Iran whets investors’ appetite with $30 billion oil deals

Iran is targeting about $30 billion in investment by offering 70 oil and natural gas projects to international companies as the Persian Gulf country anticipates the lifting of economic sanctions. Iranian officials presented the projects at a two-day conference in Tehran as part of an effort to attract more than $100 billion to revive the energy and petrochemicals industries and generate much-needed government income.

Bijan Namdar Zanganeh, Iranian oil minister introduced them along with a new type of investor contract offering better incentives than the buy-back agreements Iran offered in the past. The work covers 52 production and 18 exploration projects, both onshore and in the Gulf and Caspian Sea.

Iran is offering a negotiable framework for new oil deals rather than a uniform contract for all investors, Roknoddin Javadi, managing director at National Iranian Oil Co., said. The government may modify the framework and plans to present more details in February at a conference in London, Seyed Mehdi Hosseini, chairman of the ministry’s Oil Contract Restructuring Committee, said.

Iran’s campaign to upgrade its energy industry is based on the following; the new investor contract will give companies a share of the oil they produce and let them sell it globally, Hosseini said. International companies will be paid in cash or in kind based on a fee per barrel, Talin Mansourian, a consultant with Hosseini’s committee, said. Iran would reduce the fee if oil prices fell by more than 50 percent and increase it if prices rose by a corresponding amount, Mansourian said.

Iran’s old buy-back deals paid companies a fixed fee regardless of how much oil they produced and offered them no incentive to exceed output targets. Buy-backs also paid no compensation to companies that spent more than budgeted amounts to develop a field.

Under the new contracts, the NIOC will not limit capital spending and will approve budgets on a yearly basis, though companies still would not receive a higher fee if they produce above their output targets, Hosseini said.

Investors should be able to recover their development costs five to seven years after starting production, according to Iranian officials. Companies that come up empty-handed after exploring for oil or gas can search for fuel in nearby areas. Under buy-backs, they had to stick to development plans agreed upon before work began and were barred from exploring new areas.

International investors must team up with local partners that the Iranian government selects, and they cannot own hydrocarbon deposits. Iran will let international and local companies determine the stakes each will hold in joint-ventures formed to develop fields.

Iran is preparing to start the bidding process for oil and gas rights by the next Iranian calendar year starting March 21. Companies will be asked to make bids based on a per-barrel development fee, Mansourian said. NIOC will announce other terms when it starts the tendering process in four to five months, she said.