By Mahnaz Abdi

Are they lucky enough to win Iran oil deals?

May 26, 2017

After the implementation of Iran’s landmark nuclear deal, known as the Joint Comprehensive Plan of Action (JCPOA), in January 2016, the Iranian oil industry has witnessed a flock of foreign companies willing to participate in different projects.

Reclaiming its share of the global oil market, Iran, once OPEC’s second-largest producer, has it on agenda to ramp up crude production especially from the fields it shares with its neighbors.

In this line, boosting production in West Karoun fields (five oilfields the country shares with Iraq at the western part of Iran’s southwestern region of Karoun) by 100,000 barrels per day (bpd) to reach 300,000 bpd is the first one among 11 prioritized programs that First Vice-President Es’haq Jahangiri has recently tasked the Oil Ministry with implementing them by the end of the current Iranian calendar year (March 20, 2018).

The priority is also attached to the gas fields, especially South Pars gas field, which Iran shares with Qatar in the Persian Gulf. The field contains a significant amount of natural gas, accounting for about eight percent of the world’s reserves.

Last October, Mohammad Meshkinfam, the managing director of Pars Oil and Gas Company (POGC), which is in charge of implementing South Pars development phases, said: “Enhancing the rate of gas recovery should be launched in South Pars by the next five years. The system will be launched first in phase 11 and then it will be applied in the other phases of the field.”

The country requires foreign technology and also investment to launch such system as Meshkinfam told the Tehran Times last December: “Enhancing the rate of gas recovery from South Pars gas field through installing related installations and platforms is the main focus of POGC in attraction of foreign investment and also transfer of foreign technology to the country.”

The Oil Ministry’s main priority in implementing new upstream projects is to increase the recovery rate of fields through applying modern know-how.

To meet such priority and also for development of oil and gas fields, especially the shared ones in line with regaining the country’s share of global markets, the Islamic Republic has come to agreement with a number of domestic and foreign companies for conducting related studies on some fields.

Among the foreign companies the National Iranian Oil Company (NIOC) has signed memorandums of understanding (MOUs) with, it could be referred to Royal Dutch Shell, which signed an MOU with NIOC to conduct development studies on South Azadegan and Yadavaran oilfields (two West Karoun oilfields) and Kish gas field (near Kish Island in the Persian Gulf).

The Malaysian state-owned oil and gas company Petronas also signed an MOU with NIOC for development studies on South Azadegan and Cheshmeh-Khosh (an oilfield in west of Iran). The agreement marks a return to Iran for Petronas.

Studies on development of Cheshmeh-Khosh was also awarded to Gazprom Neft PJSC, a subsidiary of Russian oil giant Gazprom, based on an MOU which also covers studies on developing Changuleh (an oilfield in west of Iran).

The three above mentioned MOUs were signed in last December, among a number of other similar ones inked after the JCPOA.

Results of studies on 25 projects submitted

Gholamreza Manouchehri, the deputy managing director of NIOC for engineering and development affairs, announced in late February that NIOC had received results of studies on 25 projects for development of Iran’s oil and gas fields conducted by foreign companies.

He said the post-sanctions environment has laid the ground for the presence of international companies for development of Iranian industries.

In November 2015, Iran introduced its long-awaited new model of oil contracts, known as the Integrated Petroleum Contract (IPC), which will replace buy-back contracts. It is expected to offer more flexible terms on oil price fluctuations and investment risks to make the sector more financially attractive.    

The new contracts, which include those in the upstream exploration and development sectors, are expected to attract more than $40 billion in foreign investment. 

Iran has pre-qualified 29 international companies to bid for its oil and gas projects based on IPC. Anglo-Dutch Shell, France’s Total, Italy’s Eni, Malaysia’s Petronas, Russia’s Gazprom and Lukoil, Austria’s OMV, Germany’s Wintershall, as well as companies from Spain, Poland, China, Japan, India and some other countries are included in the list released in early January.

Now the question is how the companies with them Iran has signed MOUs on development studies of the fields will be lucky to win the contracts on development projects.

Asked about the issue, Mahmoud Khaqani, an international energy expert, told the Tehran Times in a telephone interview on Monday: “The fact that major oil companies, particularly French and Italian ones, will go ahead with upstream contracts with Iran, is a matter that we have to wait and see. That will be very much on what President Rouhani’s new administration’s energy policies will be.”

Macro energy policy required

“Obviously there is no macro energy policy in Iran yet. Iran does not know what percentage of its energy supply or domestic market is going to nuclear, or gas or oil. These are regrettably, to my view as an energy expert, policies which have not yet been well defined or publically defined by government in Iran which therefore makes others also be hesitant to make a final decision,” Khaqani lamented.

“Don’t forget, government’s tenure is four years in Iran and contractual agreement on upstream oil and gas production is a minimum 20-25 years period. The risk is very high. And Iran, in my opinion, for the first time now we see that those who lost the election were almost talking in the same line as those who won the election. Now they should sit together and define a national interest policy which also includes a national energy policy and that will put the people’s mind at rest to take the risk and enter into a real contractual agreement both in upstream and downstream in Iran’s petroleum and energy industry,” the energy expert commented.

 IPC framework a positive factor

Mohammad-Sadeq Jokar, a senior energy expert in the Institute for International Energy Studies (IIES), has a more optimistic view in this regard.

As he told the Tehran Times in a telephone interview on Tuesday, there are three factors which bring about more optimism about international companies’ signing deals in Iran. They are: 1- Re-election of Mr. Rouhani (who is a supporter of JCPOA) as the president 2- Trump’s changing its approach toward Iran’s nuclear deal; as his administration upheld Iran sanctions waiver, keeping nuclear deal alive and 3- Legal framework of IPC (which offers more flexibility, so is more attractive for foreigners).

The energy expert believes that while an appropriate environment has been created recently in Iran for the presence of foreign companies that could be even better, there are three factors that the Islamic Republic should notice to take the advantage of this condition.

He mentioned the first factor as ‘time’, as the country should do the right thing at the right time and prevent from waste of time. “For example when it comes to the issue of IPC, although it’s a good strategy to attract foreign companies, the process to come to the final framework has already taken about two years and in my opinion as an analyst it should have taken less time to come to result,” he explained.

He said the second one is to shed light on the country’s energy policy and remove the negative image created for example by some Arab media about Iran’s energy industry; as one of them has said that nothing positive has occurred in the Iranian energy sector after the JCPOA. So the country is required to express openly and unambiguously its status and policies in this regard.

“And the third one is that we need a comprehensive diplomacy in energy in a way that comprehensive decisions should be made for presenting Iran in the international scene,” the analyst concluded.

The optimistic viewpoint of Jokar is reinforced by the perspective of some international analysts believing that President Rouhani is in a stronger position after his re-election to push through plans for wooing foreign investors the country needs to boost oil production.

According to them, re-election of Rouhani, who delivered the nuclear deal and promised to bring in foreign investment, would suggest that there is support for things like the oil contracts.

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