Tougher oil investment problems for Iran than 2 decades ago

By Dalga Khatinoglu

A senior expert from Wood Mackenzie says because of increased competition and a tough oil price environment, capturing foreign investment will be more difficult for Iran now than 20 years ago.

Iran has unveiled the general pattern of new designed oil and gas contract with name IPC to introduce 45 oil and gas fields for foreign companies to absorb $185 billion in next five years.

Regarding the 20-percent drop in global investment on upstream oil and gas projects in 2015 (decreased by $200 billion according to IEA) and continuance of decreasing this volume in 2016, how much Iran can be hopeful to attract investments?

Homayoun Falakshani, Middle East upstream analyst for Wood Mackenzie said: "Iran has a competitive advantage over most other regions in the world: it has vast untapped oil and gas reserves that are among the lowest cost to develop globally. Will this make companies rush into its market? The difficult reality under the previous buy-back contracts and the bitter Iraqi experience show companies will be more cautious. This attitude is strengthened in the current low oil price environment where capital budgets are stretched. Foreign companies will primarily be looking for value rather than resources, although some might pick a different strategy."

"Because of increased competition and a tough oil price environment, capturing foreign investment will be more difficult for Iran now than 20 years ago, when it implemented its buy-back contract,' he said.

In IPC, Iran has kept its sovereignty over its hydrocarbon reserves, but the new contract has some advantages over previous models, namely contract-based and buy-back advantages.

According to new designed long term contract, the pepayment of all direct and indirect expenses, as well as finance and operation costs, will be dependent on allocating a portion (maximum 50%) of products or revenues based on current day sale prices.

Falakshani sayd two key factors will determine whether tens of billions of dollars will be poured into Iran's oil and gas sector: "the level of attractiveness of both fiscal terms and assets on offer. Only a perfect mix of these two factors will satisfy both Tehran and foreign companies. If Iran offers quality assets coupled with attractive enough fiscal terms, it could become the next investment magnet in the industry."

"But companies will also be very wary before finalising any deal. The banking sector will be even more prudent given the potential for sanctions to being snapped back. Other business issues specific to Iran might make some companies more cautious as well. For these reasons, we will probably see a lot more interest than we will see firm commitments."

IPC's general pattern

IPC stipulates that all the risks and costs should be borne by the second side if targets of exploration and production for specified fields do not materialise.

In the exploration section, the "Minimum Exploration Obligation" includes geology, gravimetry, seismology, drilling, and assessment of fields with the aim of discovering new fields and making the minimum required investment within the specified period of time, which is undertaken by the second side.

The second side is also obliged to protective production utilizing modern technologies and investing in development and recovery rates, increasing plans in a proportional manner to the complexities of the fields. Meanwhile, foreign companies will be awarded with incentives for protective production.

In addition, all operations by contractors from the start of the contract will be carried out on behalf of the employer. All the properties, including buildings, goods, equipment, wells, ground and underground facilities, will belong to the employer from the same date.

One of the major risks facing foreign companies is the breaching of the nuclear agreement by Iran and the world powers and the possibility of a re-imposition of sanctions on Iran. Those sanctions previously forced the country to decrease it oil production by one million barrels per day. The IPC says if the Oil Ministry decides to reduce or stop production at any oilfield for of any reason, except for technical reasons, priority should be given to oilfields that are not committed to repayment. If such a decision is taken about an oilfield, subject to the contract, it should not affect repayment costs and fees owed by the contractor.

In each contract, domestic companies will be presented as partners for the foreign investor under the employer's approval and will acquire technical knowledge, engineering, and managerial methods. The second side is obliged to present a plan for transferring technology, as part of its annual financial and operational program. Operation and implementation of projects will be changed alternatively by the domestic and the foreign companies.

One of the advantages of Iranian fields is their low production costs. Each barrel of oil is produced at $5-8 on average.

