* U.S. oil firms planned to meet Iran oil minister at UN
* Prepared to invest post-sanctions, if terms attractive
* Iran oil minister orders review of oil investment contract
* European majors Shell, Total may seek to return
By Peg Mackey
LONDON, Oct 4 The tempting taboo of Iran's oil
and gas riches has moved a step nearer for Western oil
companies, lining up to woo Tehran if sanctions finally succumb
to a diplomatic thaw.
U.S. oil firms - barred by Washington from Iran for nearly
two decades - planned to meet Oil Minister Bijan Zanganeh last
week at the United Nations, encouraged by the new tone in
Tehran, industry sources said.
"We're willing to talk: Iran's got tremendous potential,"
said a senior executive from a major U.S. oil company who
requested anonymity while preparing for exploratory talks.
"Once sanctions are removed, we'd definitely be interested
in investing, but the contract terms have got to be attractive."
U.S. companies Conoco, Chevron, Exxon Mobil
and Anadarko have all shown varying degrees of
interest in the Islamic Republic ever since Tehran nationalised
its energy sector in 1979.
That move ejected major Western players including BP
- doubly tainted in Iranian eyes for its history there dating
back to the political turmoil of the 1950s and beyond.
Zanganeh served as oil minister under Iran's reformist
government from 1997-2005. He intended to travel with President
Hassan Rouhani to New York, but called off the trip at the last
minute, the sources said.
Executives from U.S. and European companies will be seeking
new opportunities to meet with Iranian oil officials on neutral
ground, industry sources said. U.S. and European companies
contacted by Reuters declined comment for this story.
"There is no embargo on talks," said a senior European oil
executive, who requested anonymity.
In step with his president's efforts to end sanctions,
Zanganeh has re-appointed Western-friendly oil experts,
including his former deputy, Mehdi Hosseini, and ordered a
review of Iran's buy-back contracts that compensate foreign
investors with production.
"Iran is in very dire need of foreign investment," said
consultant Mehdi Varzi, formerly of the National Iranian Oil Co.
"There needs to be a wholesale change of thinking."
Oil executives expect any progress to be very slow. They are
used to playing a long game.
U.S. oil firms have made some abortive approaches over the
years, but have been forced to watch as European rivals,
principally Royal Dutch Shell and France's Total
stole a march on Iran, the world's no. 1 holder of gas
reserves and fourth biggest oil reserves.
Back in 1995, Conoco struck a deal with Tehran for
the offshore Sirri oilfield, but the Clinton Administration
blocked it, calling the agreement a threat to national security.
The contract went to Total and Washington has ruled out Iran
for U.S. oil companies ever since, but it could not stop them
from talking with Iranian officials and looking at their oil
In the early 2000s, Conoco and Chevron showed interest in
prized Iranian assets including the giant Azadegan oilfield that
nudges up against Iraq's Shell-operated Majnoon field, and the
huge South Pars gas field that Iran shares in Gulf waters with
Qatar, where it is known as the North field.
Oil company top brass regularly called on Washington to lift
the unilateral sanctions that locked them out of Iran.
But any hopes of a U.S. softening towards former reformist
President Mohammad Khatami came to a halt in January 2002, when
President George W. Bush in a state of the union address named
Iran as part of an "axis of evil".
Oil companies shifted their focus to neighbouring Iraq.
EUROPE'S POLE POSITION
The United States tried to keep Europe's oil majors out of
Iran with the Iran-Libya Sanctions Act, which required
Washington to impose sanctions on foreign companies that
invested more than $20 million a year in its energy sector.
But the U.S. law proved toothless. One of Zanganeh's
crowning achievements from his previous stint as oil minister
was to get Total, Shell and Italy's Eni into Iran -
securing over $10 billion of investment in the process.
Steady pressure from Washington and tougher sanctions have
managed, however, to keep European oil companies out of Iran
since the late 2000s.
Their past experience there is expected to put Shell and
Total in a strong position if, as expected, they seek a return,
say analysts. Chevron, Conoco, Statoil, Lukoil
and Gazprom may also chase opportunities,
When the day comes for sanctions to be lifted, Iran must
keep neighbouring Iraq in mind, say analysts. Experts say Iran's
oilfields could ramp up to 3 million bpd within months and reach
to 3.6 million about a year later.
"Iran must realise it's competing against other producers
and offer terms that are at least as good, if not better," said
Varzi, who now runs an energy consultancy in Britain.
Shell, Total, BP and Exxon Mobil have signed service
contracts with Iraq that are designed to raise production
towards 9 million bpd by 2020.
Baghdad's bold oil expansion has already pushed it to 3
million bpd and vaulted it to second position among producers in
the Organization of the Petroleum Exporting Countries, above
Zanganeh has set up a special committee to review and
improve its buy-back investment model and put Hosseini, a
negotiator trusted by Western oil firms, in charge.
Critics of Iran's buy-backs complain of being unable to book
reserves and want longer-term more flexible arrangements.
"Iran's buy-back contracts are a complete waste of time.
They're too complicated, take years to negotiate and offer poor
returns on investment," said Varzi.
Although the oil majors complain of poor returns in Iraq,
Iranian oil officials say they see the merit of Baghdad's
fee-based service contracts.
"Iraq's service contract could be appropriate for Iran's
enhanced recovery projects. We want to accommodate both sides
and would like to brainstorm with the major oil companies,"
Hosseini told Reuters.
"We want a win-win contract."