Iran Opens Field Investment to Global Bidders

Source: Getty Images

Iran’s national oil company is offering investment opportunities in 50 fields to global bidders, its first effort to do so since the 2015 pact with world powers that lifted nuclear-related sanctions against the country.

Following an announcement by the Petroleum Ministry on 16 October that it would invite foreign companies to bid on field projects, the ministry the next day disclosed that 29 oil fields and 21 gas fields would be offered for bidding. International companies were given a 19 November deadline to submit applications, and the announcement of companies that qualify for bidding is slated for 7 December. The bid round is expected to open in January or February of next year.

Iran’s objective is to attract between USD 70 billion and 100 billion in foreign investment in its upstream oil and gas sector, and the country hopes to raise between USD 20 billion and 30 billion of that from the initial group of fields it has listed.

10 to 15 Priority Fields

It is unlikely that all 50 fields will be tendered at once. “Practically, NIOC [the National Iranian Oil Company] does not have the contracting personnel to handle the bid process, the negotiation, and execution of all 50 projects at the same time,” said Syd Nejad, chief executive officer and managing partner at NAFT Energy. “We expect a group of 10 to 15 high-priority fields to be tendered in the first round.”

Nonetheless, the qualification process now under way will likely clear qualifying companies to bid on the remainder of the 50 projects as they are offered in subsequent rounds, Nejad said.

Iran is giving priority to border-area fields jointly operated with other countries. Production at these fields fell when international sanctions were imposed on Iran in 2011–2012, and NIOC believes that these fields can be returned to higher production relatively quickly.

An example is the West Karoun fields that straddle the Iran-Iraq border. Iraq has fast-tracked development at the fields, which have provided more than half of the country’s increased production over the last 7 years.

Another priority is the South Pars gas field, where Iran hopes to boost gas and condensate production to the levels achieved by Qatar on its side of the border. The field’s oil layer is yielding 300,000 B/D of production for Qatar but is still undeveloped in Iran.

Iran Petroleum Contract

The field projects that Iran announced would be offered for foreign investment are expected to fall under the Iran Petroleum Contract framework that the government approved in August. Operating companies would bear all capital expenditures (capex) up to first or targeted incremental production and recover costs from production proceeds going forward, with up to 50% of oil production and 75% of gas production allocated for cost recovery.

From 1995 to 2010, Iran operated under a buy-back contract system in which operators’ exploration and production capex were considered a loan to the state. After achieving first or targeted incremental production, operators were compensated by government annuity payments over the life of the field.

Of the international companies believed to be applying for bidding qualifications, following Iran’s latest announcement, many were active in the country between 1995 and 2010. Companies in this category include Shell, Total, Eni, Statoil, CNPC, Lukoil, and others, Nejad said. A number of newcomers are also believed to be submitting applications, including Petronas, Petrobras, Pertamina, Maersk Oil, Petro SA, and Repsol, he said.      

Iran Opens Field Investment to Global Bidders

Joel Parshall, JPT Features Editor

25 October 2016


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