POST-SANCTIONS DIELMMA; Iran’s drilling industry after lifting the sanctions and Introduction of IPC? | Drilling Magazine

POST-SANCTIONS DIELMMA; Iran’s drilling industry after lifting the sanctions and Introduction of IPC?

Ramin Foroozandeh


By unveiling the new generation of oil contracts with the name of IPC (although the draft version of this contract was not publicly published), a number of legal, financial and technical investigations were conducted. Obviously judging on this contract form is not possible until its publication in a complete detailed way. Meanwhile the approval of cabinet of ministers could be somewhat helpful. In this contract there will be cooperation between Iranian and foreign companies for investment in exploration, development, production and enhanced oil recovery phases that will last for at maximum 25-year period. Payments for the second side of a contract will be calculated according to each barrel of the produced oil. A number of consolidated figures in buy-back methods no longer could be seen in IPC and therefore IPC is more flexible than buy-back. Formation of E&P (Exploration and Production) companies is one of the inevitable necessities of IPC is one of the discussed topics of IPC. Currently NIOC is the only one available of this kind. This method of contracts will have some changes in Iran’s drilling industry that some of them will be mentioned:

Development of Solution Maker Companies

In IPC, there’s more consistency in field development process and contractors will be present during the whole stages of exploration, development, production and enhanced oil recovery. Up to now drilling service providers were present during the mentioned stages although their participations were concentrated highly in exploration and development stages and in higher levels like decision making and macro management. According to IPC we could expect the extension of their participation to production and enhanced oil recovery stages. In this situation not also the related the related operation, but also decision making and solution making would be dedicated to service provider companies. In this situation drilling service provider companies shouldn’t rely on a specific service and its report. But they should present designed solution for each situation that may include using different services simultaneously. Simultaneous management of different services brings the need for consistent drilling services to the mind.

Need for Integrated Drilling Services

Experience of using Integrated Drilling Services Contracts, due to logistic and contract problems and high financial volume of offshore projects lead to the conclusion that it has been implemented mostly in Iranian Offshore Oil Company and Pars Oil and Gas Company areas of activity. Evaluations are showing that this contract method was a successful one although it has some problems and it’s necessary to edit it. Considering the necessity for providing a solution that is suitable for the entire life-cycle of a reservoir and the number of necessary services, it seems that by using IPC in onshore areas we will have integrated drilling services contracts. Specifically if the risk and financial return of these contracts increase, main contractor companies would tend to its side.

Expanding the presence of Consultants

Despite the existence of a number of drilling service providers, equipment manufacturers and drilling management companies, there’s still a considerable scarcity of upstream consultants in Iran petroleum industry. Part of this story is due to the structure of upstream projects that traditionally and unlike the downstream projects, it’s not common to employ a consultant. Meanwhile we could name a number of upstream projects with presence of a consultant that were in different parts of MDP, various stages of studies, simulation and supervising drilling operation. E&P companies assign a major part of their activities to upstream consultants and even drilling companies could use different services of consultants. By presence of companies during the life of a reservoir and considering contract incentives for production preservation in new oil contracts, increased presence of upstream consultants in projects will be expected. Using upstream consultants does not necessarily mean greater number of consultancy companies. But this section will be developed among drilling service providers and they will not rely on specific services just like their foreign rivals.

Changing to E&P Companies

Formation and development of E&P companies is one of the main plans of Petroleum Ministry and it is expected that some of the major drilling companies will change and transform in order to become E&P companies. Actually the biggest current potential in Iran petroleum industry for formation of E&P companies are major drilling companies. These companies were managing body of drilling projects using different methods e.g. EPD during sanctions period. Obviously reducing the area of activity of an E&P company to drilling operation management is not possible. But experiences of drilling operation and its major role in upstream of oil industry projects could be considered an incentive for formation of an E&P company.

Increased Competitive Environment

IPC will definitely lead to competitiveness. Considering incentives in contracts for using modern technologies will lead to increased demands of high-tech drilling services that would have its effect in development of domestic supplies or using foreign technologies. In both situation competitions will be present as the main motive. Also expecting the presence of giant international developers in the country, would lead to the expectation that drilling contractors and equipment manufacturers will enter Iran and competitive environment will be much more than the past. The environment may not lead to the benefit of all drilling service providers.

Bankruptcy, Merging or Development

If we assume that service providing and giant drilling companies enter Iran, considering current performance and status we would have some solutions for Iranian companies. Some of them which have developed from both quality and quantity point of view during sanctions period, may lose some of their market share and still be present. But if the number of active projects increases, the story would be vice versa. But a lot of small companies which lack financial support and significant physical assets and have little market share during the economic sanctions period, may face a lot of problems in the competition and they’re looking for some solutions. Merging with other companies would be a solution. Meanwhile for some of company’s bankruptcy would be their only choice and they may want to sell their physical assets just from now.


  1. Thank you for giving the info. It’ll help me bunch.

  2. This really answered my problem, thank you!

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