The fifth-largest Organization of Petroleum Exporting Countries member is discussing limits to its nuclear program to remove Western Sanctions against its financial and energy businesses. Iran is developing new hydrocarbon contracts that are “in line” with international practice and law and will offer more flexible terms than those Iraq uses, said Mehdi Hosseini, who leads the oil ministry's committee on the accords.
“They'll need to reward partners with incentives for raising production or cutting costs,” said Robin Mills, who worked for Royal Dutch Shell on some of the last Western contracts secured in Iran a decade ago. “Iran's mature and smaller fields pose more risks for companies developing them, so Iran would have to offer better remuneration,” Mills, head of consulting at Manaar Energy Consulting and Project Management in Dubai, said by phone Monday.
Sanctions have almost closed Iran's oil and gas fields to investment over the last decade, limiting the country's access to technology to boost output and build liquefied natural gas export plants. The restrictions barred foreign firms from the world's largest gas reserves and fourth-biggest oil deposits, according to data from BP.
“We want oil companies to be involved in joint fields and high-risk fields,” Hosseini said Sunday at a Tehran news conference. “We are looking at longer-term commitments so that our own companies can learn alongside foreign companies.”
Iraq, Iran's neighbor to the west, has emerged as a global energy investment hub over the last five years, offering oil and gas production rights and attracting companies such as BP, Shell and ExxonMobil, along with producers from Russia, China and Africa.
“Iraq’s contracts are the best in the world in terms of making high national profits,” Abdul Mahdy Al-Ameedi, director of the oil ministry’s licensing department, said by phone from Baghdad today. “The Iranians seek to copy our contracts and improve some terms by giving more privileges to companies to work in Iran. Nothing has happened so far, it’s just an idea.”
Iraq’s semi-autonomous northern Kurdish region enticed companies like Exxon and Total SA with more attractive contracts than the federal government had offered for super-giant fields like Rumaila in the south, Mills said. Iraq’s practice of paying companies a fixed margin based on a pre-determined development plan probably won’t work in Iran where fields will “need someone who can manage them over 30 years,” he said.
“Any new model will have to be win-win for all parties involved,” Hosseini said. “The new contract is our own type. We haven’t given it a name.”
Iran will curtail use of existing buy-back contracts, he said. The buy-back deals require companies to pay for oil and gas exploration and recover their investment from production at a pre-arranged rate of return.
Iran will resume negotiations with world powers over its nuclear activities on Feb. 18, after reaching a preliminary deal in November. The two sides seek a comprehensive accord to ensure Iran’s nuclear program is non-military, as the Tehran government says, and end international sanctions against it.
The nation needs as much as $150 billion in investment over the next five years to develop its oil and gas, and Iranian officials expect most of the money to come from foreign companies, Hosseini said.
The central government of Iraq, which overtook Iran as OPEC’s second-biggest producer in 2012, pays investors a fixed fee for any oil they produce. Iraq’s semi-autonomous Kurdish region offers production-sharing agreements, which many foreign companies prefer as more lucrative.
Iran will give a preview of its new investor contract to a domestic audience at a two-day conference in Tehran starting Feb. 22, Hosseini said. International representatives are welcome and some European and Asian companies have expressed interest in the event, he said, without identifying any of them.
Hosseini reiterated that Iran plans to introduce the new contract at a conference in London in late June or early July.
Iran has oil reserves of 157 billion barrels and gas reserves estimated at 1,187 trillion cubic feet, according to BP’s Statistical Review published in June 2013.