LONDON, Jul 26, 2005 (Dow Jones Commodities News via Comtex)
Norsk Hydro ASA (NHY) may sign a contract with the National Iranian Oil Co. (NIO.YY) in the second half of this year to develop the Anaran oil discovery, Chief Executive Eivind Reiten told Dow Jones Newswires Tuesday.
Earlier in the day, the Norwegian company confirmed in its second quarter earnings report that it had made an "exciting and promising find" at the Anaran block. Estimated reserves vary widely between one billion and 2.6 billion barrels of oil equivalents, but Reiten said it was too early to give an exact figure.
As previously reported by Dow Jones in May, the discovery raised the prospect of a development contract because Hydro had rights, along with its third partner Lukoil (LKOH.RS), to negotiate a buy-back contract. Unlike most deals, where developing companies win an equity stake in the field, a buy-back contract means companies like Hydro finance development and the owner of the field, NIOC, gives an agreed share of the returns back to the developers.
Analysts said they were somewhat skeptical of a buy-back deal, but Reiten assured them at an earnings conference that he believed there were enough volumes in the field to make it profitable.
"The flow tests are so promising from that single (Anaran) well that we are now in the phase of doing commerciality studies," Reiten said.
The CEO said Hydro will start drilling on a nearby prospect next month, "in order to continue the exploration program in this very exciting area."
Analysts say Norsk Hydro is showing a positive increase in production in the coming three to four years. However, the company's reserve replacement ratio -- vital to the future of oil companies -- has been disconcerting, with several dry wells and failed acquisition bids.
Reiten also said that following a successful bid on the Khorramabad block close to Anaran, he expected the company to sign an exploration and development contract for the Khorramabad field this year too. He added, the first well wouldn't likely be drilled before 2007.
"All in all," Reiten said, "(The Anaran find) is giving us a solid position in a rich area."
The company is also bidding on the massive Yadavaran project. Copyright (c) 2005 Dow Jones & Company, Inc.
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