Iran sees IPC as tool to improve energy sector
The Islamic Republic of Iran, the fourth country in the world for the volume of proven oil reserves, seeks to sign new oil agreements with foreign companies in the second half of 2017.
Iran was engaged in the development of a new model of oil contracts, also known as Iran Petroleum Contract (IPC) for the past 3 years.
The first oil deliveries under the contracts are expected to be implemented in 2020, analyst Homayoun Falakshahi told Bloomberg.
The IPC is considered to be a cornerstone of the country's plan to raise crude production to the presanctions level of four million barrels per day. The contract will allow foreign companies to resume their operations in Iran, following years of sanctions that have profoundly affected Iran's the energy sector, restrained its production and export of oil and gas.
The IPC type of oil contract was developed with an aim to increase attractiveness of oil projects for foreign investors. Under the IPC, different stages of exploration, development and production will be offered to contractors as an integrated package, with the emphasis laid on enhanced and improved recovery.
Falakshahi further said that the country is expected to increase its production up to 500,000 barrels per day by 2025. The country seeks to achieve the level of 4.8 million barrels per day by 2021.
Iran extracted some 3.55 mbd of oil in the July, according to Bloomberg data. The Islamic Republic exported some 2.1 million barrels of crude oil, as well as 600,000 barrels of gas condensate per day in July, nevertheless the volume is still below the pre-sanctions level, which was 2.35 mbpd.
Before sanctions were ratcheted up in 2012, Iran was producing over 4 million barrels of oil per day. When those sanctions were lifted in early 2016, production in the country went from 2.8 mbd up to 3.5 mpd.
Tehran currently needs some $200 billion of foreign investments for developing its upstream, midstream and downstream oil and gas projects. The bulk of the new investments are planned to be attracted through IPCs.
Iran’s Oil Minister Bijan Namdar Zanganeh earlier said the priority for the country as per the upcoming IPC awards will be the development of joint fields. The official also emphasized that a special attention will be paid in the new contracts on increasing the recovery rate of the fields.
Iran has 27 oil and gas reserves which it jointly shares with its neighbors. The shared fields roughly account for 30 percent of the country’s gas reserves as well as 20 percent of its oil reserves.
Zanganeh underlined that one of the main differences between new and old versions of oil contracts is the fact that no charge will be applied till the end of production if the operations are halted for any reason in the process of field development.
Oil majors said they would go back to Iran should it made major changes to the buy-back contracts of the 1990s, which companies such as France’s Total or Italy’s Eni said made them no money or even incurred losses.
Buy-back system that envisages a prohibition for foreign companies to create reserves or acquire share in authorized capital has been in effect for more than 20 years. Moreover, the system provided for the payment of only a fixed price for extracted hydrocarbons.
National Iranian Oil Company is now expected to create joint companies with foreign contractors under the new model contracts. Moreover, foreign companies will be eligible to get a portion of income.