ONGC Videsh Ltd wants Iran to pay a higher return on the $5-6 billion it plans to invest in developing Persian Gulf gas field of Farzad-B to make up for the risk involved in investing in US-sanctioned country.
US can impose sanctions on any firm investing more than $20 million in Iran's petroleum or natural gas sector. OVL has technology licences from American companies, which may make them vulnerable to US sanctions.
Sources said OVL, the overseas arm of state-owned Oil and Natural Gas Corp (ONGC), does not want to abandon Iran yet and to keep Tehran engaged has proposed to take up development of the offshore gas field if given a higher return on its investment.
The project to develop 12.5 trillion cubic feet of reserves in Farzad-B gas field - four times the size of reserves in Reliance Industries eastern offshore KG-D6 fields - is suffering from lukewarm relations between India and Iran, as New Delhi has backed sanctions imposed on Iran for its nuclear program by the United Nations Security Council.
US sanctions on Iran to deter foreign investment have also cast their shadow over its investment.
In the past, Iran has threatened cancellation of the block in case delay continue indefinitely.
OVL entered Iran by signing an Exploration Service Contract (ESC) for offshore Farsi Block on December 25, 2002 with the National Iranian Oil Company (NIOC).
It drilled four exploratory Wells off which 3 (in BB Area) proved to be oil wells and one (in FB area) was gas well. In September, 2008, OVL got the commercially acceptance for the gas field from the NIOC Board with in-place gas reserves of 12.5 Tcf and peak production capabilities 1100 million standard cubic feet per day.
OVL has made an expenditure of about $87.875 million in this block till now.
Sources said OVL submitted a draft Master Development Plan (MDP) of Farzad B Gas field to Iranian Offshore Oil Company (IOOC) on 2009 and discussions on the Development Service Contract (DSC) have been going on since then.
Iranian authorities have in-principle approved a Master Development Plan (MDP) for bringing to production the Farzad-B gas field.
But, the contract has not been signed because of threat of being sanctioned by the US, which is against any company investing more than $20 million in Iran's energy sector in any 12-month period.
To keep Iran engaged, India wants a higher rate of return on its investment. An investor gets a fixed rate of return on its investment as Iranian law prohibits foreigners owning oil and gas resources.
Foreign companies develop the fields through service contracts. OVL can buy Iranian gas from the remuneration it will receive under the service contract.
OVL will be reimbursed for the entire $87.875 million investment it made during the exploration phase in the block, as well as an additional 35%.
It is to be paid a 15% rate of return over-and- above the investment they make.
OVL is the operator of the Farsi block that lies north of Qatar. It has 40% interest in the 3,500 sq km block.
State refiner Indian Oil Corp (IOC) too has 40% stake, while the remaining 20% is with Oil India Ltd (OIL).