Gadfly: If Iran Opens Its Oil Sector, Will Saudi Arabia Be Next?
This opinion piece presents the opinions of the authors.
It does not necessarily reflect the views of Rigzone.
(Bloomberg Gadfly) -- Iran has taken a big step toward bringing foreign investors back into its oil and gas sector. The experience of neighboring Iraq shows it still has a long road to walk, though -- if successful -- there may well be a lesson here for Saudi Arabia on opening up to outside help.
Iran has restored most of the production it lost because of sanctions imposed in 2012, confounding analysts with its speed of recovery. Crude exports are back at 2 million barrels a day and the country is slowly re-establishing itself in European markets.
But the next step -- taking output back to levels last seen before the 1979 revolution -- needs the assistance of foreign oil companies. And that's much more complicated.
Last week, Iran's cabinet approved the general terms of a contract model that will govern foreign oil and gas investments. In doing so, it overcame months of hostility from hardliners in Tehran, who oppose the concessions made to get sanctions lifted. The resolution now has to be endorsed by parliament, where it also faces opposition.
Assuming it makes it through, the model looks promising enough. It reaffirms that oil and gas reserves will remain under sovereign ownership, so no surprise there. But it opens the way for foreign involvement in three types of project:
1. Exploration - leading, if successful, to development and production;
2. Development of already discovered, but undeveloped, reserves;
3. Using enhanced oil recovery techniques to raise output from mature fields.
Contracts will be valid for up to 20 years from the start of development, with an extra exploration period if appropriate. Enhanced oil recovery projects may be extended for another five years beyond that. Payment to foreign investors will be in cash or as a share of output at the discretion of the National Iranian Oil Company.
Investors are also being offered protection from any future OPEC output reductions, remote as that possibility may seem today. The resolution states that non-technical production cuts will fall on fields with no repayment commitments -- effectively, those without external partners.
Iraq's experience shows that even with an agreed model, things may move slowly. Baghdad approved its oil law in March 2007, four years after the U.S.-led invasion that toppled Saddam Hussein. Yet the first contract wasn't awarded for another two and a half years, after an initial bidding round in which no would-be investor proposed an acceptable fee. For Iran, too, the payment requested by foreign bidders will be the big factor in determining winners.
Once implemented, though, the Iraq contracts helped it boost production by 2 million barrels a day, or 80 percent, within about six years. Plus investors in Iran won't face the same sort of security and stability problems as in Iraq, meaning they may be willing to pay more from the start. That said, uncertainty over any potential snap-back of sanctions, or reluctance by Western banks to lend to projects in Iran could bring their own delays.
As I noted a couple of months ago, if Iran is successful it will leave Saudi Arabia and Kuwait as the only oil producers determined to go it alone, as former champions of oil nationalism have, one by one, embraced foreign investment. Will a partial privatization of Saudi Aramco increase pressure for the kingdom to follow suit? It ought to.
12
View Full Article
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- Japan Failing to Meet Corporate Demand for Clean Power: Amazon
- Russian Navy Enters Warship-Crowded Red Sea Amid Houthi Attacks
- Libya's Surprise Oil Minister Change Throws Spotlight on Output
- Oil Seals Quarterly Gain in Tightening Market
- Oman Sees Increasing Ship-to-Ship Transfers of Russian Oil Bound for India
- Falcon Oil Declares Commercial Flow Test Results for Shenandoah Well
- Macquarie Strategists Expect Brent Oil Price to Grind Higher
- Japan Failing to Meet Corporate Demand for Clean Power: Amazon
- UK Oil Regulator Publishes New Emissions Reduction Plan
- Pennsylvania County Joins List of Local Govts Suing Big Oil over Climate
- PetroChina Posts Higher Annual Profit on Higher Production
- McDermott Settles Reficar Dispute
- US, SKorea Launch Task Force to Stop Illicit Refined Oil Flows into NKorea
- Russian Navy Enters Warship-Crowded Red Sea Amid Houthi Attacks
- USA Commercial Crude Oil Inventories Increase
- New China Climate Chief Says Fossil Fuels Must Keep a Role
- Oil Demand Outpaces Expectations, Testing Calculus on Peak Crude
- House Passes Protecting American Energy Production Act
- TotalEnergies Restarts Production in Denmark's Biggest Gas Field
- USA Oil and Gas Job Figures Jump
- Republican Lawmakers Say IEA Has Abandoned Energy Security Mission
- Blockchain Demands Attention in Oil and Gas
- Houthis Warn Saudi Arabia of Retaliation If It Backs USA Attacks
- Macquarie Sees USA Oil Production Exiting 2024 at 14MM Barrels Per Day
- Summer Pump Prices Set to Hit $4 a Gallon Just as Americans Hit the Road
- New China Climate Chief Says Fossil Fuels Must Keep a Role
- Chinese Mega Company Makes Major Oilfield Discovery
- VIDEO: Missile Attack Kills Crew Transiting Gulf of Aden
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Another Major Oilfield Discovery
- What Is the Biggest Risk to Offshore Oil and Gas Personnel in 2024?
- Vessel Sinks in Red Sea After Missile Strike
- Exxon Rights in Stabroek Do Not Apply to Hess Merger with Chevron: Hess
- Equinor Makes Discovery in North Sea
- Analysts Reveal Latest Oil Price Outlook Following OPEC+ Cut Extension