Iran has the world’s fourth largest proven oil reserves, but international sanctions are causing production rates to decline as access to foreign investment and technology is being kept out of Tehran’s reach.

The country, a member of the Organization of the Petroleum Exporting Countries (OPEC), saw a significant dip in oil exports in 2012 as sanctions by the US and European Union (EU) were tightened. That year, Iran ranked fifth in crude oil and condensate exports, compared to third in 2010. This downward trend is likely to continue as long as sanctions are in place.

“These sanctions have prompted a number of cancellations of upstream projects and [have] resulted in declining oil production capacity,” said the US Energy Information Administration (EIA). “Sanctions have also impeded the import of refined products, effectively reshaping the midstream sector and forcing Iran to become self-sufficient.”

Oil field potential

Iran has an estimated 154 Bbbl of proven oil reserves, which is 9% of the world’s total reserves and more than 12% of OPEC reserves.

More than 50% of Iran’s onshore oil reserves are held in five fields, with the largest ones being Marun (22 Bbbl), Ahwaz (18 Bbbl), and Aghajari (17 Bbbl). Of those onshore reserves, more than 80% are found in the southwestern Khuzestan Basin near the Iraqi border. Iran’s crude oil is generally medium in sulphur content and in the 28° to 35° API gravity range.

According to FACTS Global Energy (FGE), Iran also has reserves in the Caspian Sea totaling around 100 Mbbl.

But, the country faces continued production capacity depletion, as its fields have relatively high natural decline rates (8% to 13%), coupled with an already low recovery rate of around 20% to 30%.

Iran’s five-year development plan for 2010-2015 strives to increase crude oil production capacity to 5 MMb/d in 2015. It also identifies a need for US $35 billion a year in upstream investment for the oil and gas sectors and suggests the majority of these funds come from foreign investors under buyback contracts.

However, given the previous five-year plan for 2005-2010 saw total upstream investment of only about $10 billion, goals of the latest plan could be difficult to achieve, even without sanctions.

E&P activity

In 2012, Iran produced approximately 3.5 MMb/d of liquids total, of which around 3 MMb/d was crude oil. The total production level that year was 17% lower than the production level of 4.2 MMb/d in 2011, most of the decline being attributed to sanctions.

Condensate production was around 650,000 b/d in 2011, according to the Arab Oil and Gas Directory. Of that amount, 440,000 b/d was marketed and 210,000 b/d was mixed with crude oil.

Iran has 34 producing fields (22 onshore and 12 offshore), with onshore fields comprising more than 71% of total reserves. Currently, Iran’s largest producing field is the onshore Ahwaz-Asmari field, followed by the Marun and Gachsaran fields, all of which are located in Khuzestan province.

Iran’s reserves are not confined to the southwest and offshore Persian Gulf, creating potential for further discoveries. Iran has oil reserves in the Caspian Sea, but exploration and development of these reserves have been at a standstill due to territorial disputes with neighbors Azerbaijan and Turkmenistan.

Iran also shares onshore and offshore fields with its neighboring Iraq, Qatar, Kuwait, and Saudi Arabia.

New projects

Nearly every western company has stopped its activities in Iran, although several Chinese and Russian players have remained in the sector despite the sanctions. A few projects are progressing.

One example is the Azadegan field, which was discovered in 1999 and holds 26 Bbbl of proven crude reserves but has complex geology that makes production difficult. The field is separated into two parts: North Azadegan and South Azadegan.

State-owned China National Petroleum Corp. (CNPC) is developing North Azadegan in two phases, with total production estimated at 150,000 b/d (75,000 b/d for each phase). Latest estimates by FGE indicate that Phase 1 will be onstream by 2016.

South Azadegan was originally operated by National Iranian Oil Co. (25%) and Japan’s Inpex (75%) until sanctions forced the latter to stop its activity. Production averaged 50,000 b/d in 2012, although peak production is expected to reach around 260,000 b/d over two phases. Full production is not expected before 2020.

The Yadavaran field is another promising oil development project. The field has 3.2 Bbbl of recoverable reserves.

State-owned China Petroleum & Chemical Corp. (Sinopec) signed a buyback contract at the end of 2007 to develop Yadavaran in two phases, with total output forecast to reach 185,000 b/d. Phase 1 is expected onstream in 2016.

Another field beset by sanction-led delays is the Azar field. Even though drilling operations started in October 2012, production is considered unlikely to go onstream until after 2020.