IOC may cut its stake in Farsi fields

Indian Oil Corp (IOC) may cuts its stake in the massive Farsi gas and oil field in Iran as it faces financing pressure due to continuing losses on fuel sales.      

IOC holds 40 per cent interest in Farsi, where ONGC Videsh, the overseas arm of Oil and Natural Gas Corp (ONGC), is the operator with an equivalent shareholding. Oil India Ltd holds the remaining 20 per cent.      

"Developing the gas field alone would cost $4 billion and accordingly our investment would be $1.6 billion (Rs 8,000 crore). Whether we will have that kind of money to spare during 2010 to 2014 is to be seen," an IOC official said.      

During this period, IOC has to build the Paradip refinery in Orissa at a cost of Rs 29,777 crore besides spending another Rs 5,000-6,000 crore on fuel upgrade projects.      

"We make Rs 1.80 a litre loss on petrol, Rs 12.27 a litre on kerosene and Rs 91.51 per domestic LPG cylinder. Even after taking the Rs 13 crore (at Rs 1.19 a litre) profit we make on diesel, our loss is still is Rs 26 crore a day," he said.      

IOC, the official said, may ask for limiting its stake to its capability to invest in Iran. "We will have to decide on the quantum of stake after we work out our finances."      

Any stake that IOC sheds would go to OVL.      

The company was also looking at trimming the stake in Iran as the contract for Farsi was only a service contract and Indian firms would not get ownership of oil and gas.

Oil and gas found in the Farsi block belong to the National Iranian Oil Co (NIOC) and the Indian operators are to be paid a fixed fee for their efforts of finding and producing oil.      

OVL-IOC-OIL consortia have a service contract for the Farsi block where they will be reimbursed 35 per cent plus USD 90 million investment they made during the exploration phase.      

If the consortia gets the developmental rights, they will be paid 15 per cent rate of return over and above the investments they make.      

"Iran had in September 2008 approved the commerciality of the massive gas discovery in Farsi block and the partners are now preparing a development plan," the official said.      

The discovery, which was subsequently named Farzad gas field, has inplace reserves of up to 21.68 trillion cubic feet (Tcf), of which recoverable reserves may be 12.8 Tcf.      

The Indian firm want to liquefy the gas and ship it to India in the form of liquefied natural gas.      

"The oil and gas will belong to NIOC. They have the marketing rights and we have requested them to allocate the gas to us for converting it into LNG," he said.      

The Indians have also submitted a feasibility report for the one billion barrel oil discovery it made in 2006.      

Oil was found in the BB structure in 2006, the discovery has been named Binaloud. "Feasibility report of the oilfield has been submitted to NIOC on November 26, 2008," the official said.      

During exploration phase, the OVL-IOC-OIL consortium had struck crude oil in three wells in the Farsi block, 90 km off Bushehr port. It found gas in one well, the official said.      

In the commercial viability report to NIOC, OVL — the operator of the field — has said the least gas volume was 9.48 Tcf and the high-case estimate was 21.68 Tcf after independent studies by Fugro Robertson of the UK and ONGC's Institute of Reservoir Studies.      

OVL and IOC have 40 per cent stake each in the 3,500 sq km Farsi offshore block that was awarded to the consortium in 2002. OIL has the remaining 20 per cent.     

Under Iranian rules, the project promoters are not allowed to take oil or gas out of the country. OVL had to fund all exploration operations that would be reimbursed only after ascertaining commerciality.      

The commerciality report establishes production economics even in the worst-case scenario of 9.48 Tcf where NIOC would earn a net cash of USD 71.792 trillion by producing 83 million barrels of condensate and 7.354 trillion cubic feet of gas over 30 years.