Iran has revealed the framework of oil and gas contracts to lure back international oil companies, offering more flexible terms on oil price fluctuations and investment risks to make the sector financially attractive.
During the two-day Tehran Conference, oil executives from European and Asian companies including France’s Total Group, Norway’s Statoil, BP, Royal Dutch Shell, Repsol, China’s Sinopec as well as companies from India, Pakistan and Oman, will hear about the details of the new scheme. There was also an energy adviser from the UK government, according to a Western diplomat.
The Iran Petroleum Contract (IPC) officially puts an end to about two decades of a buyback system that prevented foreign companies from booking reserves or taking equity stakes in Iranian companies. Under some circumstances, the new model allows reserves to be booked, but foreign companies would still not own oilfields. Accordingly, the National Iranian Oil Company has exclusive ownership rights over resources.
“We do not claim that this is an ideal and flawless scheme but it can address the needs of both National Iranian Oil Company and international oil companies,” Iran’s Oil Minister Bijan Namdar Zangeneh, said.
The Islamic Republic, which has the world’s largest gas reserves and fourth-biggest oil reserves, plans to increase its oil production capacity to about 5m barrels a day by the end of the decade from about 1mb/d since sanctions were introduced in 2012.
The new model, some details of which have been disclosed over the past year, is supposed to increase foreign companies’ profits by basing the fee on the risk of the fields, allowing contracts to last for up to 25 years and putting no ceiling on capital expenditure.
The IPC, according to Iranian officials, is a risk service contract by which the Iranian and foreign contractors will bear the risks of the operation. However, a reward system envisaged would entitle contractors to a fee per barrel that would be paid as profit to the company and contractors will also be entitled to an increase in profits in face of dramatic oil price fluctuations.
The buyback scheme proved hugely unpopular with multinationals and deterred investors even before US and EU sanctions over Iran’s nuclear program were tightened in 2012.
Some representatives of international companies said they had to assess the details more precisely. One Western oil official said it seemed the contract was “well-studied” and “the homework was well-done”. But he added that the applicable law did not clarify whether disputes could be referred to international arbitration.
Another Western oil official said the contract was “a good step in the right direction and better than the buyback model.”
The long-awaited conference has been overshadowed by uncertainty over how international banks will react to the implementation of July’s landmark nuclear agreement with world powers. It is not yet clear whether US sanctions will affect major businesses with interests in the US when international restrictions are lifted early next year.
“Banks have openly told us that they will be the last to enter Iran’s market,” said a Western oil executive at the conference. “Our problems are about returns and being able to operate.”
The absence of American companies or their subsidiaries in Europe and the Middle East at the conference is a reminder of the continuation of US restrictions as well as opposition inside the country to the US “infiltration” — a new term used by hardliners opposed to opening up the country after the nuclear deal.
“We did not oppose their presence. They can come and use this opportunity,” Mr Zangeneh said of American companies, adding that he had not heard of any opposition. When asked if American companies would attend a future conference, possibly in London in February, he said, “I hope so.”
Iranian oil executives confirmed to the Financial Times that holding this week’s conference in Tehran, rather than London, was a response to domestic political infighting.
“As you see there are no American companies here now and it does not make sense for such a conference not to have Americans,” an oil ministry official said.
Iranian officials at the conference reminded international companies of the importance of domestic participation in joint ventures in almost all future projects under the IPC — in a clear move to allay domestic concerns about foreign exploitation of the country’s natural resources.
“This is supposed to be a conference to lure international companies but the minister highlights ‘resistance economy’ and how Iranian companies should be strengthened,” said an Iranian oil businessman. “Domestic pressure on the oil ministry and continuation of hostility toward the US are creating obstacles.”
Iran is expected to introduce about 50 oil and gas projects — both brown and green fields — at the Tehran conference but it is not clear when the companies will be able to bid or start direct negotiations. (Source: Financial Times)