the Farsi block. "Once the Iran government accepts that the gas from the block can be commercially produced, banks will be willing to lend us the money," an IOC official said.

Oil and gas companies that operate in Iran do not get a share of the hydrocarbon they discover. They are, instead, reimbursed their investments along with agreed rate of return, which the companies agree on after negotiations with the Iranian government. ONGC Videsh, IOC and OIL have completed the exploration contracts awarded to them with the submission of the feasibility report. The Iranian government will now evaluate if the gas discovery is commercially viable.

It will now award the development contract to a consortium, which may or may not go to the ONGC Videsh-IOC-OIL combine. The Indian consortium spent $90 million during the exploration phase in the Farsi block.

"If we do not get the contract to develop the Farsi block, the Iran government will reimburse the investment we have made along with a 35 per cent rate of return," said the IOC official. The consortium also discovered oil in the Farsi block last year. The IOC official said the report for oil discovery will be submitted later this month.

The block is estimated to hold over a billion barrels of oil, around 10 per cent of which is recoverable. "The oil is very thick and the rate of recovery will thus be only around 10 per cent," the official said. Container Corporation FY08 net up 7 per cent at Rs 752.21 crore.