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Date: Wednesday, July 05, 2017
The contract details for development SP 11’s offshore facilities

The contract details for development SP 11’s offshore facilities

Phase 11 development contract is the first one that was signed today in the framework of the general conditions, structures, and oil contract patterns between National Iranian Oil Company (NIOC), and a consortium consisting of Total Company, Chinese National Petroleum Company – international (CNPCI), and Petropars.

Negotiations with Total provide the heads of agreement (HOA) began at the end of April 2016 for development and operation of SP11 and the heads of agreement between NIOC and the consortium of Total, CNPCI, and Petropars have been signed the contract with 50.1%, 30%, 19.9% share respectively. Total is the lead of this consortium.

SP11 aims to produce a maximum amount of 2 billion cubic feet of sour gas per day from the offshore reservoir and delivered to onshore refinery.

This project is estimated, with its implementation, during the 20 years of the contract, to produce 335 billion cubic meter of rich and sour gas from which can be produced 290 million barrels of gas condensate, 14 million tons of liquefied gas, 12 million tons of ethane, and 2 million tons of sulfur as well as 315 cubic meters of sweet gas.

Assuming that about $50 for each barrel of crude oil and without taking sweet gas into account, other products are worth more than $23 billion. Light sweet gas is worth $31 billion assuming 10 cent per one cubic meter.  Overally, based on current prices of energy indexes in international markets, this project’s products are worth $54 billion during the contract. It should be noted that the government revenues from the implementation of this project are not exclusive to this contract and is estimated that the field’s projects will be worth more than $30 billion at the end of the contract.

All environmental standards have been taken into account during the implementation and operation of the project. It is estimated that the amount of about 21 million tons of carbon dioxide and 1380 tons of carbon monoxide resulted from the combustion of fossil fuel will be annually reduced by using the project’s gas and replacing with liquid fuel. Moreover, this plan has two major parts that the first part of which is drilling 30 wells (2 developmental- descriptive wells and 28 developmental wells), two platforms each with 15 wells to produce 2 billion cubic feet of gas per day and related facilities along with 32-inch series of pipelines totaling 270 kilometers long. The second phase of plan includes compression platforms to maintain production from the field which is complex and unique technology in the region that has great economic significance. Thus it is expected that almost half of the products in this phase to be achieved as a result of the performance of this technology.

The key part of this project is the operation of the second phase which will be held for the first time in the country and Middle East. It entails one or two pressure booster platforms with the capacity of 2 billion cubic standard feet per day to boost the fluid pressure produced from the platforms of phase 11 as the pressure drops in the coming years.

These compression platforms weighs about 20 thousands tons. As the production is reduced, it will be necessary to implement the same plan and construct the compression platforms for other phases. The implementation of this phase in the country as well as the acquisition of technical knowledge on the construction of these platforms is an important achievement for the future development of South Pars field.

According to time scheduled, the first production from the field is starting 40 months after signing the contract. It has been considered 36 months for study and preparation and 60 months for constructional platforms regarding the complexity utilized in construction of pressure equipment in the phase 2.

The term of the contract is 20 years since signing. Operation of constructed facilities is under the supervision of National Iranian Oil Company (NIOC).

Direct investment in this plan costs $4879 million. In this contract, the second party (Total and others) is required to provide all necessary financial resources (both direct and indirect) for the implementation of the project and NIOC will not pay any amount to the second party before the production starts. The contractor is repayed from the place of production.

Comparing to the previous contracts, the repayment of direct investment is 10 years in this contract which is considered an important achievement. The amount of annual wage payment to contractor depends on the amount of production from the field. The payment of operation and indirect investment costs will be current and based on real costs. All costs are based on annual work programs and budgets. In the field of technology transfer, construction, and in accordance with the contractor’s obligations, it is worth mentioning that implementation of this project is accompanied by domestic construction. Because, in addition to having an Iranian partner (petropars) in executive organization of the contracting party, it is required to implement the law “maximizing the use of production and service capabilities in meeting the needs of the country and strengthening them in exports”. The contractor is also required to carry out joint research and development projects in upgrading technologies with Iranian research centers.

The contracting party is responsible for technology transfer at four levels:

A.     Improvement of domestic venture’s ability (Petropars). The principles and modalities will be specified in the joint venture agreement (JVA) with the approval of NIOC. Members of JVA, among themselves, are required to clearly define the solutions needed to improve capacities and capabilities of the Iranian side in engineering, reservoir management, gas mega-projects management, asset management and financing. NIOC will have full control over the implementation of agreement among the members of JVA.

B.     Development of research and academic capacities of the oil extraction research institute concludes cooperation contracts under the supervision of NIOC to conduct professional training courses, implement joint research projects, and develop research laboratories.

C.     Utilize the maximum power of consultants, constructors, contractors and Iranian companies.

D.     Improvement of technological and managerial capabilities of national Iranian oil company.

The most important cases of transferring technology to the subcontractors are as follows:

In the case of using the maximum capacity of contractors and Iranian companies, the consortium is required to implement the law “maximizing the use of production and service capability in meeting the needs of the country and strengthening them in export". In addition, the JVA is responsible for the following:

All contractors including OSC, EPC, GC which participate in the tenders are required to use the maximum percentage of Iranian goods and services as the base that the amount of which have been specified for each part in one of the contract appendix.

To choose the winners of the tenders, the price of ventures will be aligned with the basis of their Iranian partner share and the usage of Iranian goods and services. 

If the minimum amount of goods and services purchased by contractors from inside the country (Iran) is not fulfilled, they will be penalized.

To construct compression platforms, they should assess the capabilities and capacities of 4 yards of platform in the country at the time of conceptual studies and specify the needs of these yards to upgrade and provide them with the possibility of building a compression station. After conceptual studies, they should recommend in necessary cases to promote these yards by continuous communication with the four Iranian yards. (If the platform is one) Its weigh is 20 thousands of tons. The largest marine structure built in Iran has been 7000 tons. All phases in south pars need this technology to prevent the decline of production and Iran does not have it currently. Therefore; by this platform for the first time in Iran, this technology will be available for Iranian companies which is essential for future development of south pars.

The legal procedures for the operation of phase 11 of development plan are as follows:

1.      The contract was signed pursuant to Article 11 on the duties and power of the petroleum ministry approved by the Islamic consultative assembly on January 19, 2010, in accordance with the national Iranian oil company.

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