Will Total Have Ownership Share in the Azadegan Oil Field?

The announcement of the imminent signing of a (confidential) contract for the development and production of the Azadegan oil field by Iran's Ministry of Oil with the French company Total comes at a time when the conditions for transferring the exploitation rights of this very large field, financial issues, and legal commitments related to the implementation of the project, as well as the manner of participation of Iran and Iranian companies in it, remain ambiguous. The Azadegan oil field, discovered two years before the 1979 revolution and introduced in 1997, now has a newly discovered oil layer equivalent to 2 billion barrels of crude oil, with a total in-place reserve of 35 billion barrels, making it the largest oil field in Iran. The importance of the Azadegan oil field can be compared to that of the South Pars gas field. A common feature of these two oil and gas fields is their ownership by a neighboring country, as the Azadegan oil is shared between Iran and Iraq (one of the five shared oil fields in the Karun area), and the South Pars gas is divided with Qatar. The Azadegan oil field is the third largest oil field in the world (after Saudi Arabia's Ghawar field and Kuwait's Burgan field), and its in-place reserves alone exceed 50% of Russia's total known oil reserves. With the use of advanced technology, extracting up to 10 billion barrels of oil from this field is not out of the question, whereas currently, Iran's internal resources only mention the possibility of exploiting up to 5 billion barrels of oil from this field. Iraq is currently producing about 400,000 barrels of oil from this shared field (the Majnoon field, where Shell is active), while Iran's production from the mentioned field ranges between 25,000 and a maximum of 35,000 barrels per day. Due to the enormous reserves of the Azadegan field, Iranian oil officials, especially at the end of Hashemi Rafsanjani's presidency and during Khatami's administration, believed that the exploitation of this field was only suitable for large American oil companies like ExxonMobil or Chevron. The signing of an oil contract between Hashemi's government and the American company ConocoPhillips was the first step for the return of American oil companies to Iran after the revolution, which was not realized due to the implementation of the ILSA law during Bill Clinton's administration. Given the gigantic dimensions of the Azadegan oil field, optimal exploitation requires massive investment, advanced technology, and a comprehensive development and production plan. Therefore, for years, Iranian oil officials during Khatami's government also awaited the entry of American companies. As relations between Iran and the U.S. became more strained, Khatami's government turned away from the U.S. for the development and exploitation of the Azadegan field and reached an agreement with the Japanese company Inpex, receiving over $2 billion for the transfer of exploitation rights. The Japanese, due to Iran's sanctions, refrained from executing the plan despite waiving the amount of the upfront royalty payment, and Iran subsequently turned to the China National Petroleum Corporation, signing a buyback contract worth $2.2 billion for the development of Azadegan in 2010. The Chinese contractor refused to execute the development plan for the Azadegan field, and the Iranian Ministry of Oil was forced to remove the Chinese and directly engage in drilling and producing oil in the mentioned field, albeit at a low and incomplete capacity. Iran lost a golden opportunity over a decade from the fall of Saddam's regime in 2003 until the reactivation of major oil companies in Iraq in 2013, having the chance to surpass a neighboring country in the exploitation of shared oil and gas fields for the first time, but this golden opportunity was effectively lost due to involvement in tensions arising from pursuing nuclear programs and incurring billions of dollars in losses. The Iranian Ministry of Oil, following eight disastrous years of Ahmadinejad's two administrations, has also been unsuccessful in managing production and exploitation of Iran's oil fields during nearly three years of Rouhani's government, particularly falling short of its declared goals in developing shared oil and gas fields with neighboring countries. The global sanctions and the resulting forced reduction in Iran's oil export capacity somewhat concealed the dimensions of the management weaknesses in oil production and exploitation. With the groundwork for a nuclear agreement and the gradual lifting of sanctions being established in the last days of the previous calendar year, the Iranian Ministry of Oil introduced the topic of revising Iran's oil contracts and moving beyond the buyback contracts that had been under study since Bijan Zanganeh was appointed as Minister. Zanganeh's goal in revising the buyback contracts was to bring back major oil companies like Norway's Statoil, Royal Dutch Shell, France's Total, Italy's Eni, as well as smaller Spanish and Greek companies to Iran. However, the return of these companies to Iran hinged on resolving the crucial question of how to encourage them to make large investments in Iran amid a situation of oversupply in the oil market and low prices. Zanganeh intended to encourage international oil companies to enter Iran by introducing the framework of Iran's new oil contracts at a special oil conference in London, but for unspecified reasons, this conference did not take place. Instead, the Ministry of Oil introduced and outlined the general framework of the new oil contracts, which apparently signifies a departure from the buyback contracts, in Tehran on December 29 and 30 of this year. Currently, comprehensive information regarding Iran's new oil contracts is not available, but the framework of the contracts, based on a government resolution in this regard, indicates the formation of joint Iranian and foreign subsidiary companies after signing the main exploration contract with the parent foreign company to fulfill the project commitments. Among the unclear points in the new contracts are the manner of foreign companies' participation in production, foreign companies' ownership share of the exploited field, the role of Iranian companies in the three subsidiary sections of the contracts, how to calculate the costs of project implementation, and the level of financial participation of Iran and Iranian companies in the project implementation. Currently, a contract for the sale of oil for the delivery of 160,000 barrels per day has been signed with the French oil company Total, and the exploitation of the southern part of the well-known Azadegan field is also set to be assigned to this company. A noteworthy point is that Iran has recently signed two memorandums of understanding worth $25 billion for the purchase of passenger planes with France and Italy, which seems to suggest that the recent oil sale contracts with these two countries effectively complement the aircraft purchase agreements and serve as a guarantee for the payment and funding of the purchases through the sale of crude oil to them. Another point is that in signing the contract for the development and exploitation of the massive Azadegan oil field, it appears that the principle has been forgotten that Iran's new oil contracts were supposed to be applied only to the exploration and exploitation of undeveloped fields, whereas Azadegan was discovered about 40 years ago and has been under incomplete exploitation for over a decade, and previously, Iran received $2 billion for the transfer of production rights from Japan.