Oil Companies Negotiations with Iran

According to the Financial Times, executives from Royal Dutch Shell and Eni have met with Iranian officials in Tehran to discuss investment in Iran's energy sector. This is the first time international oil companies have publicly confirmed such discussions ahead of a potential nuclear agreement. These meetings, which took place in May and June, indicate a growing interest from major oil companies in Iran, which holds the world's third-largest oil and gas reserves, although it is said to require tens of billions of dollars in foreign investment to achieve its goal of nearly doubling production by the end of the next decade. Shell stated in a release that its officials met with their counterparts in Tehran in June to discuss outstanding debts to the National Iranian Oil Company for crude oil that had been extracted but not paid for. They also discussed potential areas for cooperation in the event of sanctions being lifted. Mehrdad Emadi, a financial and economic expert, interprets the outlook of discussions between major international oil companies and Iran as having two messages that are not inconsistent: one is that groundwork for signing investment and extraction contracts in Iran's oil fields has been underway for some time, and everyone is preparing to move as soon as sanctions are lifted; the second is that there is a general consensus among major international commercial and oil institutions that sanctions will soon be lifted, and the investment horizon in Iran will be very bright in this sector. Iran produces about 2.7 million barrels of oil daily. A report from the energy consultancy Wood Mackenzie indicates that assuming a nuclear agreement is reached and sanctions are lifted, Iran could increase its production by 600,000 barrels per day by the end of 2017. The long-term benefits of such an agreement for Tehran could be even greater, potentially increasing Iran's oil production capacity to 4.4 million barrels per day by 2025, although the consultancy states that $50 billion in foreign investment would be required for such an increase. Claudio Descalzi, CEO of Eni, also flew to Tehran in May to discuss with Iran's Oil Minister Bijan Zanganeh. This major Italian oil company stated that during this trip, the possibility of reinvesting in Iran's oil and gas industry was discussed, emphasizing interest in Iran if sanctions are lifted and contract conditions are favorable for both parties. It is said that in an effort to attract foreign companies that exited Iran in 2010, Tehran has drafted new contracts with more attractive terms that will consider foreign companies as joint investment partners rather than contractors, replacing the widely unpopular buy-back agreements. Another consultancy, Energy Pioneers, which focuses on Iran, states that there will also be flexibilities regarding rewards that provide foreign investors with returns that vary according to work risks and fluctuating oil prices instead of a uniform and fixed cost. Mansour Kashfi, an oil expert, interprets the results of such incentives as follows: 'This issue, I think, is a generality that now, of course, Iran's oil exports are starting, but what is important is that not only European oil companies like Shell, Eni, and Total have expressed interest in entering Iran's oil industry, but there are also American oil companies, because the Iranian Ministry of Oil will give a very large advance, a very large part in granting incentives to foreign companies after the sanctions are lifted, including that they can become partners in production and sales, which actually raises the resource aspect of oil companies and increases their shares in the oil market, and they are very interested in this issue. If sanctions are lifted, which is still uncertain, Iranian oil will be auctioned off, whether to European companies, American companies, or even those from East Asia. Therefore, this may not be a problem for the Islamic Republic in terms of squandering the wealth of the Iranian nation, but for the Iranian people, it is a wealth that is being further plundered.' Beyond the executives of Shell and Eni, executives from Total of France and Lukoil of Russia also met with Iran's Oil Minister in Vienna in June.