TEHRAN: Iran, seeking billions of dollars to revitalize its ailing oil industry, plans to offer significantly better commercial terms to companies prepared to invest than offered during last market opening nearly two decades ago.
Foreign oil executives who have reviewed partial drafts of the new terms, called the Iranian Petroleum Contract, said they’re more generous than the types of deals used in the 1990s and 2000s. Unlike those contracts, which merely paid a set fee for the delivery of a project, the new agreements could give investors some share of a field’s production and allow companies to book more reserves on their balance sheet.
Such arrangements would probably make Iran commercially more attractive than regional competitors for international investment including Iraq and Algeria. The executives asked not to be named because Iran has yet to announce the new contract and terms could still change.
“In simple terms, the message from Iran is that if the sanctions are lifted, in return Iran will offer improved contractual terms to make it easier for international oil companies to tap into its lucrative oil and gas reserves,” said Amir Kordvani, a Dubai-based lawyer at Clyde & Co., a firm specialising in the natural resources industry.
Iran sees the return of foreign firms as a key goal from a potential nuclear deal with the United States and the fact the government has started circulating drafts of the terms suggests Iran is expecting to seal an atomic deal. Iran needs $200 billion of investment in its oil industry, Oil Minister Bijan Namdar Zanganeh said last month.
Iran is likely to test the appetite of foreign oil groups this week during a conference before the Opec meeting in Vienna attended by the bosses of the world’s largest publicly-listed oil companies, including Exxon Mobil, Royal Dutch Shell, Chevron, BP and Total. Iranian officials working on the contracts at government ministries weren’t available when contacted by phone or e-mail.
Tehran has yet to complete the new contract but oil executives said that Iran have shared several draft versions of the terms, probably to test the reaction of the foreign oil companies as well as domestic political factions. The executives said some of the drafts contain contradictory language but they share a common theme: the conditions are much better than in the late 1990s.
The biggest novelty is that Iran is offering agreements that resemble production-sharing contracts, or PSCs, the terms favored by international oil companies. Iran’s constitution bans foreign ownership of oil, making traditional PSCs impossible.
The production-sharing model gives international companies a share in the output of an oilfield as payment for their investment. They also allow foreign groups to book the reserves in their books, boosting their balance sheets. When Iraq opened to foreign investors six years ago, it offered service contracts rather than production-sharing agreements.
