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Page added on June 20, 2015

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Iran Holds Out Improved Oil-Contract Terms

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Officials say if sanctions are lifted, Western companies could negotiate longer-term, more profitable deals.

Iran is prepared to offer longer-term and more-profitable contracts to international oil and gas firms but expects substantive partnerships with Iranian companies, said oil-ministry officials, signaling how the cloistered country will try to entice billions of dollars in energy investments after any nuclear deal.

The contract outline, which Iran has discussed with foreign companies but not yet released in its entirety, would pay companies more for boosting production, last longer and encourage joint ventures from the earliest stages of field development, said Ali Kardor, the vice president for investment and finance at the National Iranian Oil Co.

The companies will also be expected to share more technology and management expertise with their Iranian partners.

“They will have the incentive to produce more, and to transfer the technology,” Mr. Kardor said.

Attention has focused on Iran’s oil and gas reserves, the fourth-largest and biggest in the world respectively, as negotiators from Iran and six world powers appear to be closing in on a deal that would lift international sanctions on Iran in exchange for controls on its nuclear program.

The two sides, which reached a tentative framework agreement earlier this year, have set a deadline of June 30 for a final deal.

An agreement that lifts international sanctions is expected to unleash a flood of foreign investment into Iran’s oil and gas fields, many of which are old and need advanced production techniques that major Western oil companies possess.

Iran’s energy sector needs at least $185 billion in investment over the next six years, said Amir Zamaninia, a senior deputy oil minister who left Iran’s nuclear negotiating team five months ago to oversee the ministry’s interactions with dozens of major foreign companies flocking to Iran to explore opportunities.

Large U.S. oil companies left Iran during the 1979 revolution that overthrew the Shah and established the Islamic Republic. They never went back, but European energy producers such as Statoil AS A of Norway, Total SA of France, and Eni SpA of Italy didn’t pull out until as late as 2010. The sanctions have slashed Iran’s oil exports and eroded production to less than three million barrels a day, about half its peak level in the 1970s.

We expect Iranian partners to have a meaningful share.

—Amir Zamaninia, senior deputy oil minister

As the recent negotiations have progressed, Iranian officials and oil company executives have met with increasing frequency, both in Iran and abroad, to discuss the terms on which they might re-enter the country after a deal.

Iranian oil minister Bijan Zanganeh has led an effort to overhaul the types of agreements Iran once insisted on signing with oil companies. Those agreements kept resources out of foreign ownership—reflecting deep political sensitivities in the country—and restricted the profits foreign companies could make by boosting production.

At a recent international conference, Eni Chief Executive Claudio Descalzi told an audience that included senior Iranian officials that his company and others wouldn’t return to Iran without improved contractual arrangements.

“We lost so much money that we need to change the terms,” Mr. Descalzi told a seminar of the Organization of the Petroleum Exporting Countries in Vienna earlier this month.

The new contracts, which will be offered for work on somewhere between 34 and 74 oil fields, could last for the duration of a field’s life, up to 30 years, and will link payments closely to production levels, Mr. Kardor said.

The ministry would encourage partnerships with Iranian companies in the earliest stages of development, he said. Previous contract terms were as short as six years and often didn’t involve local partnerships in the development stages, he said.

He said the ministry expects negotiations with foreign firms to take as long as six months once sanctions were lifted. Meanwhile, he said Iran’s national oil company has been testing how long it takes to restart wells that have been shut down since sanctions halved exports. Those tests have encouraged Mr. Zanganeh’s recent assertions that Iran could pump as many as one million more barrels a day within six months, he said.

Eventually, for some of the most complicated and difficult projects, Iran might even offer contract arrangements known as production-sharing agreements—highly controversial in Iran because they allow foreign companies possession of some of the oil to sell. These might include deep-water wells in the Caspian Sea, or perhaps some of the world’s oldest fields where squeezing more oil out requires specialized technology, said Mr. Kardor.

The ministry is waiting for a clearer sense of the status of the nuclear talks before circulating the entire detailed contract model with foreign companies, said Mr. Zamaninia.

He said that the contract model still needs approval from the cabinet of President Hasan Rouhani, but doesn’t require the involvement of the country’s parliament, which is dominated by nationalist hard-liners.

“It was developed so as to not step on anyone’s toes, but still be attractive to investors,” said Mr. Zamaninia. But he said Iran expects international companies to form joint ventures with Iranian service companies, construct pipelines, and build and operate drilling platforms among other things.

“We expect Iranian partners to have a meaningful share,” he said.

WSJ



One Comment on "Iran Holds Out Improved Oil-Contract Terms"

  1. Boat on Sun, 21st Jun 2015 4:23 am 

    Nigeria is offering cheaper oil. Prices are going down. How long for these changes to hit the pump?

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