the impact of iran’s return on global
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See Disclosure Appendix of this report for important Disclosures and Analyst Certifications
The Impact of Iran’s Return On Global
Markets
Oswald Clint, Ph.D., ACA • Senior Analyst • +44-207-170-5089 • oswald.clint@bernstein.com
Teng Ben, CFA • Associate • +44-207-170-0589 • teng.ben@bernstein.com
May 2016
Will It Change The Path Of Oil Market Rebalancing?
EUROPEAN OIL & GAS | 2
Agenda
Iran Oil Production History and Production Overview
Iran Oil & Gas Production History
Reserves and Production Overview
The Return of Iranian Crude to the Market
Output Recovery So Far
Recent Surge of Crude Exports
Future Growth Options for Iran
Issues With a Quick Rebound of Iranian Production
Future Growth Options
The Path to Oil Market Rebalancing
Conclusion
Appendix
EUROPEAN OIL & GAS | 3
Agenda
Iran Oil Production History and Production Overview
Iran Oil & Gas Production History
Reserves and Production Overview
The Return of Iranian Crude to the Market
Output Recovery So Far
Recent Surge of Crude Exports
Future Growth Options for Iran
Issues With a Quick Rebound of Iranian Production
Future Growth Options
The Path to Oil Market Rebalancing
Conclusion
Appendix
EUROPEAN OIL & GAS | 4
History of Oil Production in Iran: Saudis Catch Up to Iran Even After
a 28yr Lag in Oil Development
Source: BP Stats Review and Bernstein analysis
0
100
200
300
400
500
600
700
1914 1918 1939 1945 1950
kb
pd
Iran Saudi Arabia Iraq Bahrain Kuwait Qatar
EUROPEAN OIL & GAS | 5
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
kbpd
Iran Oil Production
Legacy Non-Legacy
Legacy and Associated Fields (pre-1950 production start) Still
Provide a Sizable Amount of Oil Production
Source: Wood Mackenzie, IEA and Bernstein analysis
Masjed-i-Suleiman Haft Kel Gachsaran Agha Jari
-200
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105
kbpd
Produced Years
Iran Oil Production & Produced Years
EUROPEAN OIL & GAS | 6
Production Decline Has Been Most Evident Across “Medium Quality”
Oil Producing Fields
Source: Wood Mackenzie, IEA and Bernstein analysis
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
kbpd
Heavy oil Medium oil Light oil Condensate
EUROPEAN OIL & GAS | 7
Major Fields of Iran
Source: Wood Mackenzie and Bernstein analysis
EUROPEAN OIL & GAS | 8
Ahwaz, Marun, Gachsaran Combined Contributes to >40% of Iran
Initial Reserves, and 1/3 of Oil Production
Field Rem Liquids
Reserves (mln
BO)
Production
(mln bopd)
R/P
Life
(Years)
Marun Fields 2,072 0.4 14
Gachsaran 3,044 0.3 26
Ahwaz 4,670 0.3 45
IOOC Fields+ 2,005 0.3 21
Karanj and Parsi 1,660 0.2 20
Pazanan and Rag-e-Sefid 1,455 0.2 26
Agha Jari 922 0.1 19
Ahwaz Area Fields 714 0.1 15
South Pars 6-8 1,010 0.1 22
West Zagros Fields 689 0.1 16
South Pars 4 & 5 (NIOC) 599 0.1 15
South Pars 9 & 10 895 0.1 23
Masjid-e-Suleiman Fields 695 0.1 18
South Pars 2 & 3 (NIOC) 418 0.1 12
Gachsaran Operated Fields 1,295 0.1 45
Doroud (NIOC) 602 0.1 22
Bibi Hakimeh 421 0.1 20
Salman 516 0.1 25
South Zagros Fields 385 0.1 19
Darkhovin (NIOC) 360 0.0 20
South Pars 1 (NIOC) 363 0.0 21
South Pars 15 & 16 1,017 0.0 64
South Pars 17 & 18 809 0.0 54
Parsian Gas 282 0.0 20
Azadegan South (NIOC) 460 0.0 38
South Pars 12 (BB) 76 0.0 7
Yadavaran (NIOC) 420 0.0 61
Azadegan North (NIOC) 314 0.0 46
Soroosh-Nowruz (NIOC) 386 0.0 90
Yadavaran (BB) 25 0.0 8
Azadegan North (BB) 24 0.0 10
Masjid-e-Suleiman (NIOC) 55 0.0 37
Masjid-e-Suleiman (BB) 0 0.0 2
Sarajeh 0 0.0 1
South Pars 12 (NIOC) 831 - nm
Jufeyr 148 - nm
South Pars (Oil Layer) 94 - nm
Azar and Changuleh 56 - nm
Total 29,787 3.3 25.1
Field Initial Reserves Oil
(mmbbl)
% of Total
Ahwaz 15,539 17%
Marun Fields 14,432 16%
Gachsaran 13,020 14%
Agha Jari 8,572 9%
Karanj and Parsi 6,129 7%
