Investigating the Effects of Contractual Factors and Arrangements on the Optimum Level of Production in Oil and Gas Projects: Evidence from the South Pars Phases 17 & 18

Development of oil and gas fields is facing many risks, which are mainly due to uncertainties about the existence of commercial reserves, natural and economic environment, political conditions of host countries, legal and infrastructure issues and a market for petroleum products. In such an environment, investors are often engaged as contractors to develop and operate petroleum projects, constantly seeking to recover their capital and operating expenditures quickly, through increasing production levels. But some geological and geophysical factors, hydrocarbon structure, technological and scientific constraints, as well as some of the contractual arrangements, such as cost recovery ceiling, virtually prevent the investor from gaining access to high economic benefits and quick recovery. The purpose of this study is to investigate the effects of contractual factors and arrangements on the optimal production levels of petroleum projects. To this end, information on the South Pars phases 17 and 18 projects were collected as a case and the optimal level of rich-gas production in this project was simulated in form of a nonlinear dynamic optimization model under the Iranian Petroleum Contract and Engineering, Procurement, Construction arrangements. The production levels and scenario analysis indicated that contractual factors and arrangements could affect the optimum level of petroleum production, significantly. Given that the production paths obtained for this project are different from that drawn by the Management and Consolidated Planning department in National Iranian Oil Company, the current production profile for the Phases 17 and 18 is not optimal, in which the executive suggestions are presented. These findings would be applicable to the formulation of Master Development Plans.