Out-Law News 1 min. read

Delayed new model contract leading to caution ahead of Iranian oil licence round, expert says


Delays to Iran's new model contract for international investment in oil and gas projects may mean quieter than expected activity once the country's long-awaited licensing round begins, an expert has said.

The first licensing round for oil and gas development rights in Iran since onerous trade sanctions against the country were lifted last year is expected to take place within weeks, according to press reports from the region. However, the new Iran Petroleum Contract (IPC), which was first presented to prospective international investors late last year, has not yet been finalised.

Niazi Kabalan, an expert in oil and gas projects at Pinsent Masons, the law firm behind Out-Law.com, said that Iran might ultimately end up postponing the grant of new exploration and production rights in order to take advantage of the growing interest in the market from the international oil and gas community.

"It is possible that the licensing round might focus on investment in existing infrastructure upgrades, and defer the grant of new exploration and production rights until the model IPC is finalised," he said.

"There is still an appetite to invest in Iran across many parts of the oil and gas community. While the licence round signals support for overseas investment, the lack of clear terms means plans may well be put on ice for the short term. The model petroleum contract must be finalised if Iran truly wants to realise its global ambitions," he said.

Once finalised, the IPC will replace the previous "buy back" contract used by international oil and gas companies before sanctions were imposed on Iran. Under this contract, an international firm was permitted to develop an oil or gas field but an Iranian company then took over at the production stage.

The IPC will instead create a joint venture between the international company and an Iranian partner, allowing international companies to earn a share of total output. The Iranian partner to the joint venture would have a majority stake of at least 51%. However, the planned contract has caused concern among some conservative groups within Iran who have argued that it gives too much power to international companies.

Iran's state-owned oil company the National Iranian Oil Company (NIOC) expects the first IPC contracts to be awarded by October, according to a statement on its website earlier this month. Iranian oil minister Bijan Zanganeh has said that awarding the new contracts could increase Iranian oil production by 600,000 to 700,000 barrels per day over the next five years.

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