IOOC Fields+ 5,427 6%
Pazanan and Rag-e-Sefid 4,747 5%
Bibi Hakimeh 3,306 4%
Masjid-e-Suleiman Fields 2,294 2%
Gachsaran Operated Fields 2,175 2%
Doroud (NIOC) 1,778 2%
Ahwaz Area Fields 1,668 2%
Salman 1,330 1%
West Zagros Fields 1,288 1%
South Pars 6-8 1,286 1%
South Pars 9 & 10 1,068 1%
South Pars 15 & 16 1,017 1%
South Pars 4 & 5 (NIOC) 923 1%
South Pars 12 (NIOC) 831 1%
South Pars 2 & 3 (NIOC) 810 1%
South Pars 17 & 18 809 1%
South Zagros Fields 675 1%
Soroosh-Nowruz (NIOC) 607 1%
Azadegan South (NIOC) 519 1%
Darkhovin (NIOC) 516 1%
South Pars 1 (NIOC) 490 1%
Yadavaran (NIOC) 432 0%
Parsian Gas 399 0%
Azadegan North (NIOC) 323 0%
Jufeyr 151 0%
South Pars (Oil Layer) 94 0%
South Pars 12 (BB) 82 0%
Masjid-e-Suleiman (NIOC) 60 0%
Total Initial Reserve 92,796
Source: Wood Mackenzie and Bernstein analysis
EUROPEAN OIL & GAS | 9
Iran’s Liquids Production Levels Haven’t Recovered Since US
Sanctions Post 1979
Source: BP Stats Review and Bernstein analysis
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Pro
ductio
n (
Mbpd)
OPEC Production Ex Saudi (1984-2015)
Iraq Iran Kuwait UAE Nigeria Venezuela Qatar Indonesia Libya Algeria Angola
EUROPEAN OIL & GAS | 10
Gas Production Has Done Better Since Start of the Supergiant South
Pars Field
Source: BP Stats Review and Bernstein analysis
0
2
4
6
8
10
12
14
16
18
20
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Bcfd
Iran Qatar
EUROPEAN OIL & GAS | 11
Agenda
Iran Oil Production History and Production Overview
Iran Oil & Gas Production History
Reserves and Production Overview
The Return of Iranian Crude to the Market
Output Recovery So Far
Recent Surge of Crude Exports
Future Growth Options for Iran
Issues With a Quick Rebound of Iranian Production
Future Growth Options
The Path to Oil Market Rebalancing
Conclusion
Appendix
EUROPEAN OIL & GAS | 12
Iranian Oil Production is Now Back to the Pre-sanctions Level
Source: IEA and Bernstein analysis
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Dec-0
1
May-0
2
Oct-
02
Mar-
03
Au
g-0
3
Jan
-04
Jun
-04
Nov-0
4
Ap
r-05
Se
p-0
5
Feb-0
6
Jul-0
6
Dec-0
6
May-0
7
Oct-
07
Mar-
08
Au
g-0
8
Jan
-09
Jun
-09
Nov-0
9
Ap
r-10
Se
p-1
0
Feb-1
1
Jul-1
1
Dec-1
1
May-1
2
Oct-
12
Mar-
13
Au
g-1
3
Jan
-14
Jun
-14
Nov-1
4
Ap
r-15
Se
p-1
5
Feb-1
6
Mbpd
Monthly Oil Production
Saudi Arabia Iran Iraq
April 16, Iranian crude production averaged 3.56Mbpd, or the pre-sanctioned level
EUROPEAN OIL & GAS | 13
Iran Exports to Asia and Turkey
Source: Bloomberg and Bernstein analysis
0
500
1,000
1,500
2,000
2,500
3,000
01/1
0/2
008
01/0
1/2
009
01/0
4/2
009
01/0
7/2
009
01/1
0/2
009
01/0
1/2
010
01/0
4/2
010
01/0
7/2
010
01/1
0/2
010
01/0
1/2
011
01/0
4/2
011
01/0
7/2
011
01/1
0/2
011
01/0
1/2
012
01/0
4/2
012
01/0
7/2
012
01/1
0/2
012
01/0
1/2
013
01/0
4/2
013
01/0
7/2
013
01/1
0/2
013
01/0
1/2
014
01/0
4/2
014
01/0
7/2
014
01/1
0/2
014
01/0
1/2
015
01/0
4/2
015
01/0
7/2
015
01/1
0/2
015
01/0
1/2
016
kbpd
Iran's Oil & Condensate Exports
China Japan Taiwan South Korea Turkey OECD Europe (ex Turkey)
EUROPEAN OIL & GAS | 14
Iran Exports to Asia and Turkey – Recent Months
Source: IEA, Platts and Bernstein analysis
April 16, 500kbpd loaded by European buyers: TOTAL, Tupras, Iplom, Motor Oil
0
5
10
15
20
25
30
35
01/0
7/2
015
01/0
8/2
015
01/0
9/2
015
01/1
0/2
015
01/1
1/2
015
01/1
2/2
015
01/0
1/2
016
01/0
2/2
016
01/0
3/2
016
01/0
4/2
016
01/0
5/2
016
Number of Crude Vessels Leaving Iranian Port
CHINA FRANCE GREECE INDIA KOREA (SOUTH)
NETHERLANDS SINGAPORE SPAIN TAIWAN TURKEY
EUROPEAN OIL & GAS | 15
Japan Has Been Importing Lighter Crudes/Condensates From Iran
Since July 2012
Source: METI and Bernstein analysis
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Extra Heavy Heavy Medium Light Condensate
EUROPEAN OIL & GAS | 16
