Foreign companies are intrigued by the terms of Iran's new oil contracts which the country plans to unveil in less than a month as momentum builds for renewed business with the world’s last untapped emerging market.
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Initial impressions of the Iran Petroleum Contract (IPC), as the model is called, are positive, with leading energy developers lining up to be the first for a new beginning.
Some of the world’s biggest energy companies are currently in Tehran for participation at the country’s first major oil and gas event in preparation for the D-day.
Eni of Italy, Total of France, BP of the UK, Gazprom, Lukoil of Russia and Mitsubishi of Japan converged for the Iranian Petroleum and Energy Club Congress and Exhibition on Tuesday.
Each took their turn to highlight former ties with Iran in their efforts to revive fortunes in the country which sits on the world’s fourth biggest proven oil and first gas reserves.
Iran plans to ramp up oil production as soon as the sanctions are lifted, Managing Director of the National Iranian Oil Co. (NIOC) Roknoddin Javadi said.
The country will add 500,000 barrels a day to its production within a week after the lifting of the sanctions and raise it by at least another 500,000 bpd within six months, he said.
What makes Iran attractive to foreign energy companies is the low cost of production, ranging between $5 and $10 for offshore fields and even lower for onshore.
The oil price declines are somehow a blessing in disguise for Iran as many companies seeking to try their hands in shale, deepwater and tar sand developments are discouraged by profit margins.
Hence, the competition already getting tight in Iran comes no surprise to anyone.
Iran plans to boost oil production to 5.7 million barrels a day and gas output to 1.4 billion cubic meters a day by 2021.
It will pay foreign oil companies larger fees than it did under buy-back contracts and offer 20-year tie-ups for the first time, Javadi said.
“The new contract that we’re going to present has raised the opportunity for those who invest to be able to participate in operation and production for a long term, let’s say 20 years. This is the major incentive,” he told Bloomberg in Tehran.
“What’s been announced so far looks like an attractive contract -- no doubt it’s a vast improvement on the buy-back contracts,’’ said Robin Mills who formerly worked for Royal Dutch Shell on projects in Iran from 1998 to 2003.
IPC more appealing than Iraq contracts
According to Mills, Iran’s IPC looks more appealing than the service fees which the neighboring Iraq offers.
It contains some specifications of the production-sharing agreements which will encourage investors to produce more oil and develop a field for longer terms, Mills said.
The IPC will be “one of the most attractive contracts in the Middle East for the size and quality of the fields that are being offered”, he added.
Javadi said the new contract will link payments to oil companies to the quantity they produce.
Buy-back contracts, which Iran used in its dealings, merely paid oil companies a fixed fee over five to seven years. Foreign investors developed and operated an oil field before turning it over to Iran without caring about sustainable production.
The new contract envisages compensating the investors who produce more than the planned amount.
