Iran official says oil contracts to be revised

Published on NewsOK Modified: February 9, 2014 at 8:30 am •  Published: February 9, 2014
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TEHRAN, Iran (AP) — Iran said Sunday it plans to introduce a new generation of oil contracts by June that promise to be more attractive to foreign investors as it seeks to significantly boost production should international sanctions hobbling its vital energy industry be lifted.

The new terms being developed signal the OPEC member's eagerness to attract outside expertise and capital, and are a response to oil and gas companies' frustration with earlier terms that they felt offered little upside reward.

Mahdi Hosseini, head of the contract revision committee in the Petroleum Ministry, told reporters that the new terms are being designed for a post-sanction era and aimed to better align Tehran's needs with the interests of international investors. He said officials were seeking a "win-win" setup that would better balance companies' risks with rewards.

Iran currently allows foreign oil companies to operate under what are known as "buybacks," which Hosseini acknowledged have drawn complaints about cost from oil companies.

Under that system, the contractor pays to develop a given oil field in exchange for a pre-agreed rate of return over a certain period of time. The contractor transfers operation of the field to Iran once work is done and typically does not have a long-term stake in the fields.

Iran began revising the contract terms in October. Hosseini said the new model being developed aims to ensure long-term cooperation with outside investors and that the committee has consulted international companies on the new version of the contract.

Iran needs some $150 billion in investment for its energy sector over the next five years, he said.

Tehran has not provided details on the exact shape of the new contracts that could be offered, but they stop short of transferring ownership of the fields themselves, Hosseini said. The government is banned from giving such concessions under Iran's constitution.

Further details will be presented at a conference later this month, though the proposed changes must still be approved by the Cabinet and other decision-making bodies.

Oil companies aren't enthusiastic about buybacks because they offer no upside if prices rise or if the companies exceed their production targets, according to analysts Cliff Kupchan and Greg Priddy at the U.S.-based consulting firm Eurasia Group.

"Even if sanctions were lifted, buybacks would remain a significant deterrent to development of the energy sector," they wrote recently.



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