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NIOC takes initiative with private players

Addition of PPZ and Ofogh to list of companies bidding for projects seen as an important move away from official interference

National Iranian Oil Company (NIOC) has added two private local players with no official links to its list of those qualified to partner foreign oil companies bidding for upstream projects, in what appears to be a sign of confidence under a newly-inaugurated second administration led by President Hassan Rouhani.

The state company’s initiative is seen as a significant move toward opening up the energy sector to foreign oil and gas investors in the post-sanctions period — expanding a two-year-old list of local companies mostly affiliated with potentially controversial official institutions.

The two new additions are Pars Petro Zagros Engineering & Services (PPZ) and Ofogh Energy, part of the Iran Ofogh Industrial Development (IOID) group. Both are private entities with no known official connections — unlike 13 of the 14 “private” companies so far listed by NIOC.

The only private company already on the list until now has been Dana Energy, which belongs to the Dana Group, owned by the Iravani family. 

Dana, in partnership with Norway’s DNO, is now finalising a development proposal for the Changuleh oilfield.

The approval of PPZ and IOID as qualified E&P players was made in official letters from Habibollah Bitaraf, the deputy oil minister put in charge of the process by oil minister Bijan Zanganeh, on 1 August. However, no official announcement has yet been made in Tehran.

Upstream was last month told that under Bitaraf, NIOC and the Oil Ministry would return to their original plan to prioritise genuine private players as potential joint venture partners. 

Foreign companies are likely to be reluctant to take on local partners with official links for fear of inviting fresh US sanctions.

PPZ and Ofogh are now discussing options and possibilities with Gholamreza Manouchehri. 

Manouchehri is deputy NIOC managing director in charge of production and engineering and the main person overseeing negotiations with foreign companies such as France’s Total, which recently signed a contract to develop Phase 11 of the South Pars gas field.

At least three other private companies — Jahanpars, Kayson Oil & Gas and Pasargad Energy — are on the waiting list for possible approval. 

They, as well as Ofogh and PPZ, had preliminary approval one year ago, but were effectively sidelined at the last moment allegedly because of political pressure to list companies associated with various power centres.

PPZ, with retired NIOC veteran Manouchehr Shapouri at the helm, has been involved in scores of complex reservoir studies since the 1990s and has a workforce of about 200 engineers. 

It has dealt with foreign companies at several projects and has since last year been working with Gazprom and PGNiG of Poland in their pre-tender studies at the Kish and North Pars gas fields, as well as at the Farzad A and Farzad B offshore fields.

In bidding to qualify for the NIOC list, PPZ has formed preliminary partnerships with Spanish and UAE finance houses. It may also seek to bring in another foreign engineering specialist.

Ofogh Energy has been providing technical and logistical support at key oil and gas projects since the 1990s, and claims to be overseeing 470,000 bpd in crude production. 

In 1999, it became the first private Iranian company to invest upstream in equity partnership with the then Lasmo within the wider consortium including Veba Oil and operated by Shell in offshore Caspian waters.

That exploration venture by IOID as part of the Shell consortium was abandoned at the turn of the century after a territorial dispute between Iran and its Caspian neighbour Azerbaijan.

Since the abortive upstream Caspian venture, IOID has worked closely with Italy’s Eni in providing support for surface facilities at the Darkhovin oilfield.

Eni developed the first two phases at Darkhovin for an output of 160,000 bpd and is reported to be discussing a possible third phase involving another 60,000 bpd in production. 

A company official said Ofogh is "looking seriously into projects such as Azadegan, west of the Karoun river, and at the South Pars field.

Earlier this year, Ofogh had a tentative E&P partnership with Tehran Energy Consultants (TEC), the engineering arm of the giant power plant specialist Mapna Group, but it is unclear if the TEC link was formalised or abandoned.

Experts in Tehran say Local private companies such as Dana, Ofogh and PPZ partnering foreign firms will almost all be holding minority shares of at most 20% to 30% in any future E&P joint ventures with international majors, because of limited financial resources.

Ambitious private companies have had to technically upgrade themselves over the past two years because until very recently NIOC had a near monopoly in E&P expertise. 

The other key factor in selecting local players has been their access to finance, mainly from abroad.