OVL-led consortium asks Iran for 30% share in Farzad B discovery

ONGC Videsh, the flagship overseas oil and gas company of the Indian government, has asserted a minimum 30 per cent right in Iran's Farzad B discovery. The company has written to the Iranian authority asking it to share the agreed technical proposal and contractual terms, and conditions for development so that an Indian consortium can evaluate and decide further participation in the project.
 
Pars Oil and Gas Company and Petropars Company on May 16 had signed a contract for the development of Farzad B field worth $1.78 billion for 28 million cubic metre a day of sour gas production in five years. During the signing event, Iranian Oil Minister Bijan Zanganeh said Indians were unwilling to come to the project areas. “We negotiated with them twice and even agreed that they do not build liquefied natural gas (plant) but they refused to develop the field because of the (American) sanctions.”

 
He said the Iranian government focused on strengthening domestic companies amid the sanctions. “Various scenarios were examined for the development of this field to reduce costs and supply its financial resources. The implementation of this project is far harder than South Pars and its investment figure is double,” Zanganesh said.
 

In 2002, India bagged an exploration service contract (ESC) of the Farsi Block, under which OVL had a 40 per cent equity and Indian Oil and Oil India had 40 per cent and 20 per cent each. Farzad is one structure in the block.
 
According to the Indian consortium, it has the option to be part of the development contract of Farzad B, up to a minimum of 30 per cent participating interest -- which was earlier confirmed by National Iranian Oil Company. The Iranians are yet to reply to the latest OVL letter.

 
After the exploration activities and subsequent geological studies, the in-place gas volume was estimated at 22 trillion cubic feet. An exploratory well was drilled in 2006-07 in the Farzad B structure, which flowed sour gas with high hydrogen sulfide and carbon dioxide. Subsequently, negotiations to conclude a development service contract was initiated after the development plan was submitted to the Iranians in 2009 and later in 2011, but they remained inconclusive until 2012.
 
Though India proposed a production sharing contract, Iran introduced an Iran Petroleum Contract (IPC) in September 2015. Negotiations resumed after the sanctions on Iran were lifted in 2016 but the Iranians instead proposed the development of the Farzad B gas field under an integrated contract covering upstream, downstream and monetisation of the processed gas. 

 
Accordingly, the development plan was revised for bringing LNG to India and an $11-billion proposal was submitted by the Indian consortium.  However, the negotiation remained inconclusive mainly due to disagreement over gas price.
 
In early 2020, Iranians indicated their intention to develop the field with a third party but did not share the terms and conditions of the contract being discussed with the third party, though the Indian consortium reiterated its interest to develop the field. Also due to constrained geopolitical situations, internationally reputed consultants are unwilling to work on Iran projects.
 
For the Indian consortium, getting equity investment, as well as technology has become difficult due to the sanctions. Other multinational companies, such as Total and China National Petroleum Corporation, also exited similar gas projects in Iran due to stricter US sanctions.