There are three reasons behind recent announcements from Iran that it is targeting big oil and gas production gains from its ultra-oil-rich West Karoun cluster of fields, comprising North and South Azadegan, North and South Yaran, and Yadavaran, among other lesser-known sites. The first is that the area contains one of the largest collective oil reserves in the world – well over 67 billion barrels of oil in place – and enormous associated gas deposits as well. An additional benefit to these oil reserves is that their average lifting cost is the joint lowest in the world (along with Iran and Saudi Arabia) at US$2-3 per barrel. The second reason is that several of these reservoirs are shared with neighbouring Iraq, which is key to Iran’s long-running ability to continue to export high volumes of its oil despite sanctions, as it is passed off as Iraqi oil instead, as analysed in full in my latest book on the new global oil market order. These shared fields include Azadegan (which sits on the same reservoir as Iraq’s huge Majnoon site), Yadavaran (Iraq’s Sinbad), Azar (Iraq’s Badra), Naft Shahr (Iraq’s Naft Khana), Dehloran (Iraq’s Abu Ghurab), West Paydar (Iraq’s Fakka), and Arvand (Iraq’s South Abu Ghurab). And the third reason is that China and Russia have legacy commitments in various sites across the West Karoun region, covering both oil and gas developments, and they are prepared to continue on the sites, despite rising sanctions pressure from the U.S.. Both countries reiterated this to Iran at last week’s 25th Heads of State Council meeting of the Shanghai Cooperation Organization in Tianjin.

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China has always been the bigger presence of the two in West Karoun, particularly after it signed the landmark all-encompassing ‘Iran-China 25-Year Comprehensive Cooperation Agreement’ with Iran, as first revealed anywhere in the world in my 3 September 2019 article on the subject and also detailed in my latest book. In the lead-up to that agreement, Iran’s then-Foreign Minister, Mohammad Zarif, and his China counterpart, Wang Yi, decided that Chinese companies would increase the then-355,000 barrels per day (bpd) output from West Karoun by another 145,000 bpd in the first phase (to 500,000 bpd) and then by another 500,000 bpd (to 1 million bpd). According to comments just over a week ago from the chief executive officer of Iran’s Petroleum Engineering and Development Company (PEDEC), Nasrollah Zarei, the West Karoun fields now collectively produce over 500,000 bpd. China’s development strategy for these fields at that time has become a template for a more cautious approach when it comes to oil and gas developments in countries that are subject to U.S. sanctions, and it remains in place to this day. Back in 2019, the U.S. had only recently unilaterally withdrawn from the Joint Comprehensive Plan of Action (JCPOA or colloquially ‘the nuclear deal’) with Iran and had reimposed sanctions on it. Washington and Beijing were also engaged in a Trade War at the time. The Chinese strategy involved a switch from huge exploration and development contracts that attracted a lot of publicity, to much lower-key ‘contract-only’ awards on Iran’s major fields (and Iraq’s as well), although nearly all of them went to Chinese-controlled firms. One early typical example of this the announcement by Iran’s Petroleum Ministry of US$1.3 billion of multiple development contracts to more than double oil production at West Karoun’s South Azadegan oilfield. In fact, various Chinese companies had been given 11 of these ‘contract-only’ across South Azadegan, including contracts for drilling-only, field maintenance-only, engineering-only, construction-only, and technology-only, and so on. These added up to what was, in effect, a full exploration and development programme for the huge oilfield. In looking to reach the next collective West Karoun fields’ production target of 1 million bp,d more of the same strategy is expected, a senior oil industry source who works closely with Iran’s Petroleum Ministry exclusively told OilPrice.com last week. “These will include contracts covering essential items, including central processing units in South Azadegan and gas collection and compression units there too, new drilling units for Yadavaran, and the latest hydraulic fracturing equipment for the Sepehr and Jofeir fields,” he added.

Russia may well take the same lower-key approach to those areas of West Karoun in which it also has a legacy interest, said the source, partly for the same U.S.-related reason as China and partly because increasing financial pressure from its war with Ukraine limits the development funds at its disposal. Before Washington’s withdrawal from the JCPOA, Russia had multiple major memoranda of understanding (MoU) signed for seven big oil and gas fields in Iran – more than any other country. These were by GazpromNeft for the Changouleh and Cheshmeh-Khosh oilfields, Zarubezhneft for the Aban and Paydar Gharb fields, Tatneft for the Dehloran field, and Lukoil for the Ab Teymour and Mansouri oil fields. In the aftermath of its invasion of Ukraine, July 2022 saw Russian President Vladimir Putin visit his Iranian counterpart in Tehran to set the seal on a larger (US$40 billion) wide-ranging MoU signed just a few days before between the National Iranian Oil Company (NIOC) and Russia’s Gazprom, as also fully analysed in my latest book. Among other deals contained in the MoU, Gazprom pledged its full assistance to the NIOC in the US$10 billion development of the Kish and North Pars gas fields with a view to their producing more than 10 million cubic metres of gas per day. The MoU also detailed a US$15 billion project to increase pressure in the supergiant South Pars gas field on the maritime border between Iran and Qatar. Gazprom further pledged assistance in the completion of various LNG projects and the construction of gas export pipelines, and crucially, to provide the technology and equipment to increase output from its holdings in the West Karoun oil fields cluster. Looking ahead, according to the Iran source, Moscow is to provide immediate advanced drilling rig assistance on Iran’s shared Azar field, and dual-lateral drilling technology for the Aban and Paydar Gharb fields. It will also provide new drilling equipment at Cheshmeh Khosh and desalting units at the same site.

How long it takes for these and related development improvements to allow the West Karoun cluster of oil fields to reach 1 million bpd output remains to be seen, but there is plenty of scope for this to be done. It is worth noting here that although the current rate of recovery across the site ranges from just 3.5% to 4.5%, before the U.S. withdrawal from the JCPOA in 2018 and the subsequent reimposition of sanctions against Iran, several international oil companies presented realistic plans to Iran’s Petroleum Ministry detailing how they would dramatically increase the average rate of recovery in very quick time, as examined in full in my latest book on the new global oil market order. Specifically, according to the Iran source who has seen the full proposal documents, the plans detailed a relatively easily achieved increase in the rate of recovery to at least 12.5% within one year, to 20% within two years and to at least 50% within five years.  With over 67 billion barrels of oil in place across the West Karoun oil fields, the Petroleum Ministry has stated several times that each 1% improvement in the rate of recovery would increase recoverable reserves by 670 million barrels or some US$33 billion in revenues even with oil at US$50 a barrel.

By Simon Watkins for Oilprice.com

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