Wednesday, September 20, 2006

Iran Offers New Terms to Lure Foreign Oil Explorers

Michael Theodoulou, The Times Online:
Iran will put the exploration of 24 oil blocks out to international tender within the next two months after reviewing its energy development contracts to make them more attractive to cautious foreign investors. The new terms may be an improvement, but analysts say that most big foreign companies are likely to be wary of committing until it is firmly established that Iran will not suffer international sanctions over its nuclear programme. READ MORE

The National Iranian Oil Company (NIOC) put out to international tender the exploration and development of 16 blocks in 2004. So far, contracts on only four of the onshore blocks have been finalised.

“The remaining 12 blocks will be put on tender with 12 newly defined other blocks,” Mahmoud Mohaddes, the director of exploration of NIOC, said yesterday.

That only four contracts were finalised from the last round was a result both of the fragile political atmosphere between Iran and the West — which has since worsened — and the nature of the tenders. The last of those four contracts, a $107 million (£57 million) deal with a Norwegian company, was signed only last Sunday.

“In any other country, the companies would be queuing up and competing,” Gerald Butt, editor of the Middle East Economy Survey, said. “Look at Libya. Companies are fighting each other to get in.”

Iran’s routine upstream contracts are based on its buyback scheme, whereby investment in developing a field is rewarded with a share of production for a short period before the State repurchases the field. Foreign firms often complain that the compensation period is too short and have been reluctant to come forward because of the high capital risk on the blocks.

Revisions to the buyback terms envisage longer involvement by foreign contractors in the production period to increase recovery rates and maintenance quality.

“We are looking for ways to increase the recovery rate alongside preserving the Government’s authority on oil reserves,” Mr Mohaddes has said previously, referring to Iran’s constitutional ban on foreign ownership of its oilfields.

Reportedly, the new terms may allow the presence of foreign companies for the whole life of a field.

“Even if the new terms are significantly better, many major companies would be reluctant to commit such huge investment in Iran until it’s absolutely certain there won’t be international sanctions,” Mr Butt told The Times.

  • Iran has proven oil reserves of 133 billion barrels, a tenth of the world’s known oil, but its output is below potential. Crude production last year averaged 3.9 million barrels per day, less than 5 per cent of world output
  • In 1974, Iran produced 6 million bpd, but has not reached that level since its revolution in 1979. It aims to lift output to 5 million bpd by 2010
  • Iran prohibits foreign ownership of oil, but has “buyback” contracts with foreign investors; the foreign company gets a fixed return and the project reverts to Iran after a few years
  • Iran has the world’s second-largest gas reserves, totalling 960 trillion cubic feet. The South Pars gasfield is being developed with Total (France), ENI (Italy) and Statoil (Norway)