Iran’s new petroleum contract details to be finalised by Sep, says official

Iran’s new petroleum contract details to be finalised by Sep, says official
By bne IntelliNews August 1, 2016

Iran’s deputy minister of petroleum, Amir Hossein Zamaninia, has announced that Tehran’s long-awaited Iran Petroleum Contract (IPC) system will be ready in a month.

The IPC has been touted as Iran’s major ticket out of the slump in recent years, with highly lucrative offers on the table for foreign oil, gas and petrochemical companies. However, the details of the new contract have been mired in controversy, as opposing factions in Iran argue over whether it is too generous to the foreign companies.

The deputy, speaking with Japan’s Kyodo news agency, said: "I believe we are prepared to present our projects and a number of contracts including the IPC to the international oil market," SHANA, Iran’s energy news agency reported.  

"We believe that major companies and mid-sized companies are all anxious to receive this information and how to get engaged in discussions for these contracts," Zamininia added, noting that Iran is going to have a number of projects mostly developed as joint oil fields, with increased oil recovery (IOR) included in the new contracts.

"I am very optimistic that things will start picking up within a few short months," he said, though added that certain parts of the long-planned document need to be further negotiated.

Investors are waiting to see what the new upstream licensing system, the Iran Petroleum Contract (IPC), will look like. The released “Principles of the New Contract Model” acknowledged many of the criticisms levelled at the previous buy-back contracts, as well as recognising the need for the kind of structural reforms necessary to encourage investment of approximately $185bn required over the next five years to modernise Iran's ageing oil and gas infrastructure.

The buy-back contracts were regarded by investors as too inflexible, capping cost recovery and remuneration. “[International oil companies] were previously expected to invest in the development of contract areas in the knowledge that any overrun beyond pre-determined budgets would be irrecoverable. This acted as a clear disincentive to invest in more risky or marginal prospects, particularly when combined with a limited remuneration structure that did little to reward enhanced productivity,” Dentons' oil and gas analysts James Dallas and Alistair Black wrote in a recent analysis of the IPC.

In addition, developers couldn’t book reserves and didn’t benefit if production exceeded targets, nor did they have any control over production because the state-owned energy company NIOC took over the fields once they had come on stream.

The IPC appears to address many of these problems, though finalising the system is proving hard. There was a London event planned for February, but Iran pulled out claiming the UK didn’t issue visiting Iranians with visas in time, though some suggested there were still disagreements over the IPC at the top.

Earlier in July, conservative faction politicians in Iran criticised the IPC as being far too generious to foreign oil companies looking to exploit the country's hydrocarbons. This brings up a concern over how serious some parts of the Iranian leadership are about bringing in foreign investors. Although passed by the cabinet last year, the general terms of the IPC have been under attack by the conservative-dominated parliament, with critics saying it violates parts of the Iranian constitution.

The IPC was approved on July 12 by an important ministerial committee, headed by vice-president Eshaq Jahangiri.