Oil Majors Vying for Iranian Projects

Oil Majors Vying for Iranian ProjectsOil Majors Vying for Iranian Projects

Shell is interested in returning to conventional gas projects in Iran when international sanctions on the oil and gas-rich country are lifted later this year, the company's financial chief Simon Henry said Thursday.

But the oil major is not expecting any quick, easy deal under Iran's new planned contract terms and significant returns from any upstream projects are likely to be years away, he said.

"For us ... it's a huge gas province so it would be good to be there–in conventional gas–at the right terms where the risk-rewards are shared, at least to an extent, with us," Henry said on the sidelines of a press conference in London, Platts reported.

Shell was one of a number of global oil majors that held talks in Iran in recent months to discuss business cooperation with the OPEC producer ahead of the expected lifting of international sanctions on Tehran.

The Anglo–Dutch multinational oil and gas company, which has previously helped develop Iran's South Pars project, the world's largest gas field, is interested in returning to Iran "in the fullness of time", Henry said, adding that he also understands that Iran would like companies such as Shell to invest.

"The Iranians are damn good negotiators," Henry said. "Anybody [who] thinks that we are going to suddenly swan in and end up with great contracts that make a difference within 12 months ... I think is a little naive. It's not going to be easy; it will take time," he said. "This is probably a 30-40-year play; it's not about the next two or three years."

As part of its talks with Iran earlier this year, Shell discussed its debt of around $2 billion to the National Iranian Oil Company for crude lifted in early 2012 but not paid for due to the imposition of sanctions.

Henry said the company must wait for sanctions on Iran to be lifted before Shell can pay off the outstanding debt. European sanctions on Iranian oil came into force on June 28, 2012.

  Contractual Terms

Without referring to the South Pars deal, Henry noted that under previous upstream contracts in Iran, there had been a "slight imbalance" in the risk-reward sharing between the government and the foreign partners.

Oil majors have complained about terms of Iran's previous service contracts, known as buyback agreements, citing long-winded negotiations, low rates of return, penalty clauses and the linkage of upstream contracts to LNG projects.

BP CEO Bob Dudley this week said he is also planning to look for upstream opportunities in Iran after sanctions are lifted, but is unclear what Tehran's intentions are for its new oil contracts.

Eni SpA, Italy’s largest oil producer, is interested in returning to Iran once sanctions end, Chief Executive Officer Claudio Descalzi said.

“We started our discussion with Iran but we are more actually discussing about the outstanding issue, outstanding money that we are to recover from the past projects,” Descalzi said Thursday in a Bloomberg Television interview.

 “Iran in terms of oil and gas is a huge and big country, very interesting, but we need to wait.”

Eni invested in Iran in the early 2000s, focusing on operations around the Persian Gulf. Descalzi said he needed to find out more about the new contract model on offer, which should be “closer to what we have in other countries”.

Iranian oil officials from the country, which reached an accord this month to ease international restrictions on its energy industry, will attend a conference in London in December to discuss contracts.

Paolo Scaroni, Eni’s former CEO, said Iran will need to offer better terms than its previous contract to attract investment.

"The buyback contract left companies with the full burden of any additional costs incurred during projects," he said.