Iran speeds ahead with oil reforms as Nigeria lags

Iran has taken the petroleum industry by storm after announcing a bold, ambitious new regime of incentives for its oil partners, as it seeks to outsmart sluggish nations like Nigeria to win the required investment for its post sanctions era in which the door is also open to US firms.

The new model of oil contracts unveiled by the usually conservative government in Iran is a significant improvement on the old buyback model in which contractors paid to develop and operate an oil field before turning it over to Iran authorities, and allows for full recovery of costs by the mainly western oil firms which Iran hopes will invest a staggering $150 billion in the investment starved nation over the next five years.

Seye Fadahunsi,  an executive director with Pillar Oil, said  the implications of the new Iranian strategy would be  that that country would be ahead   of Nigeria  in the investment curve  if  she  eventually  succeeds  with the  plan of structuring  deals with the  international oil companies.

Fadahunsi said  if Iran  can structure more successful  deals with  international oil companies,  it would attract  more  investments   than Nigeria  because  investments take advantage of  where they are most  comfortable.

He said Nigeria must find a way of having mutual agreement with international oil companies for the purpose of  attracting  investment   into its oil and gas industry. According to him, IOCs are more comfortable to get into any relationship, provided the deal is structured in such a way  that it guarantees good returns on their investments.

Aslo speaking on the development, Dolapo Oni, head, Energy Research Group, said “Nigeria should allow more flexibility in the oil industry, to attract investment. Iran knows that and has quickly gone ahead to do that and they are being more pragmatic than Nigeria.”

The crash in oil prices hammered the economies of oil exporters around the world. Analysts however say the pain Nigeria is bearing was made worse by a lack of vision and poor management of the oil industry by government.

When oil prices were at their highs, production in Nigeria was slowing down on account of ineptitude and the major oil companies with the needed ability to invest were selling off assets in a bazaar that profited those in government and their friends.

The last six years in Nigeria have been characterised by a collapse in oil investment, uncertainty over the ill-conceived PIB, failure by government to meet her cash call obligations, crude oil theft, the fraudulent use of the Nigerian Patroleum Development Company (NPDC) by the oil minister to erode asset values, government strangle hold on gas prices as well as the failure of government to hold a fresh bid round.

In contrast to the approach in Abuja, Iran has now sweetened the country’s rules of engagement with oil firms with contracts lasting between 15 and 20 years, hoping to attract $30bn in fresh investment in the next one year.

Industry stakeholders in Nigeria spoken to yesterday, called for a number of reforms in the oil industry, including the conversion of greenfield assets (fields and blocks) to Production Sharing Contracts (PSCs) as Iran is doing because it does not require the government to put down any cash, a recourse to the PSC 2000 template to signal better terms to attract investors;

Provide clarity in the contentious issue of operatorship of current assets where NPDC is in JVs with indigenous companies by going for private sector operatorship or a joint operatorship model.

They also suggested that government should fill critical skills gaps in the NPDC so that it can develop its own 100% owned fields and be an effective NOV partner, as well as the freeing up of gas pricing.   

In Iran where the older contracts were shorter term, and investors complained of heavy risks and suffering losses and investors who produced more than planned amounts received no compensation for the additional barrels, under the new model just announced, the more the oil firms produce, the more they will earn.

Foreign investors will also have an option to extend contracts an additional five years, up to 25 years.

Some 50 upstream oil, gas and petrochemical projects were being introduced during a two-day conference in Tehran.

Iran will pay foreign oil companies larger fees under the new contracts to provide greater incentives to investors.

Oil Minister, Bijan Namdar Zanganeh told an investment conference that under the new contracts, foreign investors will be required to form a joint company with an Iranian partner to carry out exploration, development and production operations.

“To continue to play the role (as a major oil supplier), we hope to enjoy working with reputable international oil companies under a win-win situation,” he told the conference.

Mahdi Hosseini, a senior official in charge of the new contracts, told the conference that the new model is an attempt to repair Iran’s relations with the industrialised world.

Oil Ministry officials said 137 foreign companies attended Saturday’s conference, including Repsol, BP, Royal Dutch Shell, Total, Technip, Schlumberger, Eni, Enel, Rosneft, Lukoil, Gazprom, Inpex, Statoil and Daewoo.

Iran, an OPEC member, currently exports 1.1 million barrels of crude oil per day out of a total production of 3.1mbpd and hopes to get back to its pre-sanctions export level of 2.2 million, last reached in 2012.

Iran seeks to boost oil production to 5.7 million barrels a day by 2021. Minister Zanganeh says Iran will aim to export an additional 500,000 barrels of oil a day after sanctions are lifted — likely in early 2016 — to reclaim its market share despite low prices.

BY OUR REPORTER