What is the New Oil Contract Model?

The main priority in enforcement of the new model of oil contracts will be given to development of the joint fields and increasing the co-efficient of recovery from the reserves, says Iranian Minister of Petroleum Bijan Zangeneh. But what are these new contracts?

The new model before being fully endorsed by the administration for enforcement and application, received heated reactions from radical observers who said the new model will render nearly a century of history of the industry futile and will hand over the country’s hydrocarbon riches to foreigners.

Referring to certain criticisms over the new model of oil contracts and the critics’ concern over such issues as preservation of ownership of reserves, supervision over contracts, and settlement with the contractor party, Iranian Minister of Petroleum Bijan Zangeneh told the parliament on Saturday that once the new model of oil contract is implemented, huge amount of activities being subject to the contracts will be entrusted to Iranian companies.

By signing the new model of oil contracts, the Iranian Ministry of Petroleum is to win the possibility for using the world’s state-of-the-art technologies in the oil industry.

The most important difference between the new contract model and the buyback ones is that if work stops in the course of development of the field for whatever reason, there will be no payment as long as no production has come about.

Also, if production stops, there will be no payment and re-payment on part of the contractor out of production of the same reserve will always be the issue of the contract.

Some say that the contracts will result in lesser ownership of Iran over the reserves, but the Iranian Minister of Petroleum says the new model of contracts explicitly says, “What is on and under the ground, including oil in reserves and the oil produced, are all for us and only based on what is referred to in the contract, and should also be approved by the Economy Council, a sum should be paid further in exchange for production of each barrel of more oil. Even the drilling bits used by the contractor belongs to us.”

This new model of oil contracts, which is sometimes referred to as the Iran Petroleum Contract (IPC), took two years to be devised by the ministry and be endorsed by the Rouhani administration, and the projects introduced under IPC are hoped to meet a part of Iran’s need for developing its oil and gas industry.

IPC is replacing buyback deals. Under a buyback deal, the host government agrees to pay the contractor an agreed price for all volumes of hydrocarbons the contractor produces.

But under the IPC, National Iranian Oil Company (NIOC) will set up joint ventures for crude oil and gas production with international companies which will be paid with a share of the output.

In the wake of nuclear deal reached in July 2015, Iran has been receiving high-ranking officials and corporate executives of major companies including from Germany, Spain, Austria, Italy, and France to discuss new cooperation ventures.

Iranian Minister of Petroleum Bijan Zangeneh has said that Iran welcomes foreign investment in its energy industry, but stresses technology transfer by foreign partners in the new contracts.

(Source: Shana)

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