the impact of iran’s return on global

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 • [email protected]

Teng Ben, CFA • Associate • +44-207-170-0589 • [email protected]

May 2016

Will It Change The Path Of Oil Market Rebalancing?

mailto:[email protected]

mailto:[email protected]

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


Agenda











Conclusion

Appendix


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


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

//acntlon011/dept/Lon_SSRES/European and Russian Oils/Industry/Countries/Iran/Monthly Production Data.xlsx#'Field Data'!$A$81

//ACNTLON011/DEPT/LON_SSRES/European and Russian Oils/Industry/Countries/Iran/Field summary Iran.xlsx#'Production Analysis'!$H$22


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

//acntlon011/dept/Lon_SSRES/European and Russian Oils/Industry/Countries/Iran/Monthly Production Data.xlsx#'Field Data'!$J$81


Major Fields of Iran

Source: Wood Mackenzie and Bernstein analysis


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


Iran’s Liquids Production Levels Haven’t Recovered Since US

Sanctions Post 1979


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

//ACNTLON011/DEPT/LON_SSRES/European and Russian Oils/Analysis/Oil Supply & Demand Model/2020 Oil Supply & Demand Model.xlsx#'2020 Supply'!$C$81


Gas Production Has Done Better Since Start of the Supergiant South

Pars Field


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

//acntlon011/dept/Lon_SSRES/European and Russian Oils/Industry/Countries/Iran/Annual production numbers.xlsx#'Gas Production – Bcf'!$AL$28


Agenda











Conclusion

Appendix


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

//ACNTLON011/DEPT/LON_SSRES/European and Russian Oils/Analysis/Oil Supply & Demand Model/IEA Month by Month Supply By Country.xlsm#'Output'!$FW$6


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)

//ACNTLON011/DEPT/LON_SSRES/European and Russian Oils/Industry/Countries/Iran/Iran exports by country.xlsx#'BIData'!$M$18


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

//ACNTLON011/DEPT/LON_SSRES/European and Russian Oils/Industry/Countries/Iran/Iran ships.xlsx#'Sheet3'!$B$80


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

//acntlon011/dept/Lon_SSRES/European and Russian Oils/Industry/Countries/Iran/Japan Oil Imports/Japan Iranian Crude Import.xlsx#'Sheet1'!$V$28


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


//ACNTLON011/DEPT/LON_SSRES/European and Russian Oils/Industry/Countries/Iran/Iran Crude Prices.xlsx#'Sheet1'!$G$15


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

//acntlon011/dept/LON_SSRES/European and Russian Oils/Industry/Countries/Iran/Turkish Gas Imports.xls#'Turkish Gas Imports'!$L$2014


Agenda











Conclusion

Appendix


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

//ACNTLON011/DEPT/LON_SSRES/European and Russian Oils/Analysis/Marginal Cost/Marginal Cost By Play Type.xlsx#'Cost Curve 15-16'!$P$38


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


Issues With a Quick Rebound of Iranian Oil Production – Operational


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


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


Issues With a Quick Rebound of Iranian Oil Production – Operational

(cont’d)


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


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


Mountainous Iranian Terrain

Gachsaran (Iran) Uthmaniya (Saudi

Arabia)

Source: Google maps, Bernstein analysis


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


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


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



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


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


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


//ACNTLON011/DEPT/@GMT-2016.05.16-00.02.49/LON_SSRES/European and Russian Oils/Analysis/Oil Supply & Demand Model/2020 Oil Supply & Demand Model.xlsx#'2020 Supply'!$N$116


The Path To Oil Market Rebalancing


-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

//ACNTLON011/DEPT/LON_SSRES/European and Russian Oils/Analysis/Oil Supply & Demand Model/Slippery Slope Series Data.xlsx'Sheet1 (2)'!$I$31

//ACNTLON011/DEPT/LON_SSRES/European and Russian Oils/Analysis/Oil Supply & Demand Model/IEA Month by Month Supply By Country.xlsm#'Output'!$DG$149


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?

//ACNTLON011/DEPT/LON_SSRES/European and Russian Oils/Industry/Countries/Iran/Field summary Iran.xlsx#'Major Investments Since 1999'!$I$21


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


-"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


-"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


-"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


- 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


- We suspect that the lack of deepwater opportunities would discourage BW from

participationl

Fred Olsen - No comment / disclosures of specific historical activity


- 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


- 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


Agenda











Conclusion

Appendix


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


Agenda











Conclusion

Appendix


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

//acntlon011/dept/Lon_SSRES/European and Russian Oils/Analysis/Iran/Iranian Production Analysis.xlsx#'Sheet3'!$A$1:$E$22


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