The effect of E&P companies’ foundation on entrepreneurial systems of upstream industry

Ali Akbar Vahidi Alagha is one of the most technical and legal experts who is graduated of petroleum engineering from Imperial College of London and parts of his management experiences is Aghajari field management, member of the board and engineering manager of National Iranian Drilling Company, IOOC and Petroleum Engineering and Development Company, vice president of Petroleum Engineering and Development Company, technical coordinator of Iran›s oil claims in the Court of The Hague, expert of environment and supply and demand on OPEC Secretariat. Here we have talked with him as a vice chairman of the board and CEO of Pasargad Exploration and Production holding company about “The effect of E&P companies’ foundation on entrepreneurial systems of upstream industry”:

According to Iranian Petroleum Contracts, It has been planned to assign new fields exploration and development contracts to E&P companies. The foundation of exploration and production companies will place contractor companies and National Iranian Oil Company in a new position. In this situation, contractor companies will change to E&P companies and NIOC will have a technical consultancy role in a joint Committee with a share of 50%. What do you think about the foundation of such companies and its effect on entrepreneurial corporations and business space in the upstream industry? First of all It should be mentioned that we haven’t seen the final text of new contracts, and so we couldn’t give a definite opinion based on it, but according to what have been said and what we know, initially it was planned that National Iranian Oil Company contracts with an incorporated or unincorporated “International joint venture (JV) and an Iranian company” but in the last edition of the contract it is just mentioned that an Iranian company should participate. Therefore, the first question is that whether an Iranian and international company should work together as partners or not? The second issue is that NIOC would not accept to be as a technical consultant and equal share between two sides in the Joint Operating Agreement (JOA) doesn’t mean an equal rule. Founded companies will have activities like an E&P but they won’t be a real E&P. According to international norms, E&Ps should have equity, it means that they must have reserves and oil assets. In service based contracts there is not going to share the ownership. The owners of Iran’s oil and gas is its people and ownership authorities will be exerted by National Oil Company, not E&P companies. National Iranian Oil Company has inalienable right to accept or reject approvals independent of JMC. The third issue is that we never had E&P companies and such companies have been founded recently with no related experience. Some of this 11 companies had done some type of field development but not E (Exploration) nor P (Production), they are Engineering, Supplying and Production companies (EPC) or General Contractors (GC). This could be considered as a disaster because E&P companies are not supposed to do development operations. According to the notified minister’s manual style, if a drilling company wants to be an E&P company, it must leave its drilling activities. So my conclusion is to found E&P companies not to change companies’ nature. I want to go back to my first question about the position of National Oil Company in new contracts. Critics believe that the 50% presence of National Oil Company in the joint technical committee is a type of violation of national sovereignty. What is your opinion about this? We couldn’t judge now. Even if the council of ministers approves the final text, we couldn’t judge based on it until having the contract. This is a brief text of a translated comprehensive contract. First of all, in the translation process, some terms lose their meanings because we may have no synonyms for them. Second, some of this terms have a specific meaning different from its common meaning. The English text of the contract will be considered as the original text and I couldn’t answer your question until I have access to that text. Working mechanism is an issue and is different from our authority level. This is not an important issue that who is controlling the operation, the manager of operations is important for us. We should consider major decisions. If National Oil Company acts properly, every contract against our national interests, governance and ownership could be vetoed but if not it would be way different. JMC is just a name and the important things are their authorities. The third issue is that we never had E&P companies and such companies have been founded recently with no related experience. Some of this 11 companies had done some type of field development but not E (Exploration) nor P (Production), they are Engineering, Supplying and Production companies (EPC) or General Contractors (GC).

Author: Ali Akbar Vahidi Alagha

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