Iran Plans 20-Year Contracts as Incentive for Energy Investments

Iran will pay foreign oil companies larger fees than it did under previous buy-back contracts to attract $100 billion of investments needed to rebuild its energy industry.

The Persian Gulf state, once OPEC’s second-largest crude producer, will also offer 20-year contracts on oil and natural gas projects, Roknoddin Javadi, managing director of state-run National Iranian Oil Co., said in an interview in Tehran.

“What’s been announced so far looks like an attractive contract — no doubt it’s a vast improvement on the buy-back contracts,’’ said Robin Mills, a Dubai-based consultant who worked formerly for Royal Dutch Shell Plc on projects in Iran from 1998 to 2003.

Iran is preparing to boost its output once world powers remove economic sanctions that choked off investment in its oil and gas industry. Oil exports fell to an average 1.4 million barrels a day last year from 2.6 million in 2011, U.S. Energy Information Administration data show.

New Contract

New contract terms will be introduced next month, as part of plans to boost oil production to 5.7 million barrels a day and gas output to 1.4 billion cubic meters a day by 2021, Javadi said.

“The new contract that we’re going to present has raised the opportunity for those who invest to be able to participate in operation and production for a long term, let’s say 20 years,” he said. “This is the major incentive.”

Iran’s previous buy-back contracts merely paid oil companies a fixed fee over five to seven years, without giving investors a share of a field’s production in the longer term. The new contract will link payments to oil companies to the quantity they produce, Javadi said.

Under a typical buy-back deal, a foreign investor paid to develop and operate an oil field before turning it over to Iranian authorities, and an investor who produced more than the planned amount received no compensation for the additional barrels, Mills, an analyst at Manaar Energy Consulting, said Tuesday by phone. Iran reimbursed only the budgeted production costs and paid a pre-arranged fee of 12 percent to 15 percent, he said.

’Most Attractive’

The new contract looks more appealing to investors than the service fees offered by neighboring Iraq, and it shares some features with the production-sharing agreements in common use elsewhere in the oil industry, Mills said. Investors will apparently have an incentive to produce more oil and develop a field for much longer than permitted under a buy-back, he said.

“It’ll be one of the most attractive contracts in the Middle East for the size and quality of the fields that are being offered,” Mills said.

OMV AG will invest in Iran if terms are flexible, Chief Executive Officer Rainer Seele said Monday. Javadi, Seele and executives from producers Eni SpA, Korea Gas Corp. and contractors JGC Corp. all spoke at the first Iranian Petroleum and Energy Club conference in Tehran.

Iran will present its new oil and gas contracts on Nov. 27-28 in Tehran, Javadi said.

OPEC Ranking

The country pumped 2.8 million barrels a day of oil in September, making it the fifth-biggest producer in the Organization of Petroleum Exporting Countries, according to data compiled by Bloomberg. Iran’s exports of crude and condensate, a light oil liquid, fell to 1.4 million barrels a day on average last year due to sanctions, from about 2.6 million barrels daily in 2011, the U.S. Energy Information Administration said June 25.

The country has already lined up buyers in Europe and Asia for increased oil production it plans as soon as sanctions are lifted, Javadi said. The country will pump and sell 500,000 barrels a day in additional oil within a week of sanctions being lifted and will raise that by at least another 500,000 barrels a day within six months, he said.


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incentive   /ɪnˈsentɪv/   N

something that makes you want to do something or to work harder, because you know that you will benefit by doing this

“They want to stimulate growth in the region by offering incentives to foreign investors.”

Buy-back  /ˈbaɪ.bæk/  N

the ​act of ​buying something from the same ​person you ​sold it to, especially an ​offer by a ​company to ​buy ​shares of its own ​stock from ​shareholders:

“The ​company announced a 6 million ​share buyback in August.”

“His ​company have just ​announced a $1 ​billion ​stock buyback.”

crude   /kruːd/  N

 crude oil

State-run   /ˌsteɪtˈrʌn/  Adj

 controlled by the government

 “state-run television”

vast  /væst/  Adj

extremely large

“A vast ​audience ​watched the ​broadcast. “

“The ​amount of ​detail the ​book ​contains is vast.”

Choke off    /tʃəʊk/ V

choke or choke off

“to stop someone or something from developing or being successful”

“Business leaders claim that the strong pound is choking exports.”

“If prices are too high, demand is choked off.”

merely /ˈmɪəli/ Adv        just; only.

“Gary, a silent boy, merely nodded”

synonyms:         only, purely, solely, simply,

“they were merely exercising their rights”

Turn over   Phv

to give someone or something to someone in authority, especially because they have ordered you to turn someone/something over to someone:

“The local police turned him over to the FBI.”

compensation  /ˌkɒmpənˈseɪʃən/   N

the ​combination of ​payment and other ​benefits that an ​employee receives for doing their ​job:

“Annual compensation for our ​executives ​includes ​salary, ​bonus, and other ​benefits.”

“Poor compensation may be hurting ​recruiting and ​retention ​efforts in nursing schools.”

reimburse   /ˌriː.ɪmˈbɜːs/  V

to ​pay back ​money to someone who has ​spent it for you or ​lost it because of you:

“The ​airline reimbursed me for the ​amount they had ​overcharged me. “

“She was reimbursed by the ​gas ​company for the ​damage to her ​house.”

Pre-arrange       /priːəˈreɪndʒ/    V

arrange or agree upon (something) in advance.

“did she have a prearranged meeting?”

synonyms:         arranged beforehand/in advance, arranged, agreed, predetermined, pre-established, pre-planned, set, fixed

“they met at prearranged meeting points in the city”

appealing   /əˈpiː.lɪŋ/   Adj

attractive or ​interesting:

“The ​idea of not having to get up early every ​morning is ​rather appealing (to me).”

“ He had a ​nice ​smile and an appealing ​personality.”

Opposite: unappealing

neighboring  (UKneighbouring) uk   /ˈneɪ.bər.ɪŋ/  us   /-bɚ-/   Adj

Neighbouring ​places are next to or near each other:

“neighbouring ​countries/​states”

“ She ​married a man from the neighbouring ​village.”

Chief executive officer  CEO

مدیر عامل یا مدیر ارشد اجرایی

compile  /kəmˈpʌɪl/  V

to gather together:

“to compile data.”

condensate   /ˈkɒnd(ə)nseɪt/  N

The liquid resulting from condensation of a gas, such as a product of distillation or another method of separation.

Line up  Phrasal verb

to organize or prepare things for an event or a series of events

“We have a series of activities lined up to keep you entertained.”