India Cos Unlikely to Produce Oil from Iran Block

NEW DELHI (Dow Jones Newswires), Sept. 15, 2009

India's state-run oil companies will likely not produce any oil from Iran's Farsi block due to the low value of high-sulfur crude and low returns on investment, but natural gas resources could be developed, a senior executive with one of the companies told reporters late Monday.

"We may not produce oil due to high sulfur content in crude but we will explore ways of exploiting natural gas from the block," said the executive, who declined to be named.

ONGC Videsh Ltd., the investment arm of Oil and Natural Gas Corp., and Indian Oil Corp. each own a 40% stake in the 3,500-square-kilometer Farsi offshore block that was awarded to the consortium in 2002. Oil India Ltd. owns the remaining 20%.

In a red herring prospectus filed before India's regulatory authorities in connection with its just concluded initial public offering Oil India had said that OVL had held the oil discovery to be commercial inviable in April 2009.

"There is also the issue of the Iran government giving us 15% returns on investment rather than permission to evacuate gas. There are many issues on which discussions are on," he said.

India's state-run oil companies have proposed to invest about $5 billion for gas exploration in the Farsi block.

"We submitted a master development plan to the National Iranian Oil Company about six months ago and are still in discussions with them."

In September 2008, Iran approved commercial development of the discovery, now named Farzad gas field.

The field may hold reserves of up to 21.68 trillion cubic feet of gas, of which recoverable reserves may be 12.8 trillion cubic feet.  

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