Iran tries to lure back western oil groups
Iran plans to convince international companies to invest in its oilfields by offering them more lucrative contracts as part of efforts to repair its battered economy and improve the Islamic Republic’s relations with the western world. The move comes as Tehran and Washington engage in the most constructive negotiations for several years about curbing Iran’s nuclear programme, which could pave the way for the loosening of sanctions that have crippled the oil industry, the engine of the Iranian economy. In a rare interview, Mehdi Hosseini, an adviser to the oil minister, said the current system of "buyback" contracts – which do not allow foreign companies to book reserves or take equity stakes in Iranian projects – would be scrapped. Mr Hosseini said the government was developing a "win-win" form of contract so leading companies "whether American or European" could benefit. Details are expected to be revealed in London next March, he said, as part of an effort to attract at least $100bn in investment over the next three years. The overhaul would mark a big step for a regime that has traditionally been hostile to any form of foreign ownership of its vast oil and gas wealth. Iran has the world’s largest gas reserves and fourth-largest oil reserves. "We hope that with these preparations the language of our contracts will be very, very close to international norms and that we will see them [international companies] queueing up once again," Mr Hosseini said. "Iran has a long history of aggressive resource nationalism, and I doubt that will change," said Robin West, senior adviser to IHS Energy, a consultancy. "They have always had very aggressive fiscal terms and always tried to shift the investment risk to operators while keeping the lion’s share of revenue." But he said the country’s mature reserves required heavy investment from western majors and, to coax them in, Tehran would have to offer "extremely attractive terms." "If they do, it’ll be a real break with the past," he said. Even if sanctions remain in force, the country should still be able to implement a new contract system that would attract investors, Mr Hosseini said. "I agree that sanctions may not be lifted formally, quickly, simultaneously and immediately," Mr Hosseini said. But he said there were ways that companies and governments could circumvent them, such as being granted waivers. American and European sanctions have caused a slump in oil production that has battered Iran’s economy. In September oil production fell to 2.58m barrels a day, according to the International Energy Agency – its lowest level since 1989, when the country was grappling with the impact of the Iran-Iraq war. Iran produced roughly 3.5m b/d in early 2011, before the US and European sanctions came into force. Mr Hosseini acknowledged that unattractive contracts had long deterred western companies from investing in Iran. "These problems did not let us keep good relations with oil companies in the long run. We will use all our previous experience . . . to understand and accommodate the logical expectations of oil companies. He declined to offer details of the new contracts but said the new scheme would not be a modified version of buyback nor production sharing and would not resemble Iraq’s technical service contracts. Future contracts would however allow for joint ventures for onshore and offshore projects. In 1997, Total defied US sanctions when it signed a contract worth $2bn to develop part of South Pars – the world’s biggest gasfield. Other international companies, such as Shell, Italy’s Eni and Norway’s Statoil, followed suit, even though they later complained about the low rate of return and refused to develop other fields. The stringency of current sanctions make any investment almost impossible. The IEA said this month that despite the first high-level talks between Iran and the US since the 1979 Iranian revolution, few expected sanctions to be eased soon. "Rather, most expect that turning the clock back on sanctions will be a drawn-out process based on tangible diplomatic progress with regard to the issues at hand, which many still view as a remote prospect," the IEA said.