European and U.S. oil-and-gas companies drawn to Iran as sanctions ebb can expect to encounter not only opportunities, but also capable Iranian companies offering tough competition or joint ventures.
While no Iranian companies have attained the prowess of integrated oil-and-gas firms such as Exxon Mobil Corp. or big service outfits like Schlumberger Ltd., a new breed has emerged during Iran’s years of economic isolation. They can take on engineering tasks—such as laying pipelines, building offshore platforms and drilling wells—that previously were handled by foreign companies.
If the nuclear agreement comes into effect and economic sanctions are lifted against Iran by the end of this year or early in 2016, those Iranian companies will be well positioned to compete for tens of billions of dollars in service contracts or to forge strategic relationships with Western companies, say industry officials.
“One of the good byproducts of sanctions has been a rapid growth of our local capacity,” said Mehdi Hosseini, a top adviser to Iran’s oil ministry.
In some cases, the Iranian government will likely require foreign oil companies to work with these new local firms, possibly leading to joint ventures, said Robin Mills, head of consulting at Manaar Energy in Dubai.
“When sanctions are lifted, then [local contractors] will definitely have a big role,” Mr. Mills said.
Big oil and services companies haven’t yet publicly addressed how they will contend with local Iranian competitors. A spokeswoman for Schlumberger said it would start evaluating Iranian opportunities if and when sanctions are lifted. Exxon and other big energy companies didn’t respond to requests for comment.
Iranian officials have acknowledged that they need western energy companies to boost their local industry, which struggled to maintain production over the past decade. Increasing restrictions gradually pushed U.S. American firms out in the past decade and then European Union sanctions in 2010 caused a further exodus.
But in big oil’s absence, Iranian firms have stepped up.
In one case, an Iranian company that only had the capacity to carry out limited repairs offshore before sanctions now has three vessels capable of laying pipelines over up to 5 kilometers (3 miles) a day—more than is needed in Iran, Mr. Hosseini said. It now can manufacture drilling rigsand offshore platforms used for Iran’s giant South Pars gas field, he said.
Mansour Moazami, Iran’s deputy oil minister for planning and supervision said the same change is reflected down the line for petrochemicals such as plastic or components of medical drugs. While 25 years ago, “all petrochemical projects were integrally handled by foreign contractors, now 65% of the content is done domestically,” he said.
While other oil industries such as those in Iraq and Libya were debilitated by international isolation, Iran has had the advantage of universities that train thousands of some of the world’s most sophisticated engineers each year. Tehran’s Sharif University is among the world’s top engineering and math programs and the country has an oil industry that stretches back a century.
Many national companies are run by engineers who once worked for international oil companies and stayed behind after their former employers left.
Mohammed Kasaeian worked as a project manager for both Eni SpA of Italy and Statoil ASA of Norway before helping set up Rosemand EMI in Tehran eight years ago. The company employs more than 100 engineers, has developed its own design for offshore oil-drilling rigs and is moving into gas-to-liquids production and biofuels.
“We’re not looking to be a fabricator,” he said. “We’re looking for technology and financing.”
Well Services of Iran and Mehran Engineering & Well Services are two companies that became Iranian when their foreign owners Schlumberger Ltd. of the U.S. and Al-Mansoori Specialized Engineering of Abu Dhabi pulled out because of sanctions. Now they play a key role in assisting the drilling and mapping of offshore oil-and-gas wells, said Iranian oil officials.
Their work is of similar quality to that of major international oil services firms and comes at a much lower price, one official said. Well Services and Mehran didn’t respond to requests for comment.
The Iranian firms aren’t able to fill every gap.
Another Iranian oil-procurement official said one local manufacturer, Fanavaran Parsian, adapted armament technologies to devise wellhead tools and safety valves that are resistant to high pressure and temperature. The equipment was able to replace similar products from international firms for onshore fields. But the official said its quality wasn’t sufficient to avoid leakages offshore, where saltwater increases corrosion.
Fanavaran Parsian didn’t respond to a request for comment.
Many facilities used by Iranian operators can be old or second hand. Another Iranian official said a recent stay on an offshore facility was an unsafe, frightening experience. The 30-year-old platform was “at the end of its life,” he said, as he recalled walking on a corroded grid floor.