Iranian ministry starts revamping oil contracts

Iranian Oil Minister Bijan Namdar Zanganeh said his ministry plans to start revising the structure of oil contracts in order to enhance recovery and facilitate attraction of foreign and domestic investments. Speaking to Shana, Zanganeh said close link among the various stages of oil operations from exploration to development and creating attractive conditions for domestic and foreigner contractors are among the reasons behind reforming contracts. Now ten days after minister of petroleum's remarks a committee has been set up to start revisions. Iran Revamping Oil Contracts Iran’s new Petroleum Minister Bijan Zanganeh is well known for his focus on enhancing the country’s oil and gas production capacities through cooperation between domestic entities and international oil companies when he was holding the same portfolio from 1997 to 2005. Zanganeh is once more concentrating his mind on the same objectives in Iran’s oil and gas sectors as international sanctions are widely expected to be lifted in the near future. To that effect, as a new political environment has emerged in the country, the minister is determined to make the necessary arrangements in view of more active participation of international oil companies and domestic firms through revamping oil contracts to make them more attractive. A simple assessment of 20 years of experience in Iran’s oil and gas industry development indicates well that Iran’s buy-back contracts need to undergo modifications to cause further cooperation and encourage both sides for close cooperation in oil and gas development projects. The arrangements under way by the minister are aimed at pursuing Iran’s national interests more effectively and offering more appropriate incentives to international oil companies willing to invest in Iran’s energy projects. To that effect, MrZanganeh established an ad hoc committee headed by Mehdi Hosseini, a former deputy petroleum minister for international affairs, to hire experienced Iranian and international experts to review, study and assess the past experiences of National Iranian Oil Company (NIOC) regarding its cooperation with international oil companies under buy-back contracts, and also try to either modify the existing contracts or draw up new ones in line with the requirements of Iran’s petroleum industry, and the IOC’s expectation. New contracts must be drafted so as to meet Iran’s legal requirements while encouraging international oil companies to invest in NIOC’s oil and gas exploration and developmentprojects. In that way, NIOC will be able to take advantage of the experience of international companies to enhance recovery from the hydrocarbon fields. The following points have been recommended to the ad hoc committee: 1) Exploration from and development of hydrocarbon fields must be done within the framework of “integrated operations” due to risks run by the operator. 2) Enhance Oil Recovery from the existing oil fields should be considered seriously and included in the revised contracts. 3)A meaningful and financially reasonable relation between the magnitude of enhanced production stems from the operator’s activities and its profits should be defined in the new frame contract. 4)Maximal local contents and transfer of technology with the aim of promotion of domestic technical and managerial capabilities and capacities needs to be also addressed in the new contracts. NIOC is expected to become so powerful technologically to be able to export knowhow to other countries. 5)The behavior of reservoirs and technical aspects are the most important parameters to decide about further steps in development of fields. To that effect, Master Development Plans as well as related financial issues must be modified under the new contracts. 6) Since different regions in the country do not present the same potentials, nor do they run similar risks as far as oil and gas discovery is concerned, the new contracts should not necessarily be the same for all regions. There must be equilibrium between operator’s benefits and relevant risks. 7) Conducting studies on the nature of contracts under way in other countries and benefiting from those experiences will be another part of the committee’s mission. 8)The committee welcomes constructive suggestions and comments are made by local experts as well as IOC’s.