Iran to Announce Changes in Oil Buyback Scheme

Dow Jones Newswires

TEHRAN, Nov 1, 2006 (Dow Jones Newswires)

Iran will announce the outcome of changes in the controversial buyback scheme used in oil development contracts next week, a senior Iranian oil official said Wednesday.

"The modification of buyback contracts is being prepared as a directive and will be put at the disposal of the media next week," said Qolam-Hussein Nozari, the managing director of National Iranian Oil Co. Nozari was talking to the press on the sidelines of a conference sponsored by the NIOC.

The widely-criticized buyback scheme, as used by the state oil industry, skirts the Iranian constitution, which prohibits foreign firms from taking an equity stake in Iran's energy sector. Instead, the firms participate in a project for a limited period and are repaid in oil or gas revenue.

Domestically, the scheme has come under much criticism for allowing the contractor to overuse the reservoir for maximum yield. Internationally, it is criticized for not providing adequate incentive for investing in an oil field.

According to Iranian oil officials, Iran will have to invest around $100 billion in its oil sector within the next decade or so, the bulk of which would have to come from foreign sources.

Earlier this week, Iranian Oil Minister Kazem Vaziri Hamaneh said "some substantive changes in connection to these (buybacks) have been made to make them more attractive to foreigners and eliminate their weak points."

Oil Ministry officials have been silent on the details of what's being done to make buybacks more attractive to potential foreign investors in the state oil industry. But they have made some comments with respect to domestic criticism of the scheme.

In the modified version of the buyback scheme, to be announced next week, the protection of oil reservoirs is the prime consideration.

Nozari has said the NIOC will compile an oil field's master development plan, instead of the contractor, as was the previous practice.

When a field's MDP is compiled by the NIOC, the risk to the reservoir in terms of pressure for more yield production is less, ensuring the long-term safeguarding of the reservoir.

According to the NIOC chief, as per the changes in the scheme, a large oil field will not be contracted for development in one piece but will instead be divided into parts for stage-by-stage or phase-by-phase development by the contractor.

The gradual development of a field by a contractor helps in obtaining better knowledge of the characteristics of the reservoir and helps in safeguarding the field, Nozari has said.

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