On the other hand, it is not known to what extent the Iranian contract will be able to compete with Iraq's new model of contracts, known as fee per barrel. Production costs in Iran and Iraq are nearly the same. The new models of Iranian and Iraqi oil contracts are also very similar, in the sense that a percentage of oil will be paid to the producer instead of money. Meanwhile, incentives have been taken into account for higher production and protective production. The type and specifications of Iranian and Iraqi crude oils are nearly the same.

In Iraq, the contractor can permanently be the project's operator. But, in Iran a domestic company will sign a partnership contract; operation will be changed alternatively between the two companies.

Of course, Iran has some advantages over Iraq, mainly higher security and more oil and gas reserves. Iran holds 158 billion barrels of crude oil and 34 trillion cubic meters of natural gas.

The domestic workforce in both countries receives the same amount of salary. But, Iran has numerous industrial advantages, especially the ability to manufacture a portion of the required equipment domestically at low prices to sell to the foreign contractor.

Dalga Khatinoglu is an expert on Iran's energy sector, head of Trend Agency's Iran news service.

Uzbekistan’s 1Q2021 export of fruit and vegetable products slightly down
Uzbekistan’s 1Q2021 export of fruit and vegetable products slightly down
Kazakhstan’s KMK Munay decides against paying out dividends for 2020
Kazakhstan’s KMK Munay decides against paying out dividends for 2020
Kazakhstan's revenues from maritime cargo transport surge
Kazakhstan's revenues from maritime cargo transport surge
Loading Bars
Azerbaijan's import of cars from Turkey drops
Municipality of Turkey’s Agri province opens tender to buy diesel fuel
Chad leader Deby, key Western ally, killed in battle
Turkish energy company opens tender to build power plant in Istanbul city
Production of Sputnik V vaccine launched in Argentina
CBI allocates $178 m to buy COVID-19 vaccines - CBI chief
Bulk of calculations in Azerbaijan's trade turnover made via FCC - state committee
Azerbaijan limits import of meat products from several countries
Azerbaijan's Azexport portal reveals total value of export orders
Azerbaijani Finance Ministry places medium-term bonds on auction
Opportunities for partnership among SMEs expanding between Azerbaijan and Turkey
Main reason for Georgia's increase of electricity imports revealed
Prices for summer cottages, private houses increase in Baku
Number of client accounts in Azerbaijani banks increasing
Uzbekistan’s 1Q2021 export of fruit and vegetable products slightly down
Azerbaijan's National Depository Center talks another interest payment on SOCAR bonds
Karabakh suffered from Armenian occupation for nearly 3 decades - Turkish MP
Search for missing servicemen continues – Azerbaijani Military Prosecutor's Office
Armenia doesn't comply with clause of Nov.10 statement on restoration of economic and transport ties – Azernews
Support to Eastern Partnership states - key pillar for European Council, Charles Michel says
Azerbaijan joins initiative of single roaming space between Eastern Partnership countries
Turkish Airlines receives permission to operate flights to number of Uzbek cities
Kazakhstan’s KMK Munay decides against paying out dividends for 2020
Kazakhstan's revenues from maritime cargo transport surge
High freight rates significantly raise global prices of commercial ships
Central Bank of Iran allocates funds for import of vaccines
Iran's Energy Exchange announces products to be on sale on April 21
Geostat reveals Producer Price Indices for services in Georgia
Turkmenistan boosts imports of Turkish-made chemicals
Uzbekistan, France agree on deepening interaction in textile industry
Boeing CFO Smith to retire in July
Georgia increase tea import from Azerbaijan
Czech Development Agency talks projects in Georgia
Georgia sees increase in Export Price Index
Domestic Producer Price Index for Industrial Products up in Georgia
Number of oil, gas wells drilled in Iran revealed
