Iran sets oil contract terms – but not yet with foreign companies

Iran has finally signed the first of its new model petroleum contracts, after a drawn-out process, potentially paving the way for foreign oil companies to help rehabilitate the country’s industry after a long period of neglect.

The National Iranian Oil Company (NIOC) on Tuesday said it agreed deals worth US$2.5 billion with Persia Oil & Gas Industry Development, part of Tehran’s Tadbir Group, providing a template that it hopes will attract foreign oil companies that have been put off by previously restrictive and unprofitable terms, as well as international sanctions.

The first contracts are for developments of the Yaran, Koupal and Maroon fields, in the south-west of the country near the Iraq border.

Oil minister Bijan Zanganeh said Iran has several more contracts lined up to be signed over the next several months, but he wouldn't say which foreign companies have agreed terms.

“Iran needs more than $100bn investment to develop its oil sector. We welcome cooperation with all companies that can provide capital and the latest technologies for recovery enhancement,” the oil minister said.

Iran is a key part of the negotiations to reach a deal within Opec, which last week said its members had agreed to work towards an overall output cap of 32.5 million to 33 million barrels per day, but indicated that Iran, Nigeria and Libya would be allowed leeway because of their special circumstances. Iran has repeatedly said it will not consider capping its output until it reaches the pre-sanctions level of 4 million bpd, compared with a plateau over the last few months of 3.6m bpd.

Ali Kardor, managing director of NIOC, said on Monday that Iran’s capacity “must reach 5.2 million to 5.7 million bpd in the future,” which would require heavy foreign investment and technological help.

Some analysts were sceptical that Iran has removed the hurdles to attracting foreign oil companies.

“We remain cautious on Iran’s long-term oil production targets,” said BMI Research, part of Fitch Ratings, in a research note. “The creation of a more attractive oil contract to entice foreign investment continues to be marred by hardliner influence.”

BMI notes, for example, that Tuesday’s deal was signed with a company that is closely associated with the government and probably does not have the technological know-how to deliver the enhanced oil recovery objectives of the contract.”

“In this respect, at the very least, attracting the much-needed technology transfer and investment from IOCs will take longer than the originally envisaged, and likely not until after the May 2017 presidential elections, where we expect incumbent President Rouhani to win,” BMI said.

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