Iranian Crude Price Differentials Show a Distinct Premium for Lighter
Crudes
-20
-15
-10
-5
0
5
10
Oct-
04
Fe
b-0
5
Jun
-05
Oct-
05
Fe
b-0
6
Jun
-06
Oct-
06
Fe
b-0
7
Jun
-07
Oct-
07
Fe
b-0
8
Jun
-08
Oct-
08
Fe
b-0
9
Jun
-09
Oct-
09
Fe
b-1
0
Jun
-10
Oct-
10
Fe
b-1
1
Jun
-11
Oct-
11
Fe
b-1
2
Jun
-12
Oct-
12
Feb-1
3
Jun
-13
Oct-
13
Fe
b-1
4
Jun
-14
Oct-
14
Fe
b-1
5
Jun
-15
Oct-
15
Fe
b-1
6
$/b
bl
Iran Light Iran Heavy Forosan Soroosh
Source: Bloomberg and Bernstein analysis
EUROPEAN OIL & GAS | 17
Iran Has Maintained Gas Exports to Turkey at Prices Higher Than
Russia and Azerbaijan But Some Discount Is Expected
Source: EuroStat and Bernstein analysis
0
200
400
600
800
1,000
1,200
1,400
01
/01/2
00
8
01
/05/2
00
8
01
/09/2
00
8
01
/01/2
00
9
01
/05/2
00
9
01
/09/2
00
9
01
/01/2
01
0
01
/05/2
01
0
01
/09/2
01
0
01
/01/2
01
1
01
/05/2
01
1
01
/09/2
01
1
01
/01/2
01
2
01
/05/2
01
2
01
/09/2
01
2
01
/01/2
01
3
01
/05/2
01
3
01
/09/2
01
3
01
/01/2
01
4
01
/05/2
01
4
01
/09/2
01
4
01
/01/2
01
5
01
/05/2
01
5
30
/09/2
01
5
31
/01/2
01
6
mm
cfd
Iran's Gas Export to Turkey
EUROPEAN OIL & GAS | 18
Agenda
Iran Oil Production History and Production Overview
Iran Oil & Gas Production History
Reserves and Production Overview
The Return of Iranian Crude to the Market
Output Recovery So Far
Recent Surge of Crude Exports
Future Growth Options for Iran
Issues With a Quick Rebound of Iranian Production
Future Growth Options
The Path to Oil Market Rebalancing
Conclusion
Appendix
EUROPEAN OIL & GAS | 19
Iran Provides One of the Last Significant Openings for IOCs to
Access Low Cost Conventional Resources
Source: Wood Mackenzie, Rystad and Bernstein analysis
0
10
20
30
40
50
60
70
0 10000 20000 30000 40000 50000 60000 70000 80000 90000
Bre
akeven
Cost E
stim
ate
($/b
bl)
Daily Production (kbpd)
2016 Marginal Cost Curve
Nort
hA
fric
a O
PE
C
Kuw
ait
CIS U
AE
Chin
a Russia
Norw
ay
Bra
zil
Canadia
n O
il S
ands
Canada
Oth
er
US
Unconventio
nal
Saudi Arabia
Iran/Iraq
Nort
hA
fric
a O
PE
C
Kuw
ait
CIS
VenezuelaOther Europe
LatAm, Africa
Mexic
o
Angola
/Nig
eria
UA
E
Chin
a Russia
Norw
ay
Bra
zil
Canadia
n O
il S
ands
Eagle Ford
Bakken
Permian
US
CO
nventio
nal/D
eepw
ate
r
Oth
er
US
Unconventio
nal
EUROPEAN OIL & GAS | 20
Issues With a Quick Rebound of Iranian Oil Production – Geological
Characteristics /Issues
Fields/Regions
Low permeability & low porosity =>Low success rate for WAG and other EOR techniques
Sirri-A
Heavy oil and heavily faulted reservoir =>High base viscosities and lack of fracture mapping has led to lower production
Soroosh/Nowruz
Low formation strength, high water flows, lost circulation =>Abnormal pressure and depth relationship with a high water flow led to significant operational issues including mud losses and damage to producing formation
Alborz/Sarajeh
Source: SPE presentations and papers, and Bernstein analysis
EUROPEAN OIL & GAS | 21
Issues With a Quick Rebound of Iranian Oil Production – Operational
Characteristics /Issues
Fields/Regions
Landmines and unexploded ordinance => Presence of explosives in and around field leading to drilling and production delays
Azadegan
Reservoir thickness => Accurate horizontal drilling required but previous usage did not lead to uplift in production rates
Bibi Hakimeh
Drill pipe issues => Wellbore instability, differential sticking force, improper hole cleaning and the forming of drill-cutting beds especially in high angle wells
Ahwaz/Abb-Taymoor
Casing issues due to large pressure drops => Significant reports of compaction and resulting well failures in Iran by NIOC
Gachsaran
Source: SPE presentations and papers, and Bernstein analysis
Seismic data availability => Lack of comprehensive seismic data for the region that would permit further drilling and appraisal
High Zagros Belt
