Iran Signs $300M Contract on Azadegan--Ministry

TEHRAN (Dow Jones)

Iran has taken the development of the onshore Azadegan oil field one step further by signing a $300 million drilling contract to demonstrate that it can do the job on its own, the Oil Ministry's information network reported Tuesday.

The contract was signed Monday evening between Petroiran Development Co. and the National Iranian Drilling Co., or NIDC, both of which are affiliated to the state-owned National Iranian Oil Co., or NIOC, the ministry said.

Under the contract, the NIDC will have to drill 37 oil wells on the field over a 40-month period beginning around the middle of 2007.

The Azadegan oil field is situated in the southwestern Iranian province of Khuzestan, near the border with Iraq. The field, which has estimated reserves of 26 billions barrels of oil, consists of two parts, and the NIDC will drill its wells in the southern part.

The $300 million contract will cover the cost of drilling the 37 wells and related services, excluding the cost of capital goods.

The deal comes on the heels of a $95 million contract signed early this month between Petroiran and the local Jahan Pars contractor on the construction of roads and other essential facilities.

The managing director of the NIOC, Gholam-Hussein Nozari, before whom the $300 contract was signed, said Iran took the first concrete step on the development of the field by signing the deal with Jahan Pars when there were serious doubts about Iran's domestic technical capability to handle a project of this magnitude.

"By transferring this part of the job to the National Iranian Drilling Co., at a cost less than that of a foreign contractor, these doubts have been cast away," Nozari said.

Nozari referred to the failed negotiation with Japan over the development of Azadegan as "a bitter experience" which shouldn't be repeated, the semi-official ISNA news agency reported.

The NIOC began to look for new partners to develop Azadegan after Japan's Inpex Corp. lost the right by ignoring repeated deadlines for starting work. Inpex's stake in the project was subsequently lowered from 75% to a nominal 10%.

There were reports earlier this week that NIOC is negotiating with the Russian oil company OAO Lukoil to give it a role in the production of oil from the field. Lukoil wasn't immediately available to comment Wednesday.

Copyright (c) 2006 Dow Jones & Company, Inc.

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