Homayoun Falakshahi, senior research analyst for Middle East and North Africa Upstream at Wood Mackenzie speaks to Pipeline Magazine’s Nadia Saleem about Iran’s current oil and gas industry
What is the main incentive for Iran to bring in IOCs to develop its oil and gas resources?
Since the elections which resulted in President Rouhani’s win, solving the nuclear issue was the first mandate in clearing the way for reviving the oil and gas industry which has been suffering. The main incentive to bring international companies is to bring back investment rather than just knowledge. Meanwhile, some fields are hard to develop - like South Pars, so they needed to bring the technology that Iran doesn’t have.
How important are new oil and gas contract terms under Iran Petroleum Contract? The new contract terms are key to determine if Iran is able to bring back investors. Previous contract terms were known to be the world’s harshest - most of the time companies were unable to cover cost of investment under schemes which were more like service contracts.
What projects do you expect to go forward and what timelines do you see for this?
Iran has more than 50 upstream projects - these are only the discovered resources. Exploration hasn’t been a priority because the country has a lot of discovered resources, which go back nearly 50 years. So they have had other opportunities to grow. Additionally, Iran has between 14-18 exploration blocks which are on the do list for tendering. Although this been quoted to happen in two-three months, it’s more likely to be end of the year or even next year. Most of the interest from foreign companies will be on the developed resources - some of which are already producing.
What foreign investment does Iran need right now and what can attract these?
Iran has plans to develop 54 projects, which combined would need $114 billion in the next 20 years. Two-third of this is expected to come from foreign companies – that’s why it’s key for Iran to attract foreign investment. These are all new projects that didn’t exist 20 years ago. The main attraction Iran has is that most of these assets have a cost per barrel of around $15-16, which is low compared to others in the world (shale etc). Brazil is currently around $30-40, while North Sea’s operational cost alone is $20 per barrel. Iran can therefore afford to offer terms that are stricter - but they are being more pragmatic to ensure competition. In order to reach capacity targets, they need to do a lot of investment. We think this will happen over 10 years, not five. Most of the capacity building will be gas focused because of the high reserves (second highest after Russia) Iran has.
What challenges do you see in Iran being able to develop its oil and gas industry?
The first challenge will be international politics and policy of United States on the nuclear deal – so far we have yet to see something change. All the deals between certain dates can be cancelled if the snap-back clause in the sanctions deal is triggered. I would expect companies to play a cautious role although at this time this looks unlikely. Timeline is also a challenge. Iran is more optimistic that us on all the deals that will be signed. I don’t think Iran has the capacity to deal with all 50 projects at one time. It is likely that there will be series of tenders, and then every few months, some projects being awarded due to Iran’s international bureaucracy.