Iran in Talks with 16 Foreign Firms
Iran's oil contracts revision have gone through final steps and now the countdown has begun for international companies to start bidding for oil projects. Undoubtedly, the most important step for attracting foreign investment for Iran's lucrative oil projects has been the finalization of the format of new-style oil contracts.
Gholam-Reza Manouchehri, deputy managing director of National Iranian Oil Company (NIOC) for development, told a press conference on October 19: "Iran will need at least $100 billion for financing its oil projects, 40% of which must be provided through foreign investment."
He said that Iran's Ministry of Petroleum is currently in talks with 16 big international oil companies in order to reach agreement for 50 oil and natural gas projects.
Referring to remarks by Iranian Minister of Petroleum Bijan Zangeneh about the country's petroleum industry's need for $200 billion in investment for the realization of its plans under the 6th Five-Year Economic Development Plan, Manouchehri said: "A significant portion of this sum needs to be provided through foreign investment. To that effect, the new model of oil contracts provides a good instrument for international companies to invest in Iran."
Meantime, Iran's oil and gas reserves make Iran the most tempting place for investment.
"That is why NIOC prepared the new model of contracts and introduced 50 projects to Iranian and foreign companies for development," said Manouchehri.
Europe Firms Offer to Invest in Iran
Regarding the new model of oil contracts, Manouchehri said: "Of course these contracts are not so important and strange. Rather, these are the same buyback contracts and the only major difference is that in the buyback contracts, domestic and foreign investor was remunerated based on the production capacity that he created, but under new contracts, the production for a certain period of time is in question and we have tied the rate of return to long-term production of the reservoir."
"In this regard, the [production] capacity of reservoir at time of delivery does not suffice. Rather, the investor must be present in production during the contract. For example, the investor is committed to handle production for 20 years," he added.
Manouchehri noted that the new-style contracts have been designed for ageing oil fields, particularly heavy crude oil fields and oil fields whose recovery rate is around 5% "which we must bring to 40% recovery". He noted that most Iranian reservoirs are mature.
He also said Iran has already signed memorandums of understanding (MoUs) with some of international firms it is negotiating with.
Manouchehri said European and Asian delegations have offered to operate oil projects in Iran. "We have signed MoUs with some of them for feasibility studies, and many of them are willing to study a specific field and submit their proposal."
"We have provided an opportunity for top foreign companies to submit their proposals for existing fields and then we will put these proposals in a competitive environment so that we would be able to put them out to tender," he said, citing Russian, Chinese, Malaysian, Japanese, South Korean and European companies.
The projects would be categorized by NIOC based on the amount of investment and the level of specialty and technical capacity.
The projects which are more sophisticated and which need bigger investment would be envisaged to be awarded to consortiums of Iranian and foreign companies that are able to handle.
Therefore, each project will be put out to tender based on its own specifications.
"The companies that are willing to bid for a project would choose their desired ones based on economic, technical and feasibility studies," said Manouchehri, adding: "But for specific fields like South Azadegan we conduct studies to make sure which companies have already operated heavy crude oil and carbonated reservoirs like those in Iran and to see to what extent they have managed to enhance the recovery rate and along with their Iranian partners how capable they are for investment."
Manouchehri said: "So far no contract has been signed with any international company and we have only signed a HOA with Persia Oil and Gas Company which is an Iranian company for two fields in the south. We may soon sign one or two more contracts in the form of HOA without launching a tender bid."
Int'l Investment
Manouchehri also spoke about ways of cooperation between foreign firms and their Iranian partners.
"For large fields, international companies will be the main operator in the contract and Iranian companies will cooperate with them. In small and medium projects, the Iranian partner will be the main operator and it can hire service, equipment manufacturing or consulting companies," he said.
Manouchehri said 11 Iranian companies have been cleared to operate upstream projects, adding that international companies would be able to choose their partners from among them.
He also referred to the financing of the projects, saying under new contracts international firms will bring in money and they are not supposed to benefit from banking services.
"They have their own financial resources and they do not seek guarantees from the government, NIOC and Central Bank. Under the contract, they will receive their fees from the reservoir's production. Therefore, if major companies express willingness and we enter the phase of agreement, they will definitely find a way for moving their investment into Iran and the projects will go ahead without any problem."
Regarding financing by domestic companies, Manouchehri said: "For Iranian companies, apart from international banking resources, National Development Fund of Iran (NDFI) and domestic banks are forecast to make contribution in order to be able to get involved in attractive projects."
South Azadegan Welcomed
Manouchehri also spoke about South Azadegan project, saying: "South Azadegan oil field is a big and important reservoir. For this reason, it will be among our first projects to be put out to tender."
"We are very sensitive to launch good tenders, because many Western and Eastern companies are willing to bid for this project," he said.
Manouchehri said initially three consortiums were set to bid for the project, but now more consortiums have stepped in.
"Therefore, a real competition has got under way," he said.
Manouchehri said no extraordinary chance would be awarded to any specific company.
He expressed hope that the contract for South Azadegan would be signed before the end of the current calendar year in March 2017.