Despite New Iran Contracts, Analysts Doubt The Country Will Reach 4 Million BPD Output Anytime Soon

Wednesday October 5, 2016

New contracts signed by Iran will help boost its total output to about 4 million barrels per day (bpd) and better rewarding investment in crude and natural gas production – which has long been viewed as crucial to increasing its long-term standing on the international market.

However, speculation abounds that the Islamic republic is already at the threshold of its production capabilities and, given that investment is lagging, may have to live with an output of at least 300,000 bpd less than intended - at least for the time being - according to some sources.

Bijan Namdar Zanganeh, Iran's oil minister, said the contract signed Tuesday between National Iranian Oil Co. (NIOC) and Persia Oil & Gas Industry Development Co. and reportedly worth $2.2 billion will increase output at the Yaran, Koupal, and Maroon fields near the Iraqi border; the contract establishes the framework for a final deal to be signed in five to six months.

Although details weren't forthcoming, a second contract designed to better reward investment will be signed with a local company on Wednesday, according to Tasnim news agency.

The signings come as sources disclosed to Reuters that Iran's total crude oil and condensate sales likely reached 2.8 million bpd last month, which nearly matches a 2011 peak in shipments prior to the country being hit by economic sanctions.

Iran sold 2.2 million bpd of crude in September, a slightly higher figure than that of August, as well as 600,000 bpd of condensate - up from about 350,000 bpd in August (and including about 100,000 bpd shipped from storage).

Mohsen Ghamsari, international affairs director for NIOC, says Iran aims to increase exports to 2.35 million bpd in coming months.

However, in terms of production, the country still faces an uphill battle in attracting investors (the contracts signed this week may take years to yield results), meaning its goal of 4 million bpd output - which will supposedly prompt Iranian policy makers to agree to a cap - may be much farther off than hoped for.

Jaafar Altaie, managing director at Manaar Energy Group, reiterated the argument that Iran's aging fields need foreign money and technology to push production capacity much beyond 3.8 million bpd.

Moreover, Fereidun Fesharaki, chairman of FGE, thinks Iran can't sustain a 3.8 million bpd output because oilfield decline rates are about 400,000 bpd yearly: "Iran cannot produce much more than the present, so around 3.7 million bpd may be the max."

Contradicting all this are reports from Russian media quoting NIOC Managing Director Ali Kardor as saying the country has already hit the 4 million bpd mark, and that "oil production capacity should reach 5.2 or 5.7 million bpd."

Earlier this week, Iran caused oil prices to jump over 1 percent by urging Organization of the Petroleum Exporting Countries members and non-member countries to go along with the agreement reached in Algeria to cut production.