Abdoalsamad Rahmati

The National Iranian Oil Company

Oil and gas industry in any country is located in the center of the country’s economy. Therefore, multiple capabilities of oil in industrial fields have led developed countries toward achieving vast oil resources around the world.

Furthermore, countries having these resources have realized the financial aspect of this material and are after earning money by its sales and industrial production in the future.

The world’s businesses, that were looking for profits based on the nature of their activities, have realized now that oil is a rich source of income.

In order to achieve an agreement between the main actors’ interests, First,  a unique frameworks had to be stablished. Oil contracts were those frameworks which, since the discovery of oil, were employed as a means of accomplishing the common interests of both sides and adjusting their relations with each other. In this regard, various contract models were developed and used, mainly including the concession agreements, production-sharing contracts, and service contracts.

Nowadays, two models of partnership and service contracts in most of oil- and gas-producing countries, including Norway, the UK, Canada, Iraq and Qatar are being performed. These contractes are of such interests that has led to huge investments in these countries’ oil industry.

 

For example, presenting new oil and gas contracts in Iraq, which are service contracts, has attracted many foreign companies and has ultimately increased  the production of oil for 2million bbl/day  in Iraq’s oil industry during the past five years.

In our country,  in recent years for several reasons such as the international circumstances, foreign oil companies have been prevented from attending the contracts, thus the officials were urged to provide good situations for the participation of foreign companies in different segments of oil industry after nuclear agreements and their operations. Finally, in order to restore economic relations with industrial countries all over the world, the new oil contract model of IPC (Iran Petroleum contract) was designed.

The mission of oil industry in exerting  Iran’s ruling and possession rights in terms of its whole oil and gas resources and installations is as follows: improving long-term benefits of the country via maximizing the country’s income from oil and gas resources and marginal activities and protecting this resources.

It is evident that efficient production with the maximum added value from the country’s oil and gas industries and protecting them, creating and enhancing an effective relationship with national, regional, and global benefiting parties, and predicting the evolution trend of oil industry in the world are among the required actions to save the national benefits of the country from the strategic policies of oil industry.

According to 2015-BP, Iran ranks fourth and first in terms of oil and gas reserves in the world, respectively. Therefore, Iran has great potentials for oil and gas activities. We have about 158 ​​billion barrels of recoverable oil reserves that comprise about 10% of global oil reserves, indicating the noticeable potential in the country. With around 34 trillion cubic meters of gas in recoverable gas reserves, our country has a prime role in the world gas reserves, and containing over 18 percent of world gas reserves points to Iran’s great potential in this field. So far, less than 30% of recoverable resources have been exploited and produced, IPC contracts can be an opportunity for using the existing capacities. In the new contract, 18 exploration blocks, 29 oil fields (including 8 offshore and 21 onshore fields), and 21 gas fields (including 3 offshore and 18 onshore fields) have been considered. Among the onshore oil fields, the development of 9 new fields along with 12 oil fields available (re-evaluation in order to maintain or increase production to new methods of harvest) have been observed in the plan. The offshore oil fields are mostly the available fields, and three undeveloped fields have also been considered. In the onshore gas sector, 13 new fields along with the development of two available oil fields have been considered in the plan. All the offshore gas fields are undeveloped fields.

 

The officials have specified 50 oil and gas project with the value of 180 billion dollars in the new oil contracts which can have a key role in the future of Iran’s oil industry. It is expected that with the new model the oil contracts can attract25-30 billion dollar investment in the oil sector.It is worth mentioning that at the present moment, second to Saudi Arabia ,Iran produces oil with 9 dollar and 8 cents per barrel , which is itself another investment attraction in Iran, since the country which has the least production cost can have the most income.

With regard to the processed programmings in the sixth development plan, gas production increases from 750 million m³ per day at the end of the fifth plan to 1,400 million m³. In addition, according to the plan the crude oil production capacity must rise to 4.7 million barrel per day.in other words, this capacity must increase approximately 700 thousand barrels compared to current capacity.

On this basis, if the new oil contracts enter the operation stage, almost 160 million m³ gas per day in the gas sector and in the oil sector, except for the 13 producing oilfields whose production is clarified by the contractor’s research,almost 950 thousand barrel per day will be added to the country’s oil and gas capacities.

In the so-called IPC contracts,it is supposed that the different parts of the oil industry (exploration, development and production) will be integratedly awarded to foreign companies so that they have an incentive to participate in the oil industry in Iran.

In this type of contract, the ownership of the vessel is not transferred and the preservation of reservoir production is one of the most important issues in these contracts.

The introduction of the new model of oil contracts, investment attraction, technology transfer, protected production of reservoirs, increasing the reservoir’s recovery factor (now EOR reservoirs coefficient of the country is 24 percent and the target of the research is to increase the recovery from the current 24 percent to 35 percent. And if the EOR technology cannot be developed, these reservoirs will face production reduction in the second half of their life) . And more and more efficient use of local contractors is an important objective of the new model contract in the oil industry. Local contractors will play a key role in the of 20-25 year perspective of the oil industry. That’s why the competency of contractors of oil company is crucial.

According to Article 4 of the oil industry’s new model contract IPC, Iranian qualified companies, in the process of contract role as a partner with reputable foreign companies. For this purpose and to detect the competent Iranian companies able to attend in contracts to develop fields in the form of Exploration and Production (E & P), the oil minister send a Announcement for evaluating companies and promote them to the E & P companies, and now an expert team are examining the issue and provide solutions with which local companies can be assessed.

It worth to mention that in the international definition , companies who work exploration Activities, development and production of crude oil and gas,are called as exploration and production (E & P).

Also to evaluate companies which have been qualified for exploration and production, ability to risk and its management, Technical capability and skilled manpower, the upstream project management and the financial ability are of the indicators that need to be evaluated in companies in order to become E & P companies.

By the way, according to reconsideration of new oil contracts by the competents in country, it is essential to be reviewed in order to promote national goals.

Without a doubt, investment in the upstream sector in order to maintain and improve the share of OPEC production and maintain the position of Iran in the Middle East is inevitable. So The team success is which that provides development, and government and other organs in the country support them with guidelines to pave the way, and with the judiciary’s help to protect the alignment of goals.

Having clear rules and regulations, legal precedents and practices of the oil industry in the use of all the features and capabilities of the country for the promotion and development of Iran’s oil industry and promoting the status of contract law in the energy sector is completely necessary. In addition, use of maximum engineering power, as well as environmental considerations and regulations, are other important issues in foreign contracts in the upstream oil industry.

At last,in Psabrjam era ,we hope to be able to predict the essentials of working with international companies correctly to take full advantages, and saw the formation of powerful domestic companies in our region and the world in near future. And this is the only way which make our national resources to circulating and serve the security, growth and development of our country.