Iran looks to tap key oil field with homegrown crews

At this huge oil field in southwest Iran, one building stands out among the pumps and maze of pipelines: On its roof in giant letters, big enough for satellites or pilots to see, are the words: “We can do it.”

The slogan, made famous by Iran’s revolutionary leader, Ayatollah Ruhollah Khomeini, highlights the country’s new drive to tap its oil riches on its own — without Western investment or technological know-how — as Iran faces a threat of tighter U.N. sanctions and American financial pressure over its nuclear ambitions.

The Azadegan field in southwestern Iran showcases the bid: the first major field to be developed solely by Iranian companies. Pumping began in February in the vast oil basin — off limits to the public, but The Associated Press received permission to tour the site recently with a government escort.

The self-sufficiency drive has become a vital test of how well Iran can ride out more Western sanctions — and possibly rake in billions of dollars more in oil revenues as prices hit record highs. It also is shaping up as a political gamble for hardline President Mahmoud Ahmadinejad, the main proponent of using local firms.

Some lawmakers and outside experts contend that Iranian companies will take longer and get less oil than foreign investors often with better technology and project management.

Among the challenges that could frustrate Iranian oil engineers: dealing with high-pressure fields, elevated sulfur content in the crude and water levels inside the wells.

U.S. pressure — and worries about shifting rules in Iran’s oil policies — have kept major oil companies on the sidelines in recent years, and Iran lacks the deep pockets to undertake major projects alone. In April, Oil Minister Gholam Hossein Nozari said Iran needs some $500 billion of oil industry investment over the next 15 years.

This has led Iran to turn to lower-tier oil developers, signing deals recently with Croatian, Malaysian and Chinese firms.

“Total, Shell and Repsol of Spain are hanging back from signing contracts, which the Iranians are desperate for them to sign,” said Simon Henderson, an oil expert at the Washington Institute for Near East Policy.

“If you were going to say to me, `Name me 20 countries in the world that have good reputations for oil exploration,’ I don’t think I would get to Croatia until about 120,” he added.

Iran clearly has some homegrown expertise.

Its oil industry — and partnerships with some the world’s biggest firms — has existed for nearly a century. Iran sits on the second-largest known reserves after Saudi Arabia, and its known natural gas reserves are second only to Russia.

Iranian experts also are involved in oil projects abroad in places including Turkmenistan, Venezuela and Libya, and Iran has developed some smaller fields before.

Yet, “if Iran does it, things will take longer and the cost might be greater,” said Manouchehr Takin, an Iranian oil specialist at the London-based Centre for Global Energy Studies.

Supporters argue “this is the way to learn — by doing,” he noted.

But that will take time. Iran is trying to boost its production from the current 4.2 million barrels a day to about 5 million barrels in the next five years.

OPEC-member Iran earns more than $70 billion a year from its oil exports, bringing in 80 percent of its foreign currency revenue.

But experts say Iran still lacks enough money for investment, in large part because it spends so much on low-cost fuel for its own people, who pay about 42 cents a gallon at the government-subsidized rate.

At the same time, Iran grapples with a severe shortage of refinery capacity — meaning this oil-rich nation suffers the irony of having to import more than 50 percent of its gasoline. The government imposed a rationing system last year in hopes of trimming the amount it spends on subsidized fuel.

The Azadegan field — about 35 miles west of Ahvaz, a city near the Iraqi border — is a prime example of the challenges of going it alone under sanctions.

Iran estimates its holds reserves of about 33 billion barrels, making it one of the largest worldwide.

After years of negotiation, Japan’s Inpex Company agreed in 2004 to invest 75 percent of a $2 billion plan to develop Azadegan. But two years later, Iran cut Inpex’s share to 10 percent, complaining that the firm was delaying on the project — apparently under pressure by Washington.

Iranian officials say Russian and Indian companies have shown an interest in developing Azadegan since, but no deals have been signed.

Since September, Iranian firms have drilled six wells, all now producing, along with two facilities that separate oil and natural gas. The field has produced more than 25,000 barrels of crude a day since February.

Iran eventually hopes to bring production at Azadegan to more than 360,000 barrels a day — with some outside help if it can negotiate deals. For now, the goal is more modest: 65,000 barrels a day by next March.

The 400-member staff developing Azadegan bursts with pride.

“The implementation of this project shows we can do the same sort of activities as foreigners can do. It is no longer important if they don’t come back here,” said engineer Mohammad Reza Khaki, who led construction at Azadegan.

Similar sentiments — mixing nationalism with technological strides — are often expressed about Iran’s nuclear program, which Washington and its allies say could be a cover to eventually develop atomic weapons. Tehran denies the charges and says the reactors are only for power — and to plan far ahead for when Iran’s oil and gas field run dry.

Construction at the Azadegan field was not easy. The area, about 500 miles southwest of Tehran, lies in a former battle zone of the Iran-Iraq war and is rife with unexploded land mines, which are still being cleared.

The National Iranian South Oil Co., linked to the country’s Oil Ministry, also had to scramble to prepare for the $44 million project.

“When we started, we did not have enough equipment. I went from warehouse to warehouse to find material for the needs of the project,” said Khaki.

The question of involvement by the Revolutionary Guards is another unknown about the field.

The United States and other Western countries contend that Iran’s oil and gas industries are closely linked to the Guards, which operate separate from the standing armed forces and are controlled by Iran’s ruling clerics.

There is no public indication that the Guards have a role in the Azadegan oil field. But the Guards publicly own or control numerous companies that have received past contracts in the oil and gas industries.

Washington has long prohibited major U.S. oil producers like Exxon Mobil Corp. and Chevron Corp. from doing business with Iran.

The Bush administration has also put pressure on banks and foreign oil companies — including European giants — to stop doing business with Iran, hoping to stem the flow of investment.

Henderson, the Washington oil expert, said Iranian companies do have the capability to develop Azadegan. But “whether it is a world-class level development is another thing.”

Associated Press Writer Sebastian Abbot in Cairo, Egypt, contributed to this report.

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