India Markets close in 15 mins

ONGC Videsh To Bid For Iran’s South Azadegan Oilfield, Rework Farzad-B Cost

The Smarter way to get your business news - Subscribe to BloombergQuint on WhatsApp

ONGC Videsh Ltd. will bid for development rights of Iran’s giant South Azadegan Oilfield in direct competition with the likes of global giants like Shell, France’s Total, Petronas of Malaysia and Russia’s Gazprom.

The company, which is the overseas arm of state-owned Oil and Natural Gas Corporation Ltd., will also rework the $6.2 billion cost of developing the Farzad-B gas field in the Persian Gulf, which it had discovered a decade back, to get Iran to award rights of the field to it, sources privy to the development said.

ONGC Videsh is one of the 34 companies Iran pre-qualified last year for development of South Azadegan field, which contains an estimated 33 billion barrels of oil in place, of which 6 billion barrels are deemed recoverable. The field currently produces about 80,000 barrels of oil per day (4 million tonnes per annum) and output is envisaged to touch 3,20,000 barrels a day (16 million tonnes).

Sources said ONGC Videsh will make a formal bid when National Iranian Oil Company opens a tender for developing the South Azadegan oilfield.

Other firms prequalified include Japan’s Inpex Corp, China’s CNPC, Eni of Italy, Sinopec of China and Russia’s Gazprom, Lukoil and Rosneft.

Sources said ONGC Videsh had last year made its ‘best’ offer to invest $11 billion in developing the Farzad-B field as well as in building the infrastructure to export the gas but Iran has deterred awarding the rights of the field to the Indian firm owing to differences over pricing of the fuel.

With the deal on the verge of collapsing, ONGC Videsh has offered to do just the upstream part of bringing the field to production while leaving the marketing of the fuel to Iran, they said, adding that the upstream part is to cost $6.2 billion while another $5 billion will be required to build a liquefied natural gas export facility.

Iran believes the upstream investment should not be more than $5.5 billion.

Farzad B was discovered by ONGC Videsh in the Farsi block about 10 years ago. The field in the Farsi block has an in-place gas reserve of 21.7 trillion cubic feet, of which 12.5 tcf are recoverable.

Also Read: OPEC's Oil Price Nightmare Is Coming True

On Saturday, Oil Minister Dharmendra Pradhan held talks with his visiting Iranian counterpart Bijan Namdar Zangeneh where he pressed for a stake for Indian companies in a producing oilfield and promised to raise crude oil import from the Persian Gulf nation in the year beginning April to reverse the reductions introduced in the current financial year.

Zangeneh said he was “optimistic” about signing of an agreement awarding rights of Iran's giant Farzad-B gas field to its discoverer, ONGC Videsh. A team of officials led by ONGC Videsh will be visiting Tehran this week to renegotiate terms.

He said Indian public and private sector oil companies will in financial year 2018-19 buy 0.5 million barrels of crude oil per day (25 million tonnes).

This will be 25 percent more than current fiscal imports estimated at 3,70,000 barrels per day (18.5 million tonnes).

Also Read: The Best Time To Invest In Oil Is Now

India had for the current fiscal cut oil imports from Iran by nearly 25 percent over delays in award of Farzad-B development rights to ONGC Videsh. In 2016-17, India had imported 5,10,000 barrels per day (25.5 million tonnes) of oil from Iran.

Pradhan said Iran has given "good incentives" on crude oil exports to India.

"It will be beneficial for India to buy more crude from Iran rather than from other countries. We have agreed that India will buy more crude oil from Iran in coming days." - Dharmendra Pradhan, Minister for Petroleum and Natural Gas

Like the recent acquisition of 10 percent stake in 20 million tonnes a year producing oil field in UAE, India made a case for a stake in a producing Iranian oil field, he said, adding that on Indian horizon was a field like South Azadegan.

"The deadlock we had on the viability of Farzad-B block, its size of capex, return, timeline, we discussed all the three issues. We have exchanged our positions. Next week our business delegation will go to Tehran to discuss all these issues." - Dharmendra Pradhan, Minister for Petroleum and Natural Gas

The two sides, he said, decided to remove "all the bottlenecks on all the three issues. On the capex, business model and timeline. We have decided today to reopen and re-engage on all three issues again."

The Smarter way to get your business news - Subscribe to BloombergQuint on WhatsApp

. Read more on Business by BloombergQuint.