ONGC Videsh Ltd and its partners Indian Oil Corporation and Oil India Ltd have dropped plans to develop an oil field in Iran after the discovery was found to be commercially unviable.
The joint venture of OVL, Indian Oil Corp and Oil India (OIL) had in 2006 made an oil discovery in the Farsi offshore block which was, in the initial estimates, thought to contain one billion barrels of reserves.
"The oil discovery has been found to be commercially unviable primarily due to high sulphur content in the oil," an official in the consortium said. The joint venture has informed the same to National Iranian Oil Company and have decided to abandon the project.
"The oil discovery has been held to be non commercial and we are not pursuing development of the discovery," he said.
The three have, however, submitted a master development plan envisaging an investment of $5 billion over 7-8 years in developing a massive gas field they discovered in Farsi.
The discovery, which was subsequently named Farzad-B gas field, has inplace reserves of up to 21.68 trillion cubic feet (Tcf), of which recoverable reserves may be 12.8 Tcf.
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OVL holds 40 per cent interest in the Farsi offshore block located in the eastern part of the Persian Gulf off the coast of Iran near the Saudi Arabian border and covers an area of 3,500 square kilometres.
The Indian consortium wants to liquefy the gas and ship it back home in the form of liquefied natural gas (LNG).
OVL, the overseas arm of state-run Oil and Natural Gas Corp, IOC and OIL have a service contract for the Farsi block where they will be reimbursed 35 per cent plus $90 million investment they made during the exploration phase.
If the consortia gets the developmental rights, they will be paid a 15 per cent rate of return over and above the investments they make.
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 Ltd of the UK and ONGC's Institute of Reservoir Studies.
OVL and IOC have 40 per cent stake each in the Farsi offshore block that was awarded to the consortium in 2002. OIL has the remaining 20 per cent.
The official said the commercial viability study of the gas discovery in Farsi block was completed in November 2007 while the report of commercial viability of the oil find was completed in April 2008.
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 study for the gas discovery was submitted to the National Iranian Oil Company (NIOC) in December 2007 and accepted by the NIOC in September 2008, whereupon the gas field was named the Farzad-B offshore gas field," the official said.
The approval, however, did not include any timeline or deadlines for further discussions.
"In the event that the NIOC and the consortium fail to reach an agreement in respect of the master development plan for the Farzad-B offshore gas field within six months from October 1, 2008, the first date of the month following the date on which NIOC approved the commerciality study, either party may elect to withdraw from the negotiations unless the period is extended by agreement between the parties," he said.
Thereafter, NIOC may invite other companies and the Indian consortium to submit their proposal for the master development plan under competitive conditions, although priority would be given to the proposal submitted by the consortium.
"No timeline has been established for the implementation of the master development plan," he said. Once the agreement on the master development plan is reached, NIOC will invite the consortium to negotiate the development services contract.