October 20, 2016 / 1:16 PM / 3 years ago

As Iran oil tenders near, investors still in the dark on terms

TEHRAN/ISTANBUL (Reuters) - Two years after Iran pledged to open up its oil industry in anticipation of the lifting of sanctions, foreign companies say they still have little information about Iranian oil fields and contract terms, hindering investment decisions.

A gas flare on an oil production platform in the Soroush oil fields is seen alongside an Iranian flag in the Persian Gulf, Iran, July 25, 2005. REUTERS/Raheb Homavandi/File Photo

Bosses from oil majors including BP, Total, Eni, Royal Dutch Shell and LUKOIL have all traveled to Tehran this year, since the EU sanctions ended in January. Their teams spent weeks meeting local officials ahead of investment tenders due to start next month.

But several senior executives and members of their negotiating teams told Reuters they still had not been given sufficient information about the geology of Iranian fields or contract terms. The people, who were not speaking from Iran, said they were also unclear about how quickly they would be able to recoup their investment and who they could partner with locally.

While foreign companies are eager to enter Iran, which sits on a tenth of the world’s oil reserves, they are also wary of any contract terms that may lead to them falling foul of remaining U.S. sanctions.

BP Chief Executive Bob Dudley, whose company is seeking deals to develop several fields, said he did not know the details of any potential contracts yet.

“Iran is a large oil and gas province ... but we don’t have any specific contracts right now,” Dudley said last week. “We’re going to have to be very careful. We don’t want to violate any sanction,” he added.

If this lack of clarity leads to companies withholding investment in the tenders or investing elsewhere, it could undermine the plans of Iran’s reformist President Hassan Rouhani to attract up to $185 billion from oil majors into 50 projects and increase Iranian output to 5-6 million barrels per day (bpd) from less than 4 million now.

This could deprive the country of much-needed income as it seeks to recover from years of sanctions which hammered its economy.

The competition for foreign investment between oil-producing nations has intensified over the past five years due to abundant discoveries of new energy reserves in countries such as Brazil and the United States.

Political infighting in Tehran has clouded the outlook for Iran’s energy sector. Hardline rivals of Rouhani have strongly opposed giving overseas firms control of oil fields, saying this contradicts the constitution which states that natural resource reserves cannot be owned by foreigners. The government says its opponents are impeding an economic recovery.

Some oil executives looking to invest in Iran said they were also unclear about whether deals would require parliamentary approval, a concern in a country with a complex and opaque system of clerical and republican rule where power is wielded by both elected and unelected officials.

With presidential elections due in May, there has been growing opposition to Rouhani and his allies this year from hardliners close to Supreme Leader Ayatollah Ali Khamenei and the Revolutionary Guards, Iran’s politically powerful elite military force.

Tensions between the two camps have sporadically spilled into the open, including a speech from Vice President Eshaq Jahangiri denouncing the government’s critics at a major oil industry conference in Tehran this week.

“You see how some neighbours have developed in recent years. For example Iraq managed to bring its production above 4 million bpd. We should not let the country lag behind because of irresponsible people,” he told senior Iranian oil officials and representatives of oil majors.

RESHUFFLES

There have been several management reshuffles this year at the National Iranian Oil Company (NIOC), which is based in one of the oldest buildings in the capital.

“You go to Tehran and discover that the team that you have been talking to has completely changed,” said a Western consultant working with a foreign major in talks with the state oil company.

The reshuffles delayed by many months the approval of the new model of contracts with foreign companies, called Iranian Petroleum Contracts (IPC).

Iranian officials have said IPCs will be more profitable for investors than the buy-back contracts of the 1990s - the last time foreign firms were allowed to invest in Iranian fields - where companies recouped money via exports of oil and petroleum products.

Companies such as Total and Eni have said they lost money on Iranian buy-back deals in the past and have called on Tehran to adopt IPCs for the past two years. In August, Rouhani’s government finally approved the new contract model, saying it would usher a new era of investments into its oil fields, containing 157 billion barrels of reserves.

However two months later, oil companies negotiating with Iran are still in the dark about the exact terms of new contracts, as well as if any deals need parliamentary clearance.

“I don’t think anybody will go and sign a contract without parliament’s approval. How do you guarantee that the contract is real if there is no parliamentary approval in a country that works on the basis of a parliament,” said an executive from an oil major that is negotiating a deal with Iran.

PARTNERS

When asked about the lack of clarity around contracts, the head of NIOC Ali Kardor said this week that IPCs did exist and that companies would receive them when participating in tenders. He declined to comment further on the subject.

He said his ministry would hold the country’s first tender, for the South Azadegan oil field, on Nov. 19 and then would tender one field every month for the next 11 months.

Potential Western investors say they have yet to see documentation for South Azadegan or any other field detailing its reserves or work they be required to do.

An executive from an oil major said: “What we have seen so far is only a framework of the IPC. Fees, terms are not clear. Iranian officials say that these issues will be negotiated between foreign companies and NIOC.”

An executive from another major said brief details had emerged in recent weeks, with Iranian officials telling potential investors they would be repaid over the course of many years - an unwelcome contrast with Iraq where repayments are being made almost as soon as investments are done.

The requirements to team up with local partners are also still to be clarified.

“IOCs (international oil companies) will be steering the projects and Iranian companies will cooperate with them. In some fields, Iranian companies will steer the project,” Kardor said at the industry conference.

His deputy Gholamreza Manouchehri later told a news conference at the NIOC headquarters that Iran had cleared 11 local firms to take part in tenders.

Huge projects would likely be led by Western oil companies, while smaller one would likely be led by local firms, he said, speaking in English, aiming to specifically address the international media.

Last week, NIOC signed its first IPC with Persia Oil & Gas, an Iranian firm identified by Washington as part of Setad - a conglomerate controlled by Ayatollah Khamenei.

“The establishment wanted to calm down hardliners but also it made clear who is in charge of Iran’s oil and gas industry - the hardliners and the IRGC (Revolutionary Guards),” said Tehran-based political analyst Hamid Farahvashian.

    “They don’t want to lose their control over Iran’s energy sector and any foreign company that wants to get involved in this sector has to deal with them.”

Additional reporting and writing by Dmitry Zhdannikov; Editing by Pravin Char

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