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Iran touts new contracts and talks up output plans

Iran will add at least 500,000 barrels/day to production “within a few months” of sanctions being lifted

Iran hopes to reach pre-sanctions capacity within a year of the embargo’s end and is targeting capacity growth of 2m b/d from 50 new projects it will offer to international oil companies (IOCs) next year.

“We will develop to the extent our geology and the market lets us,” Seyed Mehdi Hosseini told the Oil and Money conference in London. He also offered more details about the new investment terms to be offered.

The new Iran Petroleum Contract (IPC), a form of service contract, will replace the maligned buy-back model Iran used in the past. Investors will have the right “to enter into all steps including development and production” of each field. IOCs will not gain official title to the oil but would be allowed to book the reserves in the way some companies had in the buy-back era, Hosseini said. Cost recovery would begin from first production. Fee prices would depend on the field’s complexity. Iran would “share in risk and reward”, he said.

Iran’s output of 2.8m b/d in August was well beneath production of around 4m b/d before the US and EU stepped up sanctions against its oil sector in 2011 and 2012. The country’s plan to recover export customers lost during the embargo has prompted fears of another price shock, as Iranian oil dumps into an already over-supplied market.

“We are looking for our market share,” Hosseini said, but added he was “sure the market will make room for us”. Some buyers – thought to include Greece, Italy and Turkey - had already committed to buy some of the 0.5m b/d Iran says it will add to exports next year. “Europe has always been one of our best customers,” he said.

But Iran would cooperate with its fellow Opec members, said Hosseini, and would increase production in line with the market’s needs. “Excess capacity doesn’t mean there will be excess production.”

Despite some opposition in Iran’s parliament, the government has approved the new terms in the IPCs. “Now we are free to start negotiations,” Hosseini said. Feedback from IOCs had been positive, he added. Iran would hold investor seminars in London in November this year and Tehran in February 2016.

IOCs would be expected to work with a local private partner approved by National Iranian Oil Company (NIOC). Foreign investors could also nominate preferred local firms for vetting by NIOC.

Iran’s absence from the global energy market in recent years had helped its private sector to flourish, with a well-educated workforce and sophisticated services and engineering firms, Hosseini said. He did not rule out companies run by the Revolutionary Guards, which developed commercial engineering arms in recent years, being among potential partners for IOCs.

In the meantime, the market continues to watch for the release of oil Iran holds in floating storage. The volume is estimated to be 30m-45m barrels. Windward, an Israeli firm monitoring the levels, says Iran released about 2.9m barrels between September 18 and 5 October, leaving it with 42m barrels.

But the crude-market impact of the stock release could be less than expected, suggested energy consultant Fereidun Fesharaki. Almost all of the oil in storage was now fuel oil and condensates, not crude, he said; Other sources say crude accounts for about half of the oil. The market for condensate exports is much smaller than for crude, with India thought to be the prime destination for Iranian condensates.

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