Iran Promises Flexibility in New Energy Contracts

Iran Promises Flexibility  in New Energy ContractsIran Promises Flexibility  in New Energy Contracts

Iran will be flexible in working with foreign companies over developing its multibillion dollar oil and gas projects, the head of state-owned National Iranian Oil Company said on Monday.

"Some [oil and gas] fields will be put out to tender under a buyback model as well as

engineering, procurement, construction and financing contracts in the near future," Ali Kardor also said on the sidelines of a ceremony to appoint the new head of Petropars, a major oil and gas contractor, Shana reported.

He added that a third contractual framework, officially known as Iran Petroleum Contracts, will be used to develop shared fields.

Some fields will be handed over to domestic contractors without inviting bids from foreign companies.

"There are a handful of projects planned to be financed by NIOC, which are mostly in production and maintenance department," he said.

The announcement comes hot on the heels of a statement by the Leader of Islamic Revolution Ayatollah Seyyed Ali Khamenei last week that no new oil and gas contracts for international companies would be awarded without undertaking reforms.

Iran has been working on a new model of contracts to ease foreign investment following the lifting of western sanctions over its civilian nuclear program.

IPC, which started to come to life after President Hassan Rouhani took office in 2013, replaces the lackluster buyback contracts that have been in place for more than 20 years.

The new contract allows foreign contractors to extend their presence in Iran for 20-25 years. It also rewards priority or riskier projects with higher returns, while exploration terms have been made more attractive.

The model is an effort to bring back major international companies to Iran's lucrative energy sector undermined by aging infrastructure and technology as well as years of underinvestment due to western sanctions that curtailed the country's trade with the outside world.

But Kardor's statements indicate that the buyback models will also remain in force for the foreseeable future. The buyback scheme proved unpopular with multinationals and deterred investors even before the US and EU enforced tighter sanctions in 2012.

Iran plans to put out to tender 15 oil and gas fields in summer, with the bidding process expected to start as early as this month.

Transfer of Technology

Kardor said the push to embrace foreign technology and investment is aimed at improving project management.

"Transfer of technology means finishing a project under a specified time and cost. Time management is one of the technologies we need," he said.

Repeated delays and failure in meeting contractual commitments have become the norm in many economic projects in Iran, but Kardor hopes the reentry of major foreign contractors will break the habit in the oil and gas sector, which is the pivot of Iran's economy.

"I recently asked an Eni manager about their drilling costs in Iraq. They drill a well at a total cost of $4.5 billion, but [a similar project] costs $12.5 million in Iran's West Karun Oilfield," he said.

The NIOC chief noted that Eni can develop an oil well in 35 days, but domestic contractors can take 120 days.

Some terms of Iran's new contracts can vary depending on the nature of projects, but transfer of technology will be one of the prerequisites of all contracts under the IPC model.

"Time and cost management are the real knowhow … Finishing a project is not enough; we need to size up to international standards," Kardor added.