Older well subsidence => Subsidence and casing collapses in Iranian fractured reservoirs like Masjed-i-Suleiman which has large cap rock cracks and large pressure drops
Masjed-i-Suleiman
EUROPEAN OIL & GAS | 22
Issues With a Quick Rebound of Iranian Oil Production – Operational
(cont’d)
Characteristics /Issues
Fields/Regions
Gas Injection/Lift => Many fields presently on gas lift operations have had average production levels drop by a factor of 8 which was a result of high pressure drop, continuous increase of water cut and GOR
South West Iran
Horizontal drilling experience => In Iran 146 directional and horizontal wells have been drilled onshore and 16 offshore since 1997
Fracturing experience => Only three wells in Iran have been acid fracked and out of those one only started producing at an incremental rate of 200 b/d
High specification oil rigs and trained crew => Using Chinese rig which did not meet advertised specifications and failed at multiple stages of drilling causing delays. This was further complicated by the addition of inexperienced crews in the country
Source: SPE presentations and papers, and Bernstein analysis
South West Iran
South West Iran
South West Iran
EOR technique application => Main problem with secondary recovery is the heterogeneity of carbonate reservoirs in Iran. Gas and water breakthroughs occur much faster for many Iranian fields leading to lower accumulative production
South West Iran
EUROPEAN OIL & GAS | 23
Mountainous Iranian Terrain
Gachsaran (Iran) Uthmaniya (Saudi
Arabia)
Source: Google maps, Bernstein analysis
EUROPEAN OIL & GAS | 24
Iran’s Decline Rates Are Probably Mid-table Versus OPEC Peers
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
Ecuador Saudi Arabia Iran Iraq Kuwait UAE Nigeria Venezuela Qatar Libya Algeria Angola
Source: IEA and Bernstein estimates
EUROPEAN OIL & GAS | 25
Production Per Well Iran Vs Saudi Arabia
0
1
2
3
4
5
6
7
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
kb
pd
Iran Saudi Arabia
Source: OPEC and Bernstein estimates
EUROPEAN OIL & GAS | 26
Historical Precedence: Production Doesn't Spring Back to Action
After Big Shocks
0
20
40
60
80
100
120
t0 t2 t4 t6 t8 t10 t12 t14 t16 t18 t20 t22 t24 t26 t28 t30 t32 t34 t36 t38 t40 t42 t44 t46 t48 t50 t52 t54 t56 t58 t60
Ind
ex
Months
Venezuela 1998 Iran 2011 Iraq 1990 Iraq 2003
Kuwait 1990 Nigeria 2005 Libya 2010
Source: Bloomberg and Bernstein analysis
EUROPEAN OIL & GAS | 27
New Iranian Crudes Are Generally Heavier With Higher Sulfur
Content
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
15 20 25 30 35 40 45
% S
ulf
ur
API
Abu Dhabi Dubai Iran Iraq Oman Qatar Saudi Arabia Kuwait
BahreganBahregan
SorooshNowruz
Source: NIOC, Company Assays, Bernstein analysis
EUROPEAN OIL & GAS | 28
Proposed New Oil Field Developments Will Add <1Mbpd to Iranian
Production by 2020
Project Developer Plateau Output (kbpd)Estimated Plateau
Year
Yadavaran phase 1 Sinopec 85 2016
Yadavaran phase 2 Sinopec 95 2019-20
Yadavaran phase 3 Sinopec 120 post 2020
Azar phase 1 NIOC subsidiaries 30 2016
North Yaran Persian Energy 30 2016
South Yaran NIOC subsidiaries 55 2018
North Azadegan phase 1 CNPC 75 2016-17
North Azadegan phase 2 CNPC 75 2019
South Azadegan phase 1 no developer 150 NA
South Azadegan phase 2 no developer 110 NA
Forouzan NIOC subsidiaries 100 2017-18
South Pars (oil layer) phase 1 PEDCO 35 2017-18
Source: EIA and Bernstein analysis
EUROPEAN OIL & GAS | 29
Therefore Global Oil Market Will Continue to Tighten As We Head Into
2H
-0.5-0.7
0.4
-0.9
-0.4-0.6
0.2
-0.5-0.4-0.4
0.50.6
0.5
1.0
1.4
-1.6
0.1
-0.4
-1.4
-0.2
0.30.2
0.0
-1.0
0.5
-0.2
-0.7
-0.9
0.1
-0.7
0.9
1.6
-0.1
0
20
40
60
80
100
120
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Bre
nt ($
/bb
l)
Mb
pd
Global Oil Market Over/Under-Supply
Source: IEA and Bernstein analysis
