Iran has given ONGC Videsh Ltd (OVL) a one-month deadline to sign the contract

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for the development of Farzad-B gas field in the Persian Gulf at an estimated investment of over $5 billion.

OVL, the overseas arm of state-owned Oil and Natural Gas Corp (ONGC), had in August/September, 2010, submitted a revised Master Development Plan (MDP) for bringing to production the Farzad-B gas field it had discovered in Farsi offshore block.

But it had not signed the contract 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.

"In the past, Iran has threatened to cancel award of Farsi block to OVL over delays in signing of the Farzad-B gas field development contract. They have again written to OVL seeking urgent action," a top source privy to the development said.

"There is no ultimatum but the language of the letter is certainly much stronger then the past. They want OVL to sign development contract in a months time," he said.

While OVL cannot invest in developing in the gas field because of the US sanctions, it will continue to keep Iran engaged and plans to set a team to Tehran later this month to discuss the issue.

OVL is the operator of the Farsi block that lies north of Qatar. It has 40 per cent interest in the 3,500 sq km block. State refiner Indian Oil Corp (IOC) too has 40 per cent stake, while the remaining 20 per cent is with Oil India Ltd (OIL).

"OVL will seek more time (on signing of the development contract) as there is not much the company can do given the US and European sanctions against Iran," the source said.

The Farzad-B gas field may hold an estimated 21.68 trillion cubic feet (Tcf) of inplace reserves, of which 12.8 Tcf can be recovered. The reserves in Farzad-B is almost twice the largest gas field in India.

The Indian consortia would get a fixed rate of return on the $5 billion it will invest on developing the Farzad-B gas field as Iranian law prohibits foreigners owning oil and gas resources. Foreign companies develop the fields through service contracts.

OVL, which had originally submitted a master development plan for the Farzad-B field in April 2009, can buy Iranian gas from the remuneration it will receive under the service contract.

After the Iranians raised certain queries, OVL submitted a revised Master Development Plan (MDP) in August/September, 2010, proposing to invest over $5 billion over a 7-8 year period.