Iran invests in joint hydrocarbon fields through public offering of stock futures

Business Materials 1 December 2012 16:37 (UTC +04:00)

The National Iranian Oil Company will start the public offering of oil futures stock in the form of 10-barrels-of-oil bills according to the permissions of the Central Bank and the parliament (Majlis).

Iran has 26 joint hydrocarbon fields with Iraq, Saudi Arabia, Kuwait, Qatar, the UAE, Oman, and Turkmenistan. It has 8 fields shared with Iraq and a gas field shared with Turkmenistan. The remaining fields are located in the Persian Gulf and the Sea of Oman. Iran's neighboring countries, having joint fields with the country, have gone ahead with development plans through attracting huge foreign investments.

Sanctions against Iran have been targeting Iran's oil sector in the past decade. This issue has led to the shortage of investment in the upstream sector as well as technological development of the oil industry. Iranian oil officials hope to find new ways to accelerate development plans at joint fields. The officials have announced that the implementation of the development projects will be transferred to the private sector. Moreover, they said that future stocks will be sold to the public to attract necessary funds to the oil industry and compensate deficits in developing joint hydrocarbon fields.

What are stock futures?

According to the permission of the Majlis as per the budget bill for the current Iranian calendar year, as well as based on the stipulation of the fifth five-year national development plan, the National Iranian Oil Company is allowed to sell Islamic sukuk to meet requirements for investing in the oil industry projects. Offering stock futures to the public is among the ways of selling Islamic sukuk. According to the Fars News Agency, the Majlis has authorized the National Iranian Oil Company to sell €5 billion in bonds with the goal of investing in oil and gas fields, especially in joint fields.

Stock futures are among the effective and useful means of investment in the oil industry. This method attracts small and large investments by legal and physical entities. Offering stock futures means that the oil - which will be produced in the future through investing in development plans by revenues gained as a result of selling stocks - is sold in advance.

The stocks will be available both in rials and dollars. If the price of each barrel of oil is considered to be $100 in 2011, the public and the private sector entities can buy the stocks and sell them to the government in 2015. The lowest and the highest prices of oil in 2015 have been considered to be $140 and $160, respectively.

Guaranteed investment

For the convenience of buyers and sellers, two options have been envisaged. The first option is that if the oil price is less than $140 in 2015, the government will pay them a guaranteed sum of $140 considering the option that has been granted to the buyer.

But, if the oil price is above $160, the National Iranian Oil Company (as the seller) will have the right to buy each barrel of oil at maximum $160 considering the option that has been granted to the seller. In both of the cases, payment will be in cash. Stock futures can be transferred to another person by their specified date.

Although stock futures will be sold in Iran for the first time, the bonds have been recently sold several times as a reliable source of funding the oil industry projects. Some experts refer to the selling of stocks related to the current projects as another reliable method for funding the oil industry projects as well as other large industrial plans.