Iran gives ultimatum to OVL on gas filed development

Iran has given an ultimatum to ONGC Videsh Ltd over development of the coveted Farzad-B gas field in the Persian Gulf even as the Oil Ministry said it hopes to conclude a deal by February next year.
Iran is reportedly unhappy with the USD 10 billion plan submitted by OVL, the overseas arm of state-owned Oil and Natural Gas Corp (ONGC), for development of the 12.5 trillion cubic feet reserves in Farzad-B field and an accompanying plant to liquefy the gas for transportation in ships.
"Several rounds of negotiations so far have been held with the Indian state company on the development of Farzad-B. But ONGC's financial proposal for the project is not acceptable," Iranian newspaper Financial Tribune quoted the nation's Oil Minister Bijan Namdar Zanganeh as having told Mehr News Agency.

While Indians want a reasonable rate of return on the investment, Iran is only offering a fixed fee for its efforts. The Indians feel the fixed fee is not remunerative enough and want a higher percentage, something that Iranians are resisting.
The field in the Farsi block was discovered by an Indian consortium led by OVL in 2008. It has an in-place gas reserves of 21.7 Tcf, of which 12.5 Tcf are recoverable.
But India initially felt deterred from investing because of the fear of sanctions being imposed by the US. But with the lifting of sanctions this year, they are back discussing a master development plan involving investing USD 5 billion in field development and an equal amount in a LNG plant.

Underscoring that Iran has set a deadline for the Indian firm to submit a reasonable development plan, the Minister was quoted as saying: "We won't wait any longer for the Indians and if they fail to propose a sound financial proposal in the meeting planned for this month in Tehran, we will change our mind."

The Indian Oil Ministry issued a statement saying that it continued high level engagement with Iran when Joint Secretary Sunjay Sudhir and OVL Director (Business Development) Sudhir Sharma visited Tehran on Tuesday to "discuss bilateral cooperation in the field of oil and gas including ongoing negotiations on Farzad-B gas fields".

It said: "During the discussions, the two sides took stock of the progress since the April ministerial meetings and expressed satisfaction at the ongoing negotiations. Discussions progressed on the Heads of Agreement which will eventually lead to a definitive agreement."
OVL is preparing a Master Development Plan for the gas field while also working on a gas pricing formula keeping in view of the global gas price scenario.
"Both sides also agreed to explore possibilities for
expanding the footprint of Indian companies through their participation in production and development fields," the ministry's statement said.
Meetings were also held with Gholamreza Manoucheri, Vice President, National Oil Company of Iran and Mohammad Meshkimfam, Managing Director of Pars Oil and Gas Co.

A consortium of OVL, Oil India Ltd and Indian Oil Corp had discovered the 12.8 trillion cubic feet of gas reserves in the Farsi block in 2008. The discovery was named Farzad-B.
Gas produced from the field can either be converted into LNG by freezing at subzero temperature and shipping in cryogenic ships to India or transported through a pipeline - via overland passing through Pakistan or subsea.
Iran and six world powers in July last year sealed an accord to curb the Islamic Republic's nuclear programme in return for ending sanctions, opening prospects of Indian investments in the Persian Gulf field. The sanctions were lifted in January this year.

Prior to that, Indian firms had shied away from investing in Iran for the fear of being sanctioned by the US and Europe.