The Iran Project

Total outlines vetting terms for SP11 partnership

SHANA – This is moment of truth for Iranian companies. France’s energy major Total is legally bound to hire a local partner in the development of Phase 11 of South Pars gas field. The first post-sanctions project is providing Iranian firms with a golden opportunity to prove themselves.

Total sent representatives to Tehran workshop on September 13-14 to lay out terms and conditions for companies willing to join the South Pars project. The landmark $4.8bn contract was signed in July between National Iranian Oil Company (NIOC) and a Total-led consortium which also includes China’s CNPCI and Iran’s Petropars.

Technical and legal experts of Total said in the workshop that the French giant was determined to launch the project in 2018 or early 2019. That means that gas will be extracted from Phase 11 in 2020 or early 2021.

Subcontracts are needed to be signed with local companies. The terms and conditions of these subcontracts were discussed in the Tehran workshop, which was attended by representatives of Total, NIOC, Pars Oil and Gas Company as well as Iranian equipment manufacturers and service contractors.

Idea behind Workshop

The South Pars contract stipulates that at least 51% of equipment needed in the project must be provided by Iranian manufacturers and contractors. Therefore, Total must take this issue into consideration. But Iranian companies are required to comply with terms of international contracts. Since Iranian companies had no idea about the requirements, the Iranian Ministry of Petroleum suggested that Total send representatives to Tehran to explain its requirements, regulations and standards for Iranian manufacturers and vendors.

A Total delegate said the signature of the agreement showed the “continuity” of cooperation between Iran and Total, which had been present in Iran since the 1990s.

He said Total was satisfied with the Iran deal as it had been forced to leave Iran under international sanctions.

“This project is coming true and is a cause of great satisfaction,” he said. “This new contract is for 20 years, i.e. we will be working in Iran for at least 20 years. So we have to learn to live together.”

He expressed hope that the Phase 11 deal would provide a “great incentive” for international oil companies (IOCs) to step in and sign contracts with Iran.

He said that the SP11 deal would help “attract new foreign investment and trigger new projects” in Iran.

Qualified Companies

Total’s delegates laid out legal requirements for partnership, noting the qualification process in use by Total to find a partner for working in Iran was similar to processes applied by IOCs everywhere else.

They said international requirements and regulations need to be observed in any partnership for the South Pars gas project.

A Total legal expert highlighted “anti-corruption” regulations, saying it was an important element in the process of vetting Iranian companies.

Reza Khayamian, chairman of Board of Directors at the Society of Iranian Petroleum Industry Equipment Manufacturers (SIPIEM), said holding such workshop was of great help to Iranian manufacturers, as we got to know about Total’s criteria.

Rasoul Fallahnejad, SP11 project manager at POGC, said the workshop let Iranian companies prepare to bid for subcontracts.

“That helped them know the procedures for qualification,” he said, adding that their ambiguities were removed.

Khayamian said Iranian manufacturers need to improve their level and capability to the level required by Total.

“During my talks with a manager of Total, we were told that in case Iranian companies are placed on Total’s vendor list, they will be easily able to be placed on the vendor list of companies like [Royal Dutch] Shell,” he said.

In other words, Iranian companies deemed qualified by Total will be able to compete in tender bids that Total will hold in other countries.

Incentives and Penalties

Reza Dehqan, chief coordinator for upstream oil and gas contracts at the Office of NIOC Deputy CEO for Development and Engineering, said the project operator would be tasked with the management of reservoir and financing as set forth in the contract.

Dehqan said subcontractors would be chosen from among engineering, procurement and construction (EPC) firms, General Contractors and oil service companies.

He noted that transfer of technology to Iranian exploration and production (E&P) companies would be another advantage of upstream oil contracts.

He noted that Iranian companies would have the chance to be empowered for enhanced oil recovery (EOR) and improved oil recovery (IOR) projects at international level.

Dehqan said contractors whose proposals grant a higher share to Iranian manufacturers would be privileged.

To that end, he added, transfer of technology to the Iranian client, contractors, consultants and manufacturers and maximum participation of Iranian companies should be taken into consideration.

He warned that subcontractors who fail to fulfill their obligations regarding supply of commodities and services would be imposed with pecuniary penalties.

Khayamian said: “Some members of the Society enjoy potential to cooperate with Total, but some others do not meet the Total requirements. Therefore, we are trying to work out a mechanism to facilitate a more helpful and more active presence of Iranian manufacturers in the SP11 development project and other projects.”

He said one solution was to push Iranian companies to tie up, adding: “By consolidating manufacturing companies we will be empowered to meet the Total requirements in the development projects.”

Many Iranian contractors hope to win big shares in the subcontracts envisaged for the Phase 11 development such as offshore and onshore projects including pipe-laying, technical services, well completion and construction of jackups.

In case Iranian companies manage to provide the bulk of required equipment, the proposed prices will be affected. Of course, Iran’s Ministry of Petroleum will pay this balance amount to Total under the title of supporting domestic manufacturing.

He expressed hope that Iranian companies would bid for the subcontracts after having full knowledge of the terms and conditions set out by Total.

Iranian companies willing to become partner with Total would be required to fill out a questionnaire in order to provide the details of their activities for final decision-making on their work.

Total S.A. is French multinational integrated oil and gas company and one of the seven “Supermajor” oil companies in the world. Its businesses cover the entire oil and gas chain, from crude oil and natural gas exploration and production to power generation, transportation, refining, petroleum product marketing, and international crude oil and product trading.

Many Iranian firms attended the two-day workshop, but Fallahnejad noted that presence in the workshop would not create any privilege for the participants.

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