IRAN - Exploration Background.

Commercial oil in Iran was first discovered in 1908 at Masjid-i-Suleiman by D'Arcy Exploration. Exploration began in 1901 when W.K. D'Arcy got a 60-year concession over the whole country. D'Arcy, a British concessionaire, in 1908 became known as Anglo-Persian Oil Co. in partnership with Burmah Oil Co. In 1935 it became known as Anglo-Iranian Oil Co. (AIOC) - which later became British Petroleum (BP) - and eventually was to head a Western consortium as owner of the concession.

The oil industry was nationalised in May 1951. The AIOC-led group became known as "Iranian Consortium". The state set up National Iranian Oil Co (NIOC) in 1951 to take over the nationalised upstream and downstream assets, with the consortium to become a "service contractor" undertaking E&P operations for NIOC's account against a service fee. There were to be no more concession agreements in Iran.

On Oct. 29, 1954, an accord was signed which confirmed the role of the consortium as service contractor and authorised the group to operate in a 250,000 sq km area in south-western Iran for a period of 25 years. By then, the consortium had been enlarged from eight to 14 companies and named Iranian Oil Participants Ltd (IOP). It was owned as follows: 40% BP, 14% Shell, 7% Exxon, 7% Gulf Oil, 7% Mobil (now part of ExxonMobil), 7% Standard Oil of California (now Chevron which in the 1980s bought most of Gulf Oil), 7% Texaco (now part of Chevron), 6% Compagnie Francaise des Petroles (now Total), and 5% Iricon Agency Ltd. Iricon grouped six US companies which held the remaining 5% as follows: 1/6 by each of American Independent Oil, Getty Oil and Charter Oil; 1/3 by Atlantic Richfield (Arco - now part of BP); and 1/12 by each of Continental Oil (Conoco) and Standard Oil of Ohio (now part of BP). IOP in 1954 set up two operating subsidiaries, one for E&P and the other for refining, with NIOC retaining full ownership of all fixed assets.

To accelerate exploration and raise oil output, NIOC in 1957 was authorised to have 50-50 JVs with foreign oil companies covering areas outside IOP's acreage, mainly in offshore blocks in the Persian Gulf. A total of 12 such JVs had been signed by 1971, plus a service contract with Elf (Sofiran - with Elf now part of Total) signed in 1966. Seven more service contracts were signed in the subsequent years.

Oil and gas operations later came under the Petroleum Act of Aug. 6, 1974, requiring that all E&P operations be controlled by NIOC and all "service contracts" be signed with NIOC. The 1954 Consortium Agreement was altered to conform with this act as well as with the so-called "OPEC requirements and Supplemental Agreements". In 1974, the IOP accord was replaced by a new agreement which the group had signed in May 1973. Natural gas was regulated by an "Act Concerning the Development of the Gas Industry" and provided for development under the control of NIOC's gas subsidiary NIGC.

The consortium and other foreign companies evacuated from Iran in late 1978, when the revolution against the Shah, Mohammad Reza Pahlavi, took a violent turn and the oilfields were abandoned. By Feb. 1979, just after the Shah was overthrown, Elf was operating the Sofiran E&P block under its service contract with NIOC. NIOC had four offshore JVs in the Gulf producing oil, of which it took control: Amoco in the Ipac JV (with Amoco now part of BP); Arco in the Lapco JV including Murphy, Sun and Union Oil; Agip in the Iminoco JV including Phillips and ONGC; and Agip in the Sirip JV.

These and other foreign firms sued the state for its action. Exploration stopped in 1979. In 1980 NIOC established the National Iranian Drilling Co. (NIDC) to begin exploration. NIDC acquired 27 drilling rigs abandoned by the foreign firms. But NIDC's operations and those of NIOC's other subsidiaries were limited to existing fields, where further damage was to be inflicted by Iraqi attacks in a war which began in Sept. 1980 and ended in Aug. 1988. During that period there was hardly any exploration and the war was devastating, with most of Iran's refineries and other installations attacked by Iraq. In 1987 Iran's offshore oil installations were attacked by the US navy and some important production platforms in the Persian Gulf were destroyed.

