As Iran’s Petroleum Ministry prepares to reveal the details of its new Iran Petroleum Contract (IPC), international oil companies (IOCs) will be looking at opportunities to re-enter the country’s oil, gas and petrochemicals sectors.

At a conference in Tehran on 28-29 November, the government says it plans to unveil about 50 potential projects worth a combined $185bn, including a combination of brownfield and greenfield schemes, and exploration blocks available for IOCs to bid on.

According to the head of Iran’s Contracts Restructuring Committee (ICRC) Mehdi Hosseini, the new deals will have flexible terms and will include new projects in the Caspian Sea as well as lower-risk opportunities in the country’s established oil and gas fields around the Gulf.

The contracts will last for 20 years and in some cases could be extended to 25 years, Hosseini said in an interview with UK news agency Reuters.

The Tehran conference will be followed by another event in London on 22-24 February, where further details and projects are set to be revealed.

Repair attempts

Iran is attempting to boost its oil industry with overseas funding and technology after years of sanctions left its assets suffering from significant underinvestment.

Sanctions against the oil and banking sectors are expected to be lifted in early 2016 after the completion of the nuclear deal signed in Vienna with world powers on 14 July.

There is still uncertainty over how quickly IOCs will be willing to commit to Iranian oil projects, given the risks and slide of global crude prices.

French energy group Total, which has in recent years appeared the keenest out of the large Western IOCs to re-enter Iran after sanctions are lifted, now appears less bullish on the prospects.

Less bullish

Speaking at the Adipec oil conference in Abu Dhabi on 10 November, Total’s CEO Patrick Pouyanne said it was optimistic to expect deals to quickly be signed after the launch of the IPC.

“If you remember the question of Iraq, everyone was excited about it, but at the end of the day the contracts that were offered to the IOCs were not really interesting,” he told UAE-based newspaper The National.

Pouyanne said the IPC launch in Tehran would probably just be the framework of the contract and that he would be surprised to see any detail on the terms for revenue or production sharing.

Hiking production

Iran has understandably been bullish about the prospects for investment as well as the potential speed at which it can ramp up oil exports following the suspension of sanctions.

Iran’s Oil Minister Bijan Zangeneh said recently that Iran could push up production and exports by 500,000 barrels a day (b/d) immediately after sanctions are lifted. A further 500,000 b/d would follow in the summer of 2016 and the same amount by the end of that year.

This would boost Iranian production by 1.5 million b/d to 4.2 million b/d within a year of the date sanctions are suspended – known as Implementation Day – and would see Tehran reclaim its place as Opec’s second-largest producer.

Forecasts by oil analysts are not so optimistic about the prospects for boosting production.

After the Vienna deal, the UK’s Barclays bank predicted Iranian production could increase by 200,000 b/d by the fourth quarter of 2015 and rise by a further 400,000 b/d by the final quarter of 2016. An estimated 40 million barrels of oil are also thought to be in floating storage, which would allow the Islamic Republic to push exports above newly produced volumes by a further 200,000 b/d.

Cautious outlook

Other forecasts reinforced this cautious outlook. Richard Nephew, former director for Iran at the US National Security Council, estimated an additional 300,000-500,000 b/d could be on the market within six to 12 months of sanctions being lifted.

UK-based consultancy Wood Mackenzie forecasts up to 600,000 b/d of new oil output, but only by the end of 2017.

Zangeneh’s target of lifting gas production to more than 1 billion cubic metres a day (cm/d) – up from less than 500 million cm/d in 2014 – also looks optimistic. This level of increase would require a significant volume of gas from the under-development South Pars gas field, but several of the phases have fallen behind schedule.

The second stage in lifting crude production is unlikely to happen until the end of the decade and only if Iran’s plan to attract IOCs to work on its upstream assets is realised.

Four years

It is likely to take at least four years for any projects that involve bringing in overseas engineering and construction companies to reach completion, leaving any planned capacity expansions that are not already under execution unlikely to be completed before 2020.

Iran’s vast hydrocarbons reserves give the country – alongside its neighbour Iraq – the biggest growth potential in the conventional upstream oil and gas industry in the Middle East and perhaps the world.

