It is unlikely that the contractor will declare the area as commercially viable based on the results from its fourth drill, Hossein Roshandel, deputy head of the Exploration Directorate of the National Iranian Oil, told Petroenergy news agency.

China Petrochemical, known as Sinopec, won exploration rights for the concession in 2001. Only its first well produced satisfactory results, said Roshandel.

Iran, holder of the world's second- largest oil and gas reserves, is struggling to compensate through new discoveries for the depletion of its older oil fields. Iran needs to add between 300,000 barrels and 400,000 barrels of new daily oil output each year.

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Oil output currently stands at 3.8 million barrels a day, or 7.5 percent below its 4.11 million quota within the Organization of Petroleum Exporting Countries.

Sinopec signed another contract worth US$19.6 million (HK$152.88 million) in June with Iran's state-owned National Iranian Oil to explore and develop an oil concession area in Semnan province, east of Teheran.

Sinopec has also been negotiating to buy a 51 percent stake in a project to expand the Yadavaran oilfield in southwestern Iran. BLOOMBERG