Kazakhstan's exports to Bulgaria plummet
Iran's Esfarayen Industrial Complex to increase exports
Azerbaijani payment system to offer instant digital banking cards
Russian iron and steel works company reveals supplies of metal production to Uzbekistan
Baku Higher Oil School organized a webinar on the topic 'Higher Education and Research in the Post-COVID Period' (PHOTO)
PACE can offer support for establishment of lasting peace in South Caucasus - SecGen
Israel's government debt jumped to nearly NIS 1t in 2020
TAP’s gas deliveries for Q1 2021 disclosed
Swiss investments in Azerbaijan concentrated in non-oil sector – Swiss ministry
Azerbaijan names number of vaccinated citizens
Iran to receive vaccine through COVAX
Iran increases salaries for army personnel
Producer Price Index for Industrial Products up in Georgia
Iranian private sector to import 6 million doses of COVID-19 vaccine
Iran to implement extensive and maximum vaccination plan - President Rouhani
Budget provides continued support to Georgian economy - IMF mission
Azerbaijan confirms 2,197 more COVID-19 cases, 1,946 recoveries
Georgia sees decrease in external debt
Pakistan always supports Azerbaijan's just position - Pakistani Admiral
Bahar Azadi gold coin price still falling in Iran
Chairman of Iran Tea Organization talks about tea growing
Russia ready to help Kazakhstan in construction of nuclear power plant
Israeli journalists visit roadside inn in Azerbaijan’s Fuzuli, turned into barn by Armenians during occupation (PHOTO)
Uzbekistan taking additional measures to develop karakul sheep breeding
US company to build cannabis farm in Uzbekistan
France’s Orano to develop new mining sector in Kazakhstan
National Bank of Georgia remains focused on achieving its inflation target
Azerbaijan's International Bank discloses 1Q2021 net profit
Turkmenistan joins WIPO Patent Law Treaty
Armenia outraged by Russian PACE delegates refusal to discuss so-called "issue of POWs”
Electricity generation of Iran's hydroelectric power plants to decline
Azerbaijan's 1Q2021 polyethylene production slightly down
Russian Railways to build high-speed railway entries to Moscow, St. Petersburg by 2024
UAE central bank extends some stimulus measures until mid-2022
President Aliyev interviewed by Azerbaijan Television (PHOTO)
Important to observe int’l law to avoid such conflicts as Karabakh one in future - Chancellor of Germany
UK eases post-Brexit controls on vehicles taking goods to the EU
PayPal's Venmo launches crypto buying and selling
Iran's shares data on sale of public assets
President Ilham Aliyev attends inauguration of Azersun Shamakhi Agropark in Hajigabul (PHOTO)
Iran expects revival of JCPOA in short term
Liabilities of International Bank of Azerbaijan increase
Sinovac supplied 260 mln COVID-19 vaccine doses globally
Azerbaijan names number of foreign visitors in 1Q2021
Elbit Systems awarded $41m US Marines night vision deal
Price of wheat purchased from farmers in Iran increases
President Ilham Aliyev launches 110/35/10 Kv “Garasu” substation in Hajiqabul (PHOTO)
Baku-Tbilisi-Ceyhan’s oil transportation to Turkey down y-o-y
Kazakh oilfield construction company opens tender to buy pipes
SOCAR sums up Kulevi oil terminal’s Q1 2020 performance
Total assets of International Bank of Azerbaijan increase
Iran declares value of exports from cooperative enterprises in Razavi Khorasan Province
Uzbekistan plans introducing charter flights to popular destinations
Companies from Russia’s Smolensk begin to export products to Azerbaijan
Iran reveals COVID-19 data for April 20
Amount of registered Iranian companies in Turkey down
Khazar Consortium in Turkmenistan opens tender for equipment purchase
Azerbaijani banks' foreign currency demand disclosed
Border checkpoint between Iran, Pakistan to be opened
SOCAR’s petrochemical complex to significantly increase sales – Yapi Kredi
French EDF eyes building pumped-storage power plant in Uzbekistan
Turkmenistan's Turkmenhimiya extends tender for turnkey plant construction
Major Iranian companies boost iron ore pellets production
India hopeful US will soon end curbs on Covid vaccine raw materials export
All news