Interview with #iran's Chairman of the Oil Contract Restructuring Committee #contracts

By 16th December 2015 Industry News No Comments

Found this interview interesting. I’ve been curious about Iran’s mindset in re-entering the O&G market, after sanctions presumably get lifted shortly.

Note that I trust the Iranian government about about as far as I can throw them, while standing in quicksand. Also note that I have no issue with Iranian people, just with the Iranian government.

This interview seems to be glorified infomercial / sales pitch, but I’m mostly interested in the mindset and underlying rationale of Iran’s motives for massively ramping up their oil, gas and LNG production.

Since I can’t share the PDF of the interview on the “link” function here, below is the text of a recent interview with Iran’s Chairman of the Oil Contract Restructuring Committee. I’ve bolded a few sections for emphasis:

Iran to Return to the Global Stage

With Iran’s imminent re-entry into the global stage, there is much to be discussed about how this will take effect and the impact it will have for the world’s oil & gas industry. As part of the Iran Oil & Gas Post Sanctions Summit, we spoke to H.E. Mr Seyed Mehdi Hosseini, Chairman of the Oil
Contract Restructuring Committee about Iran’s return to the market, the investment potential this generates and the revelation of the much anticipated Iranian Petroleum Contract (IPC).

The CWC Group: A number of factors have affected the oil and gas industry over the last 12-18 months, particularly oil price; how will Iran’s re-entry on to the global stage impact market dynamics given the current climate?

Mr Hosseini: Iran will return to the market with planned additional capacity of 500 kbd within a few months from the lifting date of the sanctions and a second stage of growth will add around 1 mmb/d of additional production by the end of 2016 or early 2017. This at first glance looks to weaken the oil
price under the current over supply environment however it is most likely that US shale oil production will drop by about 500 kbd during 2016 due to the high costs of projects and a lack of adequate cash flow from the IOCs. This will undoubtedly compensate for Iran’s additional crude deliveries to the market in the first stage; the re-entry of 500 kbd of Iranian oil seems unlikely to cause dramatic adverse effects on the market or the oil price.

The same trend is forecasted to be continued for both shale oil as well as other high-cost unconventional oil production projects in the US, Canada and Venezuela which is thought to help strengthen the oil price internationally. Iran’s traditional oil customers, whose refineries have been designed for Iran’s crudes, will also move back which opens further opportunity for Iran to return to its pre-sanction production levels through the reclaiming of its market share from those who have come to the fore during the sanctions era. This means that there will be no remarkable excess supply to the market, as a result of Iran’s production increase in the next year.

In conclusion, we see not much adverse effect on the oil price or the market condition by Iran reentering the market with full pre-sanctions capacity in the year 2016.

The CWC Group: How well placed are Iranian companies to partner with international players and what are Iranians looking for from their international partners in the post sanction era?

Mr Hosseini: The last 20 years’ experience of cooperation with IOCs and the years of sanctions have been in fact a golden opportunity for the local companies to grow considerably to the extent that numerous qualified companies have come on the scene and are currently active in Iran’s oil industry
with the capacity to implement E&D projects even on a turn-key basis.

Such outstanding improvements in local capacity are not limited only to the upstream developers, but the same trend has happened with engineering, fabricators, drilling and service companies, as well as EPC contractors.

In conclusion, I am of the opinion that a very successful and bright future of corporation between Iranian competent companies and the IOCs is foreseeable, not only for working together in Iran but entering with confidence into the international market for rendering the same services to the whole
world as well.

The CWC Group: You have mentioned that Iran’s short-term post-sanctions production target is 5 million barrels a day, up from 2.85m over the summer, how much of an opportunity does this create for the international oil and gas community?

Mr Hosseini: As I said, we have targeted much higher capacity in 3 stages. In the short term, we plan to reach to pre-sanction capacity of 4.2 mmb/d in two stages of 500 kbd additional capacity within a few months after the lifting of sanctions and another 900-1000 kbd within a year or so. But in the
medium term, we are targeting another 2 mmb/d from further investment in the development of our new E & P projects.

The development of 2 mmb/d of crude together with 7 bcf/d of natural gas production capacity; in addition to 1.5 mmb/d of short-term development will require the investment of around 120 billion dollars. These projects, together with mid-stream and downstream projects including LNG plants, export facilities, petrochemical plants, etc. may need over 150 billion dollars to be expended within a period of 5 years or even less.

All these investments in a country like Iran, possessing some of the best and appealing geology with low cost, low risk E & P projects, especially in the low oil price environment, provides the most competitive opportunities for investors and IOCs to overcome the current problem of low cash flow conditions. In fact, we are talking about lower investment, with quicker and higher production opportunities in Iran compared with any other opportunities elsewhere.

The CWC Group: How attractive are the investment opportunities in the oil and gas industry in Iran?

Mr Hosseini: In my opinion Iran offers a huge number of low cost, low risk and high efficiency projects and is the key solution to many problems currently existing in the oil market including low oil price, high cost of operations, low cash flow of IOCs and the reduction in financing for shale oil and shale gas projects by banks and money institutions. No need to mention that the involved IOCs in those projects have to allocate over 80% of their cash flow solely for their payments of their debts to the banks.

All these together with other special, promising conditions of Iran such as the availability of the well-educated experts in all oil related branches, access to the open sea with over 3,000 km of shore equipped with modern ports and facilities, etc. makes Iran a very different case in this context.

The CWC Group: There is huge anticipation about the contents of the IPCs. You have described them as a similar to production sharing contracts but with some differing characteristics, what specifics can attendees expect to hear about the IPCs in London? What additional information will be addressed at the conference?

Mr Hosseini: We plan to introduce our new model contract, the IPC, in detail to the attendees of CWC’s forthcoming event in London. This will include details of the legal and fiscal regime of the model for the audience’s information and consideration. They will receive also the IPC’s legislation
adapted by the government, to be transparent with the world’s oil industry to establish long lasting relations and cooperation. They will also receive detailed information of Iran’s potential upstream projects, including information on our exploration blocks, green and brown field developments and
other onshore and offshore oil and gas E&P projects.

Follow up note, I don’t trust that Iran will allow international arbitration over contract disputes, which means any contractual disputes will likely be adjudicated in the Iranian legal system. Not an appealing prospect.

Anyway, Iran seems to think that since U.S. shale oil production will drop in 2016, Iran’s re-entry into the global O&G market will have a negligible effect on oil prices. Again, I disagree. But the point of sharing this interview is not about my disagreements with Iran, but about Iran’s mindset.