In March 1988, NIDC announced a major discovery when a well drilled near Asaluyeh, about 70 km south-east of the Kangan-Nar gas fields, struck gas at a depth of 2,750 metres. It was officially estimated to have a production potential of 14 MCM/d from an upper section and 12 MCM/d from a lower section. NIDC's exploration work accelerated after the Iran-Iraq ceasefire, in both onshore and offshore areas. It concentrated on frontier areas, including a structure connected to Iraq's giant Majnoon oilfield and extensions of Arab offshore fields in the Persian Gulf. Later it increased the number of rigs to more than 65. They included a jack-up rig for the Caspian supplied in early 1992 by Rauma-Repola of Finland which can drill to a depth of 8,000 metres in 80 metres of water.

The most important finds since the latest NIOC exploration round began in late 1988 are the following: (1) the Caspian offshore find, made in 1991 about 27 km north-west of Bandar Anzali port, where recoverable oil reserves are said to be 1 bn barrels, with 10 bn in place; (2) an extension of Iraq's Majnoon, found during Iran's occupation of that area in the 1980s and confirmed in 1992 after further drilling; (3) the Darkhovin, rated as a giant found in Aug. 1993 near the Khorramshahr oilfield in Khuzistan; (4) a Bushehr field found in Nov. 1993 and said to have a reserve of 1 bn barrels; (5) Azadegan, found in 1998 near Ahwaz and about 10 km from the Iraqi border, estimated to have 26 bn barrels of oil in place, of which 8 bn would be recoverable from the Abadan Plain Basin - first explored by BP before 1979; (6) Tabnak field of sweet gas found in April 2000 in Gavband north of Bushehr, with 400 BCM of recoverable gas and 240m barrels of light liquids - being developed along with two other sweet gas fields in the area, Varavi and Shanoul; (7) Homa 45 km north of Asaluyeh near Tabnak, Varavi and Shanoul, found in Aug. 2000 with 200 BCM of recoverable gas; (8) Changuleh, found in Aug. 2000 with over 1 bn barrels; (9) Zireh, found in Aug. 2000 in the southern Fars province with 24 BCM of gas; (10) Ghir-Dareh, found in Aug. 2000 in the same province with 5.34 bn barrels; (11) Ghareh-Dorgh, found in Aug. 2000 with 600 BCM of gas; (12) Dasht-e Abadan, a super-giant said to contain 26 bn barrels of oil in place in shallow waters off Abadan in the same Abadan Plain Basin, found in Jan. 2001; (13) Ramhormoz, found in Jan. 2001 in Khuzistan with 40 BCM of gas; (14) three fields found in July 2003 near Bushehr containing 38 bn barrels of heavy/sour oils: Ferdowsi (30.6 bn), Kuh-e Mound (6.63 bn) and Zagheh (1.3 bn); (15) several oil zones in Khuzistan in the Kushk and Hosseinieh fields with share reservoirs now called Yadavaran announced in early July 2004 with over 3 bn barrels recoverable for an eventual output of 300,000-400,000 b/d to involve Chinese and Indian firms, with interest shown by Shell, Total and Repsol; (16) Ramin near Ahwaz announced in early March 2005 with 855m barrels of recoverable oil; and (17) a non-associated gas field near Balal in the Gulf, with recoverable reserves of about 168 BCM.

The most important gas discovery in the Persian Gulf was South Pars, an extension of Qatar's North Field (as explained above). Under a $2.5m contract signed in June 2000, a study for a 25-year gas utilisation plan based on South Pars was made in 2001 by a partnership of NIOC affiliate Oil Industry Engineering and Construction (OIEC) and a nine-company consortium. ENI led the upstream study team, Gaz de France (GdF) headed the midstream section and BGI was in charge of the downstream. The others in this were BP, Shell, Total, Lasmo (now part of ENI), BHP and Petronas. But BGI withdrew from the group in Feb. 2001, one month before the study was presented to NIGC (see Part 2).