The UK’s BP estimates crude production, including natural gas liquids (NGLs), averaged 3.61 million b/d in 2014, up from 3.53 million b/d the previous year.

At least 1.2 million barrels a day of new crude capacity is either on hold or delayed in Iran

According to Opec, the value of Iranian petroleum exports dropped from $114.75bn in 2011 – the second-highest in the oil producers’ group – to $61.92bn in 2013, after the US and EU introduced new sanctions targeting the country’s oil industry.

Oil production has dipped from a peak of 4.4 million b/d in 2008 and a consistent annual production of more than 4 million b/d between 2003 and 2011.

Crude production in the 21^st century remains far below the peak of the Iranian oil industry in the 1970s in the run-up to the revolution.

Failed recovery

Between 1972 and 1978, the country produced more than 5 million b/d each year, peaking at just under 6.1 million b/d in 1974. Output dropped sharply in 1979 and the years that followed as the revolutionary government pushed IOCs and oil workers out of the country; the oil and gas industry has never truly recovered.

Iran has 157.8 billion barrels of proven oil reserves, the fourth-largest in the world, after Venezuela, Saudi Arabia and Canada, representing about 9.3 per cent of the global total, and 13 per cent of those held by Opec-member countries.

UK consultancy Facts Global Energy estimates that 70 per cent of Iran’s oil reserves are located onshore, with the remainder offshore. The country also has proven and probable reserves in the Caspian Sea that have not been realised because of ownership disputes with Azerbaijan and Turkmenistan.

Iran’s largest fields in terms of reserves held are the Marun, Ahwaz, Aghajari and Gachsaran fields, which each have more than 10 billion barrels of estimated recoverable reserves.

All four of these fields are located in the Luristan-Khuzestan basin in southwest Iran, which contains an estimated 85 per cent of the country’s onshore reserves.

Tehran has found it challenging to significantly boost crude production over the past two decades as capacity added by bringing new fields on stream has been offset by declines at maturing oil fields. At the same time, condensate production has increased steadily due to the rise in gas production, especially from the offshore South Pars field.

Output has been maintained by increasing the capacity of fields that have been developed relatively recently, such as Azadegan, Darkhovin, Khesht and Henjam.

Buy-back system

The IPC deals the Petroleum Ministry is preparing to launch will replace the buy-back system that Iran used to partner with IOCs over the past two decades.

According to UK law firm Clyde & Co, the buy-back model introduced in the 1990s and early 2000s was at the time considered a significant step forward to attract foreign investment without violating the provisions in Iran’s oil and gas legislation and the constitution, which effectively prohibit private foreign or domestic ownership of natural resources.

However, the system is prone to large potential losses for IOCs and companies have limited options to take into account any changes that might happen in the market or to the asset during the development of the project.

According to MEED’s Opportunity Iran report, at least 1.2 million b/d of new crude capacity is either on hold or delayed in Iran as talks have broken down with IOCs developing fields.

This includes almost 500,000 b/d of capacity being developed at the North Azadegan and South Azadegan fields, located 80 metres west of Ahwaz near the Iraqi border.

China National Petroleum Corporation (CNPC) signed buy-back agreements worth a combined $4.5bn to develop both fields, but, according to Iranian media reports, the deals were cancelled by state-owned National Iranian Oil Company (NIOC) due to lack of progress.

Potential projects

The South Azadegan and North Azadegan oil field developments will be among major projects NIOC will want to contract out to IOCs after sanctions are lifted. NIOC will likely look for companies who can take on the projects from the progress reached by CNPC and see them through to completion by the end of the decade.

Another major oil field development that Iran will want to kick-start is the Darkhovin field. Italian oil company Eni carried out the first phase of development at the field and signed buy-back agreements for the second and third phases, which would increase production to a plateau of 260,000 b/d,

However, in February 2010, Eni announced it was to pull out of Iran and cease activities on the Darkhovin field due to sanctions.

The third-phase field development is thought to have been put on hold at an early stage after Eni’s departure.

Azadegan and Darkhovin are just two of several planned schemes stuck in limbo that NIOC will want to get back on track when sanctions are lifted.

Iran must make sure the terms of its new contracts are attractive enough to IOCs to take on projects that have burned overseas companies in the past.