Iran Plans 20-Year Contracts for Energy Investments

Iran will pay foreign oil companies larger fees than it did under previous buyback contracts to attract $100 billion of investments needed to rebuild its energy industry. The Persian Gulf state, once OPEC’s second-largest crude producer, will also offer 20-year contracts on oil and natural gas projects, Roknoddin Javadi, managing director of the National Iranian Oil Company, said in an interview in Tehran, Bloomberg reported.
“What’s been announced so far looks like an attractive contract -- no doubt it’s a vast improvement on the buyback contracts,’’ said Robin Mills, a Dubai-based consultant who worked formerly for Royal Dutch Shell Plc on projects in Iran from 1998 to 2003.
Iran is preparing to boost its output once world powers remove economic sanctions that choked off investment in its oil and gas industry. Oil exports fell to an average 1.4 million barrels a day last year from 2.6 million in 2011, US Energy Information Administration data show. New contract terms will be introduced next month, as part of plans to boost oil production to 5.7 million barrels a day and gas output to 1.4 billion cubic meters a day by 2021, Javadi said.

  Major Incentive
“The new contract that we’re going to present has raised the opportunity for those who invest to be able to participate in operation and production for a long term, let’s say 20 years,” he said. “This is the major incentive.”
Iran’s previous buyback contracts merely paid oil companies a fixed fee over five to seven years, without giving investors a share of a field’s production in the longer term. The new contract will link payments to oil companies to the quantity they produce, Javadi said.
Under a typical buyback deal, a foreign investor paid to develop and operate an oil field before turning it over to Iranian authorities, and an investor who produced more than the planned amount received no compensation for the additional barrels, Mills, an analyst at Manaar Energy Consulting, said Tuesday.
Iran reimbursed only the budgeted production costs and paid a pre-arranged fee of 12-15%, he said. The new contract looks more appealing to investors than the service fees offered by neighboring Iraq and it shares some features with the production-sharing agreements in common use elsewhere in the oil industry, Mills said.
 “It’ll be one of the most attractive contracts in the Middle East for the size and quality of the fields that are being offered,” Mills said.
Iran will present its new oil and gas contracts on Nov. 27-28 in Tehran, Javadi said.