Zangeneh Outlines Approach to New Oil Contracts

Zangeneh Outlines Approach to New Oil ContractsZangeneh Outlines Approach to New Oil Contracts

During an exclusive interview with the Yomiuri Shimbun, Oil Minister Bijan Namdar Zanganeh said it is important for Japanese companies to start negotiations with Iran over oil field and natural gas development projects before sanctions are lifted.

Iran will distinguish the countries according to their stance, whether they discuss with us before or after final agreement, Zanganeh said, adding that many foreign companies are coming to Iran and having discussions with the ministry.

Iran’s oil minister rarely accepts interviews with Japanese media. He expressed his confidence about a final agreement with six major powers including the United States to resolve the impasse over Tehran’s nuclear program by the Nov. 24 deadline, as well as expectations for the lifting of sanctions by the United States and European countries.

New Oil Contracts

Zanganeh also said Iran will hold a briefing session for foreign companies in London on Feb. 22 and 23 to announce new arrangements regarding Iran’s oil field and natural gas development contracts.

Expecting the lifting of sanctions, Iran is currently reviewing such contract arrangements, which are said to be disadvantageous to foreign companies.

At the London session, the oil minister says Iran will announce it “will permit the developer company to [remain] present in the field for a long-term period during exploitation of the field, and also the payments will be based on per barrel for oil production or per cubic meter for additional gas extraction.”

Zanganeh said the duration of contracts with foreign companies would be extended to “15 to 20 years” compared to the typical 10 years at present. “I mean if production increases they will get more payments and if production decreases they will get less, that is why the contractor will do its best to produce the highest possible level of production during exploitation of the project,” he added.

Foreign Investment

Regarding foreign investment in oil and gas development, Zanganeh said Iran needs “$150 billion to $200 billion” in the next 10 years.

During the interview, Zanganeh also said that Tehran will accept oil field development and oil refinery projects by Japanese companies. “The doors are open for the Japanese companies and it is up to them.”

Apparently keeping in mind the Japanese companies that withdrew from the Azadegan oil field in southern Iran in 2010, Zanganeh said, “We are ready for long-term cooperation with Japan.”

“We need to have a long-term cooperation with Japan, and of course Japan also needs to have new and long-term cooperation with Iran in oil and gas and downstream, also upstream. We have to discuss [these things] with each other.”

The point of reference is Inpex, the Japanese state-backed energy group which had a $2b deal to jointly develop the Azadegan oilfield.  Inpex was poised to relinquish its remaining share of Iran’s Azadegan oilfield in 2010, as tightening sanctions threatened companies that do business with Tehran.

Meanwhile, a Japanese government official said, “In terms of energy security, Iran’s crude oil is attractive.”

According to several oil-related companies, French oil giant Total S.A. and Austria’s OMV have already started backstage negotiations with Iran. In the field of oil refining, at which Japanese companies excel, Chinese and South Korean companies are going on the offensive. Some companies have reportedly exchanged memorandums for contracts on the condition that sanctions are lifted.

Japanese companies, including Mitsubishi Corp. and Mitsui & Co., Ltd., have bases in Iran. But they lag behind companies from other countries because, according to a Japanese government official, Japan can’t make a promise before the final nuclear deal is reached.

Exchanging memorandums on the premise that the sanctions will be lifted does not violate the terms of the sanctions. However, an official of a Japanese company remarked that should a contact with Iran be revealed, “we may not be able to do business in the US market.”

Iran holds the world’s fourth-largest proven crude oil reserves and the world’s largest natural gas reserves. But foreign companies have withdrawn from the country because of economic sanctions imposed over its nuclear program, as well as contracts they feel are disadvantageous. Still, major European oil firms have high expectations for the resumption of trade.