Shell returns to Iran with deal to assess oil and gas fields

TEHRAN (Bloomberg) -- Royal Dutch Shell signed an agreement to assess three of Iran’s largest oil and gas fields as OPEC’s third-biggest producer looks to boost output with the help of international companies.

Shell signed a memorandum of understanding to evaluate Azadegan and Yadavaran oil fields near the Iraqi border, and the Kish gas deposit in the Persian Gulf, Gholam-Reza Manouchehri, deputy director of the National Iranian Oil Co., said at a signing ceremony in Tehran on Wednesday.

“We’re happy to resume working in Iran,” Hans Nijkamp, Shell’s V.P. for Iran, said at the ceremony. “We are hoping to have a fruitful cooperation with NIOC on these fields.”

International oil companies have re-established contact with Iran since sanctions were lifted in January. However, no final contracts to develop oil fields have yet been signed. Total reached a non-binding $4.8-billion agreement to develop a natural gas field last month.

The fields are some of Iran’s most attractive, Homayoun Falakshahi, an industry analyst at Wood Mackenzie, said by phone from London. “If you had a look at the list of the three or four biggest fields to be awarded, you have three of them here.”

Earlier Wednesday, an Oil Ministry official said Shell and Total would sign deals to develop the three fields, in what would have been a major step forward for Iran’s oil industry. The official later said talks were still ongoing with Total for other fields, but no agreement was expected imminently. Total declined to comment.

Iran hopes Shell will invest in Azadegan and Yadavaran fields to boost recovery rates, Manouchehri said. Iran aims to produce 4.28 MMbpd by 2020, from 3.67 MMbpd now, according to Oil Ministry comments and data compiled by Bloomberg. It is prioritizing the development of shared fields on its borders, where its output has generally fallen behind that of its neighbors due to a lack of foreign investors.

Azadegan field crosses the border into Iraq, where the deposit is called Majnoon. Iran’s output from the North Azadegan and South Azadegan developments is about 120,000 bopd, according to Wood Mackenzie. Majnoon, operated by Shell, produces more than 210,000 bpd, according to Iraq’s Oil Ministry.

Shell’s experience in Majnoon will “for sure” help it develop Azadegan and Yadavaran if it decides to do so, Falakshahi said. “The operating environment is quite similar.”