Iran Could Offer Flexible Terms for Caspian Investment

Iran may soon start offering more flexible investment terms to foreign partners wanting to invest in energy projects in its share of the Caspian Sea, a leading Iranian official has indicated. In an interview with Dow Jones Newswires, Hamdullah Mohammadnejad, deputy minister for oil and gas affairs in the Caspian, said his ministry was prepared to offer the type of contract to international partners that it thinks "appropriate."

He didn't rule out that production sharing agreements could be offered to investors keen to participate in lucrative energy blocks that Iran is eager to start developing in the energy rich sea.

Any such action would be major breakthrough and move away from what many foreign companies regard as restrictive investment terms for Iranian oil and gas projects. The Iranian constitution prohibits foreign companies from taking an equity stake in any of the country's oil and gas projects. Instead, under a scheme known as the "buyback," international companies invest in a project for a set time and are repaid in oil or gas revenue.

But international oil majors main gripe is that buyback terms offer little flexibility and uncertain rates of return.

Iran Oil Minister Bijan Namdar Zangeneh has also said in recent months that PSA agreements could eventually be signed for Iranian energy projects based in the Caspian Sea.

Industry sources say financial reasons would be the main motive behind Iran offering PSA contacts in the region. Potential Iranian energy projects are in the deepwaters of the southern Caspian Sea and require heavy investment.

Mohammadnejad, meanwhile, dismissed comments that Iran has been excluded in a deal among other Caspian littoral states aimed at settling a dispute over boundary lines in the sea.

He said the only way any such an agreement could be struck was for all five member states to collectively and legally agree on how the sea can be formally divided. As talks have frequently broken down among the littoral states on how to carve up the area, Russia has gone ahead and signed bilateral agreements with both Azerbaijan and Kazakhstan on what has long been a sensitive issue.

Iran and Turkmenistan want to define the sea's status before any agreement is struck on how the sea should be carved up - a task that may take years.

As the world's largest inland sea, the Caspian has never been subject to international maritime laws. Its status was instead regulated by bilateral treaties in 1921 and 1940 between the Soviet Union and Iran.

Since the collapse of the Soviet Union, Iran has called for the sea to be divided equally, with the five littoral states each getting 20%.

The official said all five member countries are still in talks as to how to settle the problem. He said their respective foreign ministers may meet before the end of the year to try and resolve the problem.

The Caspian Sea region has been widely viewed as important to world markets because of its large oil and gas reserves. Some industry sources estimate proven oil reserves of around 18 billion to 35 billion barrels, while the region's possible oil reserves could yield another 235 billion barrels.