EUROPEAN OIL & GAS | 30
The Path To Oil Market Rebalancing
Source: IEA and Bernstein analysis
-700-600-500-400-300-200-100
0100200300400
Canada
Bra
zil
Ma
laysia
Oth
er
Afr
ica
Oth
er
Asia
Om
an
thaila
nd
Gabon
UK
Eg
ypt
Aze
r
India
Ka
z
Colu
mb
ia
Norw
ay
Me
xic
o
Chin
a
Russia
US
kbpd
IEA Bernstein
20
22
24
26
28
30
32
34
36
46
48
50
52
54
56
58
60
Dec-0
1
Jun
-02
Dec-0
2
Jun
-03
Dec-0
3
Jun
-04
Dec-0
4
Jun
-05
Dec-0
5
Jun
-06
Dec-0
6
Jun
-07
Dec-0
7
Jun
-08
Dec-0
8
Jun
-09
Dec-0
9
Jun
-10
Dec-1
0
Jun
-11
Dec-1
1
Jun
-12
Dec-1
2
Jun
-13
Dec-1
3
Jun
-14
Dec-1
4
Jun
-15
Dec-1
5
OP
EC
Cru
de P
roductio
n (
Mbpd)
Non-O
PE
C C
rude P
roductio
n (
Mbpd)
OPEC and Non-OPEC Crude Production
Non-OPEC OPEC
EUROPEAN OIL & GAS | 31
Past Investments in Iran Oil
-
200
400
600
800
1,000
1,200
1,400
-
5,000
10,000
15,000
20,000
25,000
30,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Outp
ut T
arg
et (k
boed)
Investm
ents
($M
)
Iran - Past Investments and Output Target
Output Target Investments
South Pars Phase 6,7&8 - StatoilSouth Pars 9&10, LG E&C
South Pars Phase 22,23&24 - TPAOGolshan and Ferdowsi LNG -SKS Malaysia
South Pars Phase 12 - ONGC, Sonangol, PDVSA
Source: Company reports and Bernstein analysis
BP, TOTAL, OMV, LukOil, Wintershall, Saipem?
EUROPEAN OIL & GAS | 32
Surveyed Responses – Oil Services
Source: Bernstein analysis
Company Historical Activity in Iran (Post 2000) Appetite for future participation Appetite
Amec FW- Activity conducted before sanctions
- No specific contracts disclosed (by either AMEC or FW)
-"We are monitoring the progress of the implementation of the JCPOA."
-"We believe Iran will offer opportunities in our chosen sectors in the future and will
evaluate opportunities that may arise." l
Cape - No comment / disclosures of specific historical activity
-"We continue to monitor the sanctions situation carefully."
-"Cape is at the early stages of evaluating the potential risk/reward profile that
opportunities in Iran may offer in the future."l
CGG- Activity conducted before sanctions
- Work in Iran (onshore / offshore) reported 2000-02 per Annual reports
-"Iran opening and future bid rounds will generate a need for the full spectrum of
geoscience services."
-"CGG has already put in place a strategic commercial active task force."l
Fugro
- Evidence found of historical activities in Iran, per corporate website
- One contract disclosed post 2000, a $17mn 3D seismic survey on the Hormuz
field
-"We are certainly interested to return there once all relevant sanctions have been
lifted."
-"It could relate to both onshore / offshore geotechnical and survey work."l
Lamprell - "Considerable" experience of work in Iran
- No specific contracts disclosed
- “Iran could potentially be an attractive market."
- "We are taking the first steps to ensure that we are well-positioned and ready to
move at the appropriate time, once sanctions have been lifted."l
Petrofac - "Considerable" experience of work in Iran
- No specific contracts disclosed
-"We see the potential for opportunities in the medium-term after sanctions are
lifted." l
Saipem- Saipem highlighted at Q3'15 reporting their "long history" of operations in Iran
- No disclosures of specific historical activity
- Saipem highlighted at Q3'15 the "further potential" in Iran in their Onshore E&C
outlook l
Technip - Technip claims a "long history" in Iran until the sanctions imposed
- One contract disclosed post 2000, a $189mn Ethylene Plant Construction job.
-"We believe this is a market that could represent something significant for
Technip."
-"Until the sanctions are fully lifted, we will not reengage with customers."l
Tenaris - No comment / disclosures of specific historical activity
-"We will for sure be there for some of the complex fields that Iran needs to
develop."
