How Iran woos foreign investors ..?

Iran is planning to ramp up its crude oil production to reach 5mbpd in 2018. To do this it plans to work alongside IOCs and implement favourable contractual models to encourage foreign investment in the country, according to HE Ali Majedi, deputy petroleum minister for International Affairs & Commerce, Ministry of Petroleum, Iran.

The minister said that $255bn investment is needed in Iran’s oil & gas sector for it to reach its full potential. $155bn of that investment is earmarked for the upstream sector. He said 55% of the $155bn should be allocated towards the establishment and enhancement of the production and development of oil & gas fields.

“The strategic position of Iran, with its access across the region north to south, access to water, common borders with 15 countries and developed infrastructure for oil & gas transmission has distinguished the country in the region,” said Majedi.

“Further investment in the oil & gas industry of Iran is attractive, it has high profitability of projects, lower level of risk, professional human capital, security of equipment and of installations, and extra opportunities of development, production and trade of both oil & gas.”

The Ministry of Petroleum in Iran is trying to facilitate investment and improve trade conditions for international companies to participate in oil & gas projects in the country.

The Ministry has developed a new contractual model for oil & gas upstream projects, with revisions that include a better alignment of government and contractor profit sharing, as well as the development of integrated operations in development and production.

It also includes the development of an effective fiscal system, designed to create enhanced contractual flexibility, to better balance the risk/reward of the investor, and maximise incentives for investors involved in high risk areas.

According to the Ministry, this new model in the exploration, development, and production of the fields, coupled with better capacity maintenance, enhanced oil recovery projects, and technology transfer should make the country very attractive to investors.

However, with Iran’s upstream industry currently under heavy international sanctions, investment of this scale by IOCs may be a fantasy.

According to Shapour Saba, upstream analyst, Middle East at Wood Mackenzie, IOCs cannot invest in petroleum projects as long as sanctions are in place. Foreign involvement is contingent on the removal of the sanctions.

“We assume that due to sanctions Iran’s crude oil production will stay at around 2.7mbpd until 2015. The 5mbpd target is unrealistic given constraints being experienced in Iran,” said Saba

The removal of those sanctions, should it ever happen, will take a long time. One of the reasons is that Iran and world powers must still agree on common terms around the country’s nuclear programme.

“The country has a deadline on July 20th, possibly pushed back by another six months, to reach a comprehensive deal that would settle the dispute over the nuclear programme and provide Iran with significant sanctions relief, including on its energy industry.”

Until this is achieved, no foreign oil company would risk inking a deal with the country. If a deal is reached, the removal of the sanctions will be time-consuming as a range of different bodies have imposed them (US Congress, US Executive Order, EU Parliament, UN Security Council).

Iran currently owns more than 11% of the world’s oil reserves and is the 4th largest Opec oil producer, as well as holding 17% of the world’s gas reserves at 3.6tcm.

However, according to Wood Mackenzie, Iran is facing a rapid decline of its high producing oilfields, and may not be the boon that many in the industry expect.

“Out of the top seven producing oil fields in the country, all but one started producing before the revolution in 1979. That’s the reason why they’re focusing on attracting IOCs with a track record in EOR, in order to offset the natural decline of their production before even being able to significantly increase the output,” said Saba.

Iran’s resource base is a very attractive prospect for international oil companies.

ENI, Total, Shell and Statoil, used to operate in the country; however, according to Wood Mackenzie, the fiscal terms would need to be very good for them to step back in if sanctions are lifted.

Iran is one of the largest conventional resource holders with room for further discoveries in the Arabian Gulf area, which remains under-explored. Source: Arabian Oil & Gas