Iran Reveals Details on New Contracts With IOC’s

Iran announced new details on how it will design contracts with international companies seeking to develop Iranian oil and gas reserves, according to Bloomberg. At a conference in Tehran, Iranian officials stated that they will provide incentives for companies developing riskier fields in an effort to lift production. Iran appears to be planning for the eventual removal of international sanctions targeting its nuclear program.

The new contracts offer a variety of incentives that Iran feels will give it a competitive position over other countries, including its neighbor Iraq. These incentives include paying fees to companies based on a sliding scale, with riskier reserves fetching a higher price. Companies would also receive incentives for boosting production beyond their contractual targets, and for extending the life of declining fields. Iran will also offer exploration rights in neighboring oil basins if companies drill wells that come up dry.

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“We’ve analyzed all the contracts in the market right now, all available beneficial models, and this is what we’ve come up with,” Mehdi Hosseini, a government energy adviser said at the conference, according to Bloomberg. “This is a good model, with flexibility.”

Iran is offering a production sharing agreement that would include a joint venture with the National Iranian Oil Company. Iran will maintain state control over oil and gas reserves, rather than allowing companies to take ownership. Oil companies covet the ability to own reserves, as it is an essential element of financial reporting that determines their valuation. Iran’s new plan will offer international oil companies the ability to report produced oil that they receive as pay.

Many western companies were not present. Instead, Gazprom, China National Petroleum Corpration, and Petronas were in attendance along with several others. Iran still needs to negotiate with western powers over its nuclear program and it has agreed to hold talks in the coming weeks.

By Charles Kennedy of Oilprice.com