Iran is likely to delay the launch of its new oil-and-gas contracts by three months until December, a senior oil official said, as the country seeks the best timing to take advantage of a potential lifting of western sanctions.
The new contracts are expected to offer more favorable terms than in the past for international oil companies and were expected to be unveiled officially at a presentation in London in September. The new terms are a closely watched part of Iran's push to lure back foreign firms forced to leave in 2010 when much of the West imposed sanctions on Iran.
Now, with the prospect of a deal that would lift sanctions in exchange for curbs on Iran's nuclear program, the timing is too short to market the new deals in September, said Mehdi Hosseini, who heads the Oil Ministry-appointed Oil Contracts Revision Committee, in an interview with Market Watch.
The text of the new contracts was "nearly completed," Hosseini said. Iranian officials have shared some details of the contracts with international oil companies and touted the country's relatively low production costs —about $10 a barrel compared with $50 or more in the US.
With the new contracts, costs can be adjusted year-on-year, though the state-run National Iranian Oil Company would have a final say on any change, Hosseini said. "If a company is paying something, they should not be out of pocket," he added.
An agreement with the West is expected to unleash a flood of foreign investment into Iran's oil and gas fields, many of which are old and need advanced production techniques that major international oil companies possess.
Any production happening with the help of foreign companies would take years to develop, so a delay of three months to present the contracts likely will not delay the return of Iranian exports to the market. Iranian officials have said they have the ability to increase oil production by a million barrels a day this year if sanctions were lifted.
New contracts are seen as essential for oil companies looking to return to Iran. While US companies have not worked in Iran since the 1979 revolution, European companies such as Total of France and Eni of Italy did not pull out until as late as 2010.
Some have said they would not return if Tehran did not replace the buyback contracts instituted in the 1990s after most failed to yield a profit from them. Those contracts left oil companies on the hook to pay for cost overruns and limited how much they could profit per barrel, no matter the price of oil.
Iranian officials have said the new contracts would pay companies more for boosting production, last longer and encourage joint ventures from the start of the project. The companies would also be expected to share more technology and management expertise with Iranian partners.
Iran also plans fees per barrel produced but those, too, will not be fixed--depending on the risks involved and fluctuations in oil prices, he said. Two-thirds of Iran's oil and gas resources are still unexplored. One sticking point would be whether companies can count the reserves on their financial statements —a key measure of a company's value to investors. Iranian law prohibits foreign ownership of natural resources.
"If the booking of reserves is interpreted as a transfer of title, it's not possible," Hosseini said.