-"We await the moment when will be clear to operate (ref. US Sanctions)."l
Vallourec- Activity conducted before sanctions
- No specific contracts disclosed
-"Vallourec has clear intentions to rework with operators in Iran."
-"Return to market may be fast on high end material (advanced premium/ high
alloy) with no alternative supply under embargo."l
Akastor - No comment / disclosures of specific historical activity
- No commentary year to date
- We expect some appetite for participation potentially through Fjords Processing
and KOP Surface Products business unitsl
Aker Solutions - Activity conducted before sanctions
- No specific contracts disclosed
-"We’re open to doing business there again at some point given the right
opportunity."
-"Not actively looking right now."l
Hunting - No comment / disclosures of specific historical activity
- No commentary year to date
- We expect some appetite for participation on account of onshore well completion
servicesl
John Wood Group - No comment / disclosures of specific historical activity- No commentary year to date
- We expect some appetite for participation on account of onshore E&C services l
TGS - No comment / disclosures of specific historical activity-"TGS would not comment on any country until such time as we announce a project
or announce a vessel / seismic crew commitment." l
TMK - Activity conducted before sanctions
- Volzhsky Pipe Mill (Russia) used to supply pipes to Iran pre sanction
-"We are unable to provide any official comment until the sanctions are fully lifted."
- We suspect that TMK would participate alongside VK / TEN l
TR Group - No comment / disclosures of specific historical activity- No commentary year to date
- We expect some appetite for participation on account of onshore E&C services l
Weir Group
- Evidence found of historical activities in Iran, per corporate website
- Two disclosed post 2000, a £9mn pump supply contract for a petrochemicals
plant (2000), On store gas storage project (2005)
- Weir highlighted at 1H'15 that Iran would offer a "relatively limited" short term
impact, but did not rule out participation l
BW Offshore - No comment / disclosures of specific historical activity
- No commentary year to date
- We suspect that the lack of deepwater opportunities would discourage BW from
participationl
Fred Olsen - No comment / disclosures of specific historical activity
- No commentary year to date
- We suspect that the lack of deepwater opportunities would discourage Fred Olsen
from participationl
PGS - No work carried out historically (as per survey response)-"We have not done work offshore Iran and do not have any plans of doing work
there." l
SBM Offshore - No comment / disclosures of specific historical activity-"SBM Offshore does not see material demand in Iran for deepwater, large-
conversion FPSOs with 80-150,000 barrels per day throughput capacity." l
Seadrill - No comment / disclosures of specific historical activity
- No commentary year to date
- We suspect that the lack of deepwater opportunities would discourage Seadrill
from participationl
Subsea 7 - No comment / disclosures of specific historical activity -"We do not have a stated strategy on that (Iran)." l
EUROPEAN OIL & GAS | 33
Agenda
Iran Oil Production History and Production Overview
Iran Oil & Gas Production History
Reserves and Production Overview
The Return of Iranian Crude to the Market
Output Recovery So Far
Recent Surge of Crude Exports
Future Growth Options for Iran
Issues With a Quick Rebound of Iranian Production
Future Growth Options
The Path to Oil Market Rebalancing
Conclusion
Appendix
EUROPEAN OIL & GAS | 34
Conclusion
YTD Iranian crude production has been ramping up to the pre-sanction level
Iranian crude & condensate exports have also been growing steadily, with a recent
surge in April
Future growth options for Iranian oil is however limited, due to:
Geological and operational issues identified by petroleum engineers
Lack of modern drilling and completion technology
Higher decline rates than some other OPEC peers
Limited future growth options
Oil market therefore remains on its firm path to rebalancing as we head into 2H this year
Iran however remains one of the last significant openings for IOCs to access low-
cost conventional resources
So far oil majors remain cautious on re-entering Iran
Oil services expressed greater enthusiasm than oil companies with around 75% of them
seeing reasonable potential for work
EUROPEAN OIL & GAS | 35
Agenda
Iran Oil Production History and Production Overview
Iran Oil & Gas Production History
Reserves and Production Overview
The Return of Iranian Crude to the Market
Output Recovery So Far
Recent Surge of Crude Exports
Future Growth Options for Iran
