Ministry of Oil: The First New Type Oil Contract Will Be Signed Soon

The Deputy Minister of Oil for International Affairs and Trade in Iran has stated that the new model of oil contracts will enter the operational phase within a month and a half, and the first oil contract under this new model is expected to be signed in three to four months. In November 2015, Iran introduced about 49 oil and gas fields to foreign companies under new contracts, which for the first time in 65 years allows the National Iranian Oil Company to let foreign companies participate in oil and gas production. The duration of the new contracts will be 20 to 25 years, and the foreign company will own a percentage of the produced oil as long as oil is being extracted from the field. Previous contracts, based on the 'buy-back' model, ended upon project delivery to the Ministry of Oil, meaning that after production began, the foreign company would exit the project. According to Shana, Amir Hossein Zamani-Nia, the Deputy Minister of Oil, stated at a conference on Sunday, July 20, in Tehran, that over the past two years, the Ministry of Oil has met with 150 foreign companies and officials, but has yet to finalize any contracts based on previous models. Foreign companies, such as Total and Shell, have previously stated that they are no longer willing to collaborate with Iran under buy-back contracts. International investments in the upstream oil sector, which had doubled from 2001 to 2013, have halved over the past two years due to falling oil prices, reaching about $250 billion a year. Despite months passing since the public introduction of these contracts, the government still faces internal obstacles. Critics of the government, especially conservatives, argue that the new contract model is against the country's interests and hands over Iran's assets to foreigners, which they claim is illegal. Iran has 27 shared oil and gas fields with neighboring countries, almost all of which are shared with Arab countries. It is said that 30% of Iran's gas reserves and 20% of its oil reserves are in shared fields. According to statistics provided by Iranian officials, Arab countries produce 7 to 8 times more oil and gas from shared fields than Iran. Recently, Iran announced that it has prepared three types of contracts for foreign companies, and only shared fields will be introduced under the new contract framework. However, most of the 49 fields introduced last November were independent fields. Zamani-Nia stated that the priority for allocating oil fields under the new model is 'with shared fields and increasing the recovery factor of oil fields.' The recovery factor of Iran's fields is about 20%, and technology and increased recovery factors are needed to extract the remaining reserves. Currently, some countries have increased their recovery factors to 40% to 60%. Zamani-Nia mentioned that approximately $185 billion in projects have been defined for the next five years across upstream, midstream, and downstream sectors: 'We expect to attract at least $40 to $50 billion in investment annually, and by the time new contracts are signed in three to four months, the situation of oil in Iran will improve.' He noted that the international environment has changed, and during meetings with 150 foreign delegations, they all criticized Iran for not being ready to work despite its vast oil and gas reserves. Zamani-Nia continued, 'For two years, we have sanctioned ourselves and still have not finalized any contracts.' He expressed regret that the new oil contracts were introduced during a time when everything in Iran had become political, stating, 'After the JCPOA, our country was embroiled in parliamentary election issues, and the discussion of new oil contracts arose in a completely political atmosphere.' He emphasized the need to pay attention to the bigger picture that these contracts create for Iran. The new contracts also require foreign companies to select an Iranian partner for field development, and the operation of the field will be periodically swapped between the foreign and Iranian companies. Iranian officials say this will facilitate the transfer of experience from foreign companies to Iran. Additionally, long-term contracts will motivate foreign companies to increase the recovery factor of fields, thus increasing their profits in the long term. According to Shana, citing Seyed Mahdi Hosseini, head of the committee revising Iran's oil contracts, the direct loss from the delay in implementing the new contract model and project delays is about $4 billion per month, which, considering indirect costs from delays, exceeds double the current figure.