News ID: 192600
Published: 0650 GMT May 12, 2017

Russian companies ready to invest in Iran's hydrocarbons production

Russian companies ready to invest in Iran's hydrocarbons production

Russian oil and gas companies are ready to invest in hydrocarbon production in Iran, analysts questioned by TASS said.

According to TASS, cheap resources remain an attractive asset even in the absence of clearly spelled conditions of cooperation, they said.

The new phase of interaction between Iran and foreign investors started after the lifting of sanctions. However, certain foreign investors, such as Total, Eni, OMV and Lukoil, said they will return only after the improvement of terms of the buyback service contract used in Iran before the sanctions.

The concept of a new contract, known as the Iranian Petroleum Contract (IPC), was already developed but its launch has repeatedly been delayed.

Experts contend that the IPC indeed appears a more attractive contract as distinct from the traditional production buyback scheme.

"The buybacks and the IPC are both service contracts: Contracts in which the contractor brings capital and operates the field. In exchange, it receives its costs back and remuneration. The main advantages of the IPC appear to be higher flexibility, longer length, and similarities with a classic Production Sharing Contract (PSC)," said Wood Mackenzie's Senior Analyst Middle East and North Africa Homayoun Falakshahi.

"Foreign companies will now be able to enter into joint ventures with Iranian companies. Remuneration of investors has been increased; it is finally depending on the oil price in the new scheme," head of Skolkovo Energy Center Tatiana Mitrova said.

Conditions of the new Iranian contract may be similar to those used for West Qurna 2 project operated by Russia's Lukoil in Iraq, Fitch analyst Maxim Edelson said.

Experts explain the interest of Russian companies in the Middle East oil as "the cheapest resource base in the world" held by Iran. Furthermore, the most interesting resources in Russia have already been distributed.

"Our opportunities to grant licenses to companies are highly limited in recent years and it is natural they are looking for options overseas," Sberbank CIB analyst Valery Nesterov said.

It will take years for Russian companies to develop Iranian projects, experts say. "It is difficult to say something specific about when Russian companies might be able to start production. But if what happened historically in Iraq could be viewed as an analogy, the West-Qurna-2 field in Iraq to it was put on stream around four years after Lukoil won the tender to develop the field," Norwegian-based Rystad Energy said.

"1½-2 years will be needed in Iran," department head in the Kazan Federal University Vladislav Zatsepin said.

"Russian companies' key advantage over Europeans is good political relations between Tehran and Moscow, having improved a lot over recent years," Falakshahi said.

At the same time, Russian majors do not enjoy the expertise or access to finance as international oil companies do, he added.

Lastly, Russia is not a consumer of Iranian oil like China, for example. "Asian companies could lean on their position and present themselves as a long-term partner for Iran, both from an upstream and a marketing point of view. Russian companies will not be able to compete on this point," Falakshahi said.

However, this issue can be settled in the near future through talks resumed by Russia and Iran on the restart of the 'Oil for Goods Program', with Russia to purchase up to 100,000 barrels of Iranian oil daily within its framework. The relevant agreement can be signed already this year, Russian Energy Minister Alexander Novak said earlier.

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