ANKARA/LONDON (Reuters) – Iran is sweetening the terms it offers on oil development contracts to draw the interest of foreign investors deterred by sanctions and low crude prices, as its pragmatic president seeks to deliver on his promise of economic recovery.
Tehran is engaged in talks with world powers about its disputed nuclear pro-gramme as it tries to strike a final deal to lift the sanctions that have halved its oil ex-ports to just over 1 million barrels per day since 2012 and hammered its economy.
To prepare for any agreement, it has already circulated new draft oil contracts to foreign firms to attract business once the restrictions end, Iranian oil officials and Western diplomatic sources said. Such deals would involve helping Iran revive ageing fields and develop new ones, they added.
But there is no certainty about the outcome of the nuclear negotiations. The contracts offer far more favourable terms than those offered pre-sanctions as many companies would be hesitant to sign even a preliminary deal which US and European governments could regard as jumping the gun.
Companies may also require greater persuasion to invest in Iranian fields due to low crude prices, which have more than halved since June, and the turbulent relationship Iran has had with foreign firms in the past, especially after the 1979 Islamic revolution.
“The new contract is more competitive than other oil producers. It provides higher potential profits and lower investment risks,” said a senior Iranian oil ministry official who declined to be named due to the sensitivity of the matter. The contract offered a favourable rate of return and joint venture options with local Iranian firms, he added.
The new contracts will offer long-term durations of up to 25 years, oil officials say. A spokesman for Iran’s oil ministry declined to comment on the nature of the contracts.
Previously, foreign investors have only been involved in exploration and development of oil fields. They operated under buy-back contracts, whereby they were paid a fixed rate of return and did not own the assets and were contractors without rights to the fields.
Analysts and industry sources said companies had failed to cover their costs under this mechanism, which offered no long-term guarantees of income.
The situation has changed, however. President Hassan Rouhani, who won power in 2013 with pledges to improve the economy, is seeking to end a malaise that has seen prices of food, water and electricity rise beyond the reach of many Iranians as high unemployment and low wages take their toll. The new oil contracts will allow investors to be involved in production, giving them far greater control and certainty over long-term revenue in a country where foreign ownership of oil resources is banned.
“The Iranian petroleum contracts are more relaxed to encourage major investors … For example in previous contracts, the commerciality was decided by an Iranian committee but under the new contracts it has been changed in a way to accommodate the foreign party,” the oil ministry official said.
Another oil ministry official said: “The major incentive for an international oil company (IOC) is the possibility to book the reserves, something that was not possible in the past … One of the terms (on offer) is the long-term joint venture between the IOC and the Iranian operator.”