Will Iran Scare Away Big Oil Once Again? Energy
Comments from the head of the National Iranian Oil Company suggest that Iran wants the old buyback contract back, a potentially destructive move for the oil majors.
Iran's hardliners object to the introduction of the new IPC as an alternative to the buyback contracts.
Oil majors' profitability could come under great pressure if Iran decides to stick to the old buyback contract.
Just when big oil was preparing to sign the new Iranian Petroleum Contracts and start working in the country's vast fields, hardliners once again took the upper hand.
On Monday, the new head of the National Iranian Oil Company announced that the old buyback contracts that the country used before the sanction era will stage a comeback as an alternative to the new IPC.
The announcement signals that political hardliners, who objected to the introduction of the new IPC as a more attractive alternative to the buyback contracts are increasing the pressure on the reformist camp. Thanks to precisely this pressure, the official presentation of the IPC was delayed several times, but Oil Minister Bijan Zanganeh managed to push forward with it. Most recently, Zanganeh said the first tenders for the development of some 15 fields could be launched as early as this month.
The old buyback contracts pushed away foreign oil companies, notably Italy's ENI (NYSE:E) and France's TOTAL (NYSE:TOT), who said that under those conditions, they were finding it hard - sometimes impossible - to break even on their Iranian operations. Those contracts stipulated that Iran will pay a fee to oil companies developing its fields, but did not allow them to book reserves at the fields or buy into local oil companies.
The new IPC, on the other hand, includes stipulations for foreign oilfield operators to book oil reserves, as well as an option for long-term engagements and alternative ways of compensation. The aim, Zanganeh said, was to achieve a win-win for Iran and the foreign operators.
Opposition was strong from the beginning, but lately, it looked like it has started to subside, as the IPC was amended repeatedly to accommodate the biggest concerns of the opponents. Just last week, Zanganeh announced the final (maybe) amendment of the IPC, adding that it should be approved by the government "shortly." He mentioned at the time that foreign oil companies will be given a choice between the IPC and the old buyback scheme, and now his trusted ally Ali Kardor has seconded that.