Iran signs first new style energy agreement

ANKARA / Agencies

The National Iranian Oil Company (NIOC) on Tuesday signed a new style, less restrictive, output contract with an Iranian firm, a long-awaited template for contracts it hopes will tempt foreign energy investors
back to boost production after years of sanctions.
“The oil ministry welcomes cooperation with all companies that can … help boost Iran’s output,” the ministry’s official website SHANA quoted Oil Minister Bijan Zanganeh as saying after the deal was signed.
“The first new model contract, the Iran Petroleum Contract (IPC), to develop the second phase of Yaran
field also an EOR (enhanced oil recovery) and IOR (improved oil recovery) contracts for Koupal oil field were signed with Persia Oil & Gas Industry Development Co. (POGIDC) today,” SHANA reported.
Zanganeh said Iran will sign more IPC contracts by March 2017, but declined to give details. SHANA said that the value of the contract signed on Tuesday is worth $2.5 billion. The Yaran oil field is in southwest Iran, near the Iraqi border.
After reaching a landmark nuclear deal with six major powers in 2015, sanctions imposed on Tehran
were lifted in January. OPEC member Iran seeks to raise its crude output to pre-sanction levels of 4 million barrels per day.
Iran, which needs foreign investment to develop its aging fields, has been trying to sweeten the terms it offers on oil development contracts to attract foreign investors deterred by years of sanctions.
Hardline rivals of Iran’s pragmatist President Hassan Rouhani have criticized the IPC, which ends a buy-back system dating back more than 20 years under which foreign firms
have been banned from booking reserves or taking equity stakes in Iranian companies.
Oil majors have said they would only go back to Iran if it made major changes to the buy-back contracts, which companies such as France’s Total or Italy’s Eni said made them no money or even incurred losses.
Oil prices fell nearly one percent on Tuesday on news that Iran and Libya have continued to increase production, overshadowing an OPEC agreement struck last week to freeze output levels in a bid to stem a two-year price rout.
Zanganeh said the cooperation between the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers would play an important role in stabilizing oil prices. “The situation is getting better … the market reaction to last week’s decision has been positive … Non-OPEC oil producer countries can help oil price stability,” the minister said.
Although it may take years for new investment deals to bear fruit, the signing caps a good few days for Zanganeh, who returned from last week’s OPEC meeting in Algiers having secured Iran’s right to pump more oil even as Saudi Arabia and its Gulf Arab allies agreed to curb output. President Hassan Rouhani’s government has argued that it should be allowed to return production to levels achieved before international sanctions curbed shipments.
“Iranians feel that they’ve missed out on a big, big party because of sanctions,” Francisco Blanch, head of commodities research at Bank of America Merrill Lynch, said in an interview. “Sanctions basically took a lot of production out at a time when oil prices were very, very high. Iran doesn’t really have to cut production, and it’s going to get a higher price.”
The prospect of higher oil — benchmark prices in London traded at a three-month high above $50 a barrel on Monday — coupled with increased investment in the energy industry will also be a boost to Rouhani, who faces a reelection battle next year when he must convince voters that rapprochement with the West is paying off economically. Brent crude slipped 0.8 percent to $50.49 a barrel at 10:20 a.m. in London.
Even if the real test for Rouhani’s government would be to persuade international oil companies to invest in the country, the oilfield development accord signed Tuesday is evidence of progress, together with rising crude exports. Persia Oil & Gas, the energy arm of the conglomerate Execution of Imam Khomeini’s Order, will develop part of the Yaran, Koupal and Maroon fields near the Iraqi border. The contract is an agreement that sets the framework for a final deal to be signed in five to six months, Zanganeh said.
The International Monetary Fund said Monday that economic conditions in Iran are improving substantially and forecast growth of at least 4.5 percent in 2016-17.
Iran aims to increase exports to 2.35 million barrels a day in coming months from about 2.2 million barrels a day, state news agency Islamic Republic News Agency reported Sunday, citing Mohsen Ghamsari, NIOC’s international affairs director. The country has raised export capacity to 4 million barrels a day, NIOC’s managing director Ali Kardor said, according to an IRNA report on
Monday.
Iran told the Organization of Petroleum Exporting Countries
that it wants to produce about 4 million barrels of crude a day to regain its pre-sanctions share of the market, Zanganeh said last week. Iran produced 3.62 million barrels a day in August, data compiled by Bloomberg show.
A previous attempt to reach a freeze agreement in April failed when Saudi Arabia insisted that Iran should participate even without recouping the production levels it lost under international sanctions. Saudi Arabia, OPEC’s biggest producer, softened its stance in Algiers, with Energy Minister Khalid Al-Falih saying that Iran, along with Libya and Nigeria, should be allowed to “produce at the maximum levels that make sense.”

OPEC QUOTAS
Iran’s eventual production cap isn’t clear. While OPEC agreed on a new overall range for production, it will set up a committee to decide on output quotas for individual members, before it meets again in Vienna next month.
Iran may already be near its maximum output in the absence of new investment, Jaafar Altaie, managing director at consultants Manaar Energy Group, said by phone from Abu Dhabi. The country needs foreign money and technology to counter the natural decline of its aging fields and to push production capacity much beyond 3.8 million barrels a day, he said.
Paolo Scaroni, the former chief executive of Italy’s Eni SpA, said Iran is able to pump as much as 4.1 million to 4.2 million barrels daily. Any increase from there will take time and foreign investment, said Scaroni, who is now a vice chairman at NM Rothschild & Sons Ltd., speaking in a Bloomberg television interview from London on Monday. “The pressure is on NIOC to show they can bring additional barrels to the market,” Manaar Energy’s Altaie said.