ONGC Videsh Ltd (OVL) has demanded that the Islamic Republic pay it a higher return for developing the Farzad-B gasfield in the Persian Gulf, several Indian publications reported this past week.
In 2002, OVL signed a contract to explore the field. It determined the field was commercially viable. Since 2009, OVL has been dickering with Iran over a contract to fully develop the field and bring it to production.
But OVL has now told Iran it does not like the fixed formula for the return it would earn on its $5 billion to $6 billion investment in the field. It says foreign sanctions on Iran make the project much more difficult, increase the risk and therefore warrant a higher return on its investment.
OVL is a rare foreign firm still in Iran. All foreign firms that had agreed to help develop the South Pars gasfield have now withdrawn from that project. The Malaysian firm SKS Ventures was recently booted out for doing nothing on its contract to build the Shiraz Pars refinery and appeared to take Malaysian criticism of sanctions along with it.
OVL is one of the few remaining foreign firms operating in Iran’s oil and gas industry, and it appears that OVL expects Iran to pay for that benefit.
Under the US sanctions law, the US government may impose sanctions on any firm investing more than $20 million in any 12-month period in Iran’s oil and gas industry. OVL holds technology licenses from American firms, which it could lose if it goes forward on Farzad-B.