Issues With a Quick Rebound of Iranian Production
Future Growth Options
The Path to Oil Market Rebalancing
Conclusion
Appendix
EUROPEAN OIL & GAS | 36
SPE Paper References Characteristics Category Fields/Region Issues Papers Referenced
Low permeability & low porosity Geological Sirri-A Low success rate for WAG and other EOR techniquesA. Taheri & V.A. Sajjadian, WAG performance in a Low Porosity andd Low Permiability Reservoir, Sirri-A Field, Iran, Sep 2006, Society of Petroleum Engineers
HPHT, heavy oil and low oil
recoveryGeological/Operational Zaqeh
Use of In Situ combustion recovery method not available in Iran
presently H. Abolhoseini, Study on Ultimate Heavy Oil Recovery from Zaqeh Field in S.W. of Iran, Oct 2004, SPE
Landmines and unexploded
ordinanceOperational Azadegan
Presence of explosives in and around field leading to drilling and
production delays L. Rong, Y. Chengjin, Z. Yunzhang, L. Zhiping, An Integrated Approach to Improve Drilling Performance and Save Cost in North Azadegan Field, July 2012, IADC/SPE
Reservoir thickness Operational Bibi HakimehAccurate horizontal drilling required but previous usage did not
lead to uplift in production rates A. M. Kalantari-Dahagi, J. Moghadasi, V. Golami, Applicability of Horizontal Drilling Techniques in Iran: A Field Case Study in Bibi Hakimeh Field, Southwest Iran, December 2006, SPE
Heavy oil and heavily faulted
reservoirGeological Soroosh/Nowruz
High base viscosities and lack of fracture mapping has led to lower
production rates
Slant drilling techniques Operational ArdeshirSlant drilling techniques on conventional platforms led to lower
than theoretical well performance F.H. Creamer, J.E. Streifel, S.M. Farmanara, G.A. Feizy, The Development of the Ardeshir Field, July 1979, Journal of Petroleum Technology
Low formation strength, high
water flows, lost circulationGeological/Operational Alborz/Sarajeh
Abnormal pressure and depth relationship with a high water flow
led to significant operational issues including mud losses and
damage to producing formation I. Abaie, H.J. Ansari, A. Badakhshan, A. Jaafari, History and Development of the Alborz and Sarajeh Fields of Central Iran, June 1963
Drill pipe issues Operational Ahwaz/Abb-Taymoor
Wellbore instability, differential sticking force, improper hole
cleaning and the forming of drill-cutting beds especially in high
angle wells S.A.R. Shoraka, S.R. Shadizadeh, M. Pordel Shahri, Prediction of Stuck Pipe in Irnaian South Oil Fields Using Multivariate Statistical Analysis , Aug 2011, SPE
Seismic data availability Operational High Zagros BeltLack of comprehensive seismic data for the region that would
permit further drilling and appraisal A. Bosold, J. Schober, W. Schwarzhans, A. Julapour, A.R. Ashrafzadeh, M. Ehsani, High Central Zagros (Iran), Part 2: New geological insights and play potential, 2006, SEG
Storage and distribution
infrastructureOperational Caspian Sea
No production from the Caspian. Lack of infrastructure present
onshore in Iran close to the Caspian that can act as a hub for
processing produced crude/gas in the area. F. Kamali, Conceptual Approaches to Oil and Gas Production, Refining and Distribution from Iran reserves in Caspian Sea, 2014, WPC
Older well subsidence Operational Masjed-i-Suleiman
Subsidence and casing collapses in Iranian fractured reservoirs
like Masjed-i-Suleiman which has large cap rock cracks and large
pressure drops. H.T. Nguyen, R.T. Kelly, D. Sodero, M.R. Niakan, Re-development Issues and Challenges for a Very Old Oil Field, Masjed-i-Suleyman, South West Iran, October 2004, SPE
Casing issues due to large
pressure dropsOperational Gachsaran
Significant reports of compaction and resulting well failures in Iran
by NIOC. M. Gorjian, M. moosavi, H. Memarian, H. Ajamzadeh, Shear Failure mechanism in oil wells due to reservoir compaction "A case study in Gachsaran formation, Iran", 2012, Harmonizing Rock Engineering and the Environment
Gas Injection/Lift Operational South West Iran
1. Many fields presently on gas lift operations have had average
production levels drop by a factor of 8 which was a result of high
pressure drop, continuous increase of water cut and GOR. This
has resulted in greater declines than modeled. Further economic
modelling showed that any gas injection over 1 mmscfd has
negative NPV even at $80/bbl oil prices.
2. Gas Injection resulted in increase of gas oil ratio (GOR) much
before anticipated time Secondary recovery failed because of vast
increase in GOR and has made field dynamics and oil production
hard to model even though significant recoverable oil still remains.
3. Acidizing of wells caused significant increases in oil recovery but
these were very short-lived.
