Questions raised about new Iranian contract

Despite “a tangible sense of excitement” at a Tehran conference during which Iranian officials presented exploration and development projects that might become available for international investment, questions remain about new terms of participation, reports Niazi Kabalan of the London law firm Pinsent Masons.

The project preview anticipates the lifting of international sanctions on Iran under a deal in which the Islamic republic agreed to limit development of its nuclear industry. The government has set ambitious targets for oil production (OGJ, Nov. 30, 2015).

In Tehran at the end of November, officials described 52 production and 18 exploration projects onshore and in the Persian Gulf and Caspian Sea. Officials said they will present further details about projects and the new contract, which they said is negotiable, at a February conference in London.

In a Dec. 3 comment, Kabalan described the contract framework, which replaces Iran’s restrictive buy-back model, as “akin to contemporary petroleum contracts in the region,” with capital cost caps removed and ownership of hydrocarbons remaining with the government.

“But hopes of a PSC [production-sharing contract] model, with beneficial fiscal terms for developers, have been dashed, with Iran opting for a risk service contract,” Kabalan said.

Operators, he noted, will have to work in joint ventures with Iranian companies.

“It is unclear how the local partnering condition will actually work, given the high capital expenditure requirements” of exploration and production, he said.

Kabalan added: “The ability to book reserves, a common factor of modern global contracts, is yet unclear under the new regime and the mechanics of the risk service model far from ideal.”

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