May 31, 2013 8:51 pm

Iran seeks Chinese proxies to further offshore drilling ambitions

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The National Iranian Oil Company (NIOC) is looking to tap deepwater oil reserves in the Caspian Sea and needs related equipment. Yet economic sanctions imposed by the United States, the European Union, and the UN Security Council due to concerns over Iran’s nuclear program prevent most top-tier Western manufacturers and operators from doing business with the country, forcing Iranian energy officials to develop alternate procurement channels.

“Because of the embargo, it is hard for us to get anything,” Maleck Mohammad Gity, head of the petrophysics department of the Khazar Exploration and Production Co. told XportReporter. Khazar is the NIOC subsidiary that is in charge of the company’s initiatives in the Caspian.

Khazar has identified eight fields at depths ranging from 500 to 700 meters, and is currently drilling a second exploratory well in a field that has extractable crude reserves exceeding 500 million barrels, said Saeed Rahmanloo, drilling manager. The company is using the Iran-Alborz semi-submersible platform that was designed by Sweden’s GVA Consultants before sanctions were levied by the EU and UN.

Gity and Rahmanloo came as part of a delegation of five Khazar officials to the Deepwater China Convention held last week in Shenzhen, a steamy, tropical megalopolis in southern China’s Guangdong province. Their purpose was clear: to find Chinese companies willing to sell Khazar deep sea drilling equipment purchased from Western vendors.

“We will never use Chinese technology,” scoffed Rahmanloo, dismissing Chinese products as vastly inferior to those produced by American manufacturers such as General Electric.

Khazar is particularly interested in obtaining blowout preventers, subsea wellheads, and other equipment from GE and one of its subsidiaries, Wellstream Holdings, Gity told this news service.

In September of 2009, GE signed a declaration with United Against Nuclear Iran, the US-based advocacy organization, pledging that it does and will not conduct any business with Iran.

While Khazar does not use Chinese-made drilling equipment, it cooperates with the China National Logging Corporation (CNLC), which provides well-bore services for petroleum extraction projects, Gity said. Khazar has also been working with Schlumberger, one of the last Western oilfield services firms currently operating in Iran.

However, in January, Schlumberger, which has principal offices in Houston, Paris, and the Hague, announced that it will exit the country by the end of this year, after having booked USD 418m in revenue in 2012 through oilfield services provided by “certain non-US subsidiaries” to the NIOC.

“Schlumberger intends to discontinue such activity in Iran in 2013 and is currently winding down its operations there,” the company stated in its annual report, adding that Schlumberger will leave once its ongoing contracts in the country expire.

The company has been investigated by the American government regarding sanctions violations, according to media reports.

On the lookout for new partners

With Schlumberger on the way out, Khazar is now looking for other partners to help it penetrate the seabed in the Caspian’s watery depths. Rahmanloo stated that one of his delegation’s goals for the trip to Shenzhen was to establish contacts at the China National Offshore Oil Corporation (CNOOC), the state-owned energy giant that has relied heavily on foreign equipment in its efforts to tap offshore oil and gas fields.

Liu Taiyuan, director of the subsea division of CNOOC’s Shenzhen branch, declined to comment on whether the company would do any business with Khazar, only noting that “we are open to international partnerships.”

A senior executive at Technip, the French procurement, engineering and construction firm specialized in the energy industry, said that given its status as one of China’s most important companies, CNOOC is unlikely to do a deal as shady as re-selling Khazar equipment bought from GE or other Western technology providers restricted by sanctions.

“But there are definitely other Chinese companies that would,” he said.

The fact is that most sizable companies in China are state-owned enterprises (SOEs) which have business connections with companies and institutions based in countries which are sanctioned by the US Treasury’s Office of Foreign Asset Control (OFAC), such as North Korea, Iran, Sudan, and Syria. Meanwhile, most small private companies in China are reliant on outsourcing orders from these large SOEs. US and western companies do not engage in trade with OFAC-sanctioned countries and, therefore, many such OFAC countries are monopolized and lucrative markets for Chinese-made goods. If Chinese companies want to import goods from the US, they are forced to give up their existing business in OFAC-sanctioned countries to become eligible. This obviously presents Chinese companies with a major commercial dilemma.

Khazar has been crafty about accessing contraband products. Rahmanloo claimed that the company recently used a third-party agency to ship a package of components from the US to Dubai by air freight, which were then transferred and transported to Iran.

The drilling manager is now looking into other ways to acquire needed equipment and materials. After Shenzhen, he will travel to Turkey and then Italy to set up deals.

Selling directly to Khazar would be unthinkable, multiple sources from international companies in the offshore energy sector told this news service.

“If I ever responded to a request from them, I would have the FBI knocking on my door,” said an executive at Koso Kent Introl, a UK-based, Japanese-owned manufacturer of valves used for subsea projects.

“They pay a good price for steel in Iran, but we can’t sell to them because we have assets in the US,” said a sales manager for ThyssenKrupp, the German steel producer that makes pipes, tubes, and other components used in offshore operations. ThyssenKrupp ceased doing business with Iran completely in 2010 in the wake of US and EU-imposed sanctions and in 2003 was forced to buy its own shares back from Iran at more than double the market price to avoid US sanctions.

When GVA Consultants won the contract to design the Iran-Alborz platform in 2001, the company acquired a 5% stake in the project, according to reports. GVA, formerly part of the UK’s BMT Group, was subsequently acquired by Halliburton, the American defense contractor.

While Halliburton announced in April of 2007 that it had ceased all of its Iranian operations, it divested Houston-based KBR Inc., which is now GVA’s parent company, that same year.

Gity, the Khazar official, described the current relationship with GVA as being a “joint venture.”

However this claim, made by an Iranian official eager to present his company and country in a favorable light, has not been verified. Senior representatives were unavailable when a call was made by this news service to GVA’s Goteburg, Sweden headquarters seeking comment on whether the company still holds a stake in the Iran-Alborz platform, or any other oil exploration activities in the Caspian Sea.

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