M. Ebrahimi, Gas Lift Optimization in One Iranian South Western Oil Field, June 2010, SPE
F. namdarian, M.A. Taghanaki, A. Hashemi, Upscaled Psuedo-porosity Extracted from Imnpedence Colume
can effectively predict gas fingering in a dynamic model-A Gas Injection Case Study, Sep 2015, SPE
H. Mehrabi, H. Rahimpour-Bonab, A. Navidtalab, Geochemistry as a Powerful Tool in Oil Exploration: A Case
Study from the Karstified Reservoirs of the Middle East: SW Iran, Dec 2014, SPE
Horizontal drilling experience Operational SW IranIn Iran 146 directional and horizontal wells have been drilled
onshore and 16 offshore since 1997. F. Chao-Hui, Z. Hu, Y. Zhi-sen, T. Yu-qiang, Complication Circumstance Directional and Horizxontal Wells Drilling technology in Iran, Jul 2012, SPE
Fracturing experience Operational SW IranOnly three wells in Iran have been acid fracked and out of those
one only started producing at an incremental rate of 200 b/dF. Roshanai Heydarabadi, J. Moghadasi, Hydraulic Fracturing in Iran-Lessons From our Case Histories, Jun 2010, SPE
Reservoir management Operational Issaran
The field is at a shallow oil depth and cannot be produced as cold
production. It requires different reservoir management for three
different/distinct production zones. The field also has low pressure
and a very high\ water cut M. Samir, Rejuvenation Issaran Field-case Study, Feb 2010, SPE
Natural Fracture Modeling Operational Kuh-E-MondLoss of significant production due to water cut if the natural fault
structure is not well understood. A. Shafiei, M.B. Dusseault, natural Fractures Charaectrization in a Carbonate Heavy Oil Field, Jun 2012, ARMA
Wellbore instability and high
mud lossOperational Kupal
Wellbore instabilities, tight hole, severe losses were found in wells
drilled. Unplanned liner used after total losses resulted in reaching
the target zone with smaller liner and thus the production was not
optimum Y. Yousafi, M. Fazaelizadeh, G. Hareland, A. Kustamsi, S.A. Mirhaj, F. Shirkavand, Cost Evaluation for the First Running Experinece of expandable Openhole Liner for Unexpected Problems in Drilling Well, Iran, Aug 2008, SPE
High specification oil rigs and
trained crewOperational SW Iran
Using Chinese rig which did not meet advertised specifications and
failed at multiple stages of drilling causing delays. This was further
complicated by the addition of inexperienced crews in the country.H.F. Spoerker, M. Doschek, Performance Driling Onshore Iran-Introducing New Concepts to a Mature Area, Feb 2005, SPE
EOR technique application Operational SW Iran
Main problem with secondary recovery is the heterogeneity of
carbonate reservoirs in Iran. Gas and water breakthroughs occur
much faster for many Iranian fields leading to lower accumulative
production. G. Sobhi, M. Kiani, N. Alizadeh, Comaprison and Investigation of Recovery Factor from Simulation of Water and Gas Injection in One of the Fractured Reservoirs in the South of Iran, Jun 2006, SPE
Safety and HSE implementation Operational Naft Shahr 38 days to control a blowout in a conventional onshore reservoir.M. Makvandi, K. Shahbazi, H. Bahmani, The Great Achievemet in Well Control of one of the Iranian Wells, Oct 2011, SPE
Source: SPE and Bernstein analysis
EUROPEAN OIL & GAS | 37
Disclosure Appendix
EUROPEAN OIL & GAS | 38
Disclosure Appendix
SRO REQUIRED DISCLOSURES
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specified. We have three categories of ratings:
Outperform: Stock will outpace the market index by more than 15 pp in the year ahead.
Market-Perform: Stock will perform in line with the market index to within +/-15 pp in the year ahead.
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As of 05/17/2016, Bernstein's ratings were distributed as follows: Outperform - 48.5% (0.3% banking clients) ; Market-Perform - 41.1% (0.4% banking clients); Underperform - 10.4% (0.0%
banking clients); Not Rated - 0.0% (0.0% banking clients). The numbers in parentheses represent the percentage of companies in each category to whom Bernstein provided investment
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Accounts over which Bernstein and/or their affiliates exercise investment discretion own more than 1% of the outstanding common stock of the following companies PMO.LN / Premier Oil
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The following companies are or during the past twelve (12) months were clients of Bernstein, which provided non-investment banking-securities related services and received compensation
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EUROPEAN OIL & GAS | 39
12-Month Rating History as of 05/17/2016
Ticker Rating Changes
BP O (RC) 09/10/15 M (IC) 08/03/10
BP/.LN O (RC) 09/10/15 M (IC) 08/03/10
CNE.LN M (RC) 01/29/13
E O (RC) 06/14/13
ENI.IM O (RC) 06/14/13
FP.FP O (RC) 02/15/16 M (RC) 05/01/15
GALP.PL O (RC) 05/26/10
PMO.LN O (RC) 06/28/12
RDS/A O (RC) 09/30/14
RDS/B O (RC) 09/30/14
RDSA.LN O (RC) 09/30/14
RDSA.NA O (RC) 09/30/14
RDSB.LN O (RC) 09/30/14
RDSB.NA O (RC) 09/30/14
REP.SM M (RC) 12/03/13
STL.NO O (RC) 12/03/13
STO O (RC) 12/03/13
TLW.LN O (IC) 01/22/09
TOT O (RC) 02/15/16 M (RC) 05/01/15
Rating Guide: O - Outperform, M - Market-Perform, U - Underperform, N - Not Rated
Rating Actions: IC - Initiated Coverage, DC - Dropped Coverage, RC - Rating Change
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