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oil and gas Contracts in Iran

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1 oil and gas Contracts in Iran
Aye katebi Petroleum University of Technology May, 2014

2 (وقتي دوباره وزير اقتصاد ملي شدم عزم كردم كه هر چه زودتر وسايل ايجاد دانشكده نفت را فراهم آورم، مدرسه باز شد و هزار داوطلب اسم نوشتند، مي خواستم ايران به تدريج بر اثر تربيت شاگردان ايراني از متخصص خارجي بي نياز شود) " سيد فخرالدين شادمان " prepared by: Aye katebi

3 SUBJECTS: 1 Types of Oil and Gas Contracts in Iran
2 3 4 5 Types of Oil and Gas Contracts in Iran The history of Buy-Back Contracts in Iran Main Issues on Buy-Back contract Main Reasons of Restructuring New model Contract (IPC) prepared by: Aye katebi

4 1. Types of Oil and Gas Contracts in Iran
Oil Act 1974: Risk Service Contracts IOC Contractor IN the name of and On be half of NIOC 5% Discount for 15 years (allocation oil 50%) Scope: Exploration, Development Financial resources prepared by: Aye katebi

5 1. Types of Oil and Gas Contracts in Iran
SERVICE CONTRACTS The first Service Contract of its kind was concluded between IRAN and the French company (ERAP ) The first Buy-Back Contract in IRAN was signed with (CONOCO) company. The first Buy-Back Contract was implemented by TOTAL company for Sirri A & E prepared by: Aye katebi

6 1. Types of Oil and Gas Contracts in Iran
Petroleum Buy-Back Export Financial sources Transfer of technology Exploration and Development of the field (E,P,C,D,PLANT) CAPEX NON-CAPEX BC OPEX REM IOC Project account NIOC Creditor Financial institute prepared by: Aye katebi Buy Oil and Gas

7 2. The history of Buy-Back Contracts in Iran
TIME FIX COST FIX Second generation Service Contracts SCOPE (E& D ) TIME FIX COST FIX First Generation Service Contracts SCOPE (D)Fix TIME FIX COST call for tender Third generation Service Contracts SCOPE ( E& D& TSA) fix prepared by: Aye katebi

8 3. Main Issues on Buy-Back contract
1 Scope Inflexibility 2 Fix capital cost and no chance to recover the costs over run 3 Limited amortization period for recovering the remaining costs 4 No coverage the Production operation 5 No further investment in development and IOR/EOR operation by IOC,s 6 Approvals time consuming procedures 7 many intervention and difficulty in making final decision prepared by: Aye katebi

9 Study and analysis of Iran current buy back contracts
H.E. the minister of oil decided to form Iran Oil Contracts Restructuring Committee in October 2013 Application of the most appropriate contract models for oil and gas field development plans and increasing the production capacity of the country. Study and analysis of Iran current buy back contracts Analysis of the experiences got from buy back contracts during the last 20 years Introducing a new model in conformity with current policies, petroleum act and other upstream legislations Examining the regional contract models considering their advantages and disadvantages for Iran oil industry Attracting foreign capitals, latest technologies and learning from our experiences as a valuable asset of the country’s oil industry prepared by: Aye katebi

10 4. Main Reasons of Restructuring
1 Reducing of oil production. 2 Optimized incentive scheme for the investors. 3 Applying the International normal practices. 4 Positive international and political developments. 5 20 years of experience in Iran with Buy-Back contract model. prepared by: Aye katebi

11 Members of Committee Mr.Seyed Mehdi Hosseini , former deputy oil minister (chairman of the committee Mr.Seyed Mehdi MirMoezi , Former M.D of NIOC and Deputy Minister. Dr.Seyed Mostafa Zeineddin, former Legal manager and board Member of NIOC. Mr.Ali Kardor , Investment Deputy Managing Director of NIOC . Dr.Gholam Reza Manuchehri , Former Managing Director of “ PetroPars Company Mr.Espiari, Former Managing Director of South Field Oil Company. Dr. Salari, Member of International Institute for energy studies.( IIES) Dr. Hassan Shokrollah Zadeh, former Engineering Director of the South Fields Operating Company. Dr.Ali Emadi, Member of the NIOC Board of Director. prepared by: Aye katebi

12 Committee Advisors Dr. Firozmand, Director, Legal affairs of NIOC and Member of the Board of Directors. Dr. Narsi Ghorban, Managing Director of NarKangan GTL And Member of Energy Committee of Iran chamber of commerce, Industries and Mines. Dr. Seyed Nasrolah Ebrahimi, Legal advisor of the Committee DR. Fereydoun Barkeshli, Former General Manager of OPEC affairs, Ministry of oil. Mr. Arshi, Former Director, International affairs of NIOC. Mr. Abdolmohammad Delparish, Director, Corporate Planning of NIOC Miss, Aye Katebi, Legal and contractual advisor of Petroiran Development Company ( PEDCO). She Serves the committee as an advisor and especial assistant to the chairman. Mr. Rasoul Shaykhi Nejad Deputy Director, Financial affairs ,Petroleum Engineering and Development Company(PEDEC) Mr. Gholamhossein Zoormand, Former Project Manager of the Petroleum Engineering and Development company ( PEDEC) Miss. Goodarzi, Legal advisor to the Committee Miss Talin Mansurian, Commercial advisor to the Committee Mr.Seyed Hassan Mousavi , Legal advisor to the Committee prepared by: Aye katebi

13 Committee Meetings Official meetings More than 1900 man-hour
Internal meetings More than 740 man-hour Expert meetings More than 1090 man-hour Meetings with local and international experts 45 hours prepared by: Aye katebi

14 The Gathering of Documents
Contracts of 33 oil producing countries (in full or partial) prepared by: Aye katebi

15 The Gathering of Documents
Report from planning department of NIOC Many other relative articles from all over the world Study of many articles and research conducted into Service contracts by local and international universities(71 dissertation) prepared by: Aye katebi

16 The Gathering of Documents
Analysis from experts, domestic and foreign companies point of views (welcoming experts, domestic and foreign companies comments on Current Buy Backs ) prepared by: Aye katebi

17 Iran Petroleum Contract
New Model Iran Petroleum Contract IPC prepared by: Aye katebi

18 Principals of New Model
5. New model Contract (IPC) Principals of New Model 1 Reservoir ownership remain solely and totally under title of the Government 2 Preserve the national interest 3 Dully observance of the Laws and regulations 4 win-win situation in the contract 5 Alignment of the parties benefits 6 Sustainable approach 7 Partnership 8 Efficient operations 9 Technology transfer 10 Internationalization prepared by: Aye katebi

19 Flexibility of the IPC for being applied in the following Areas and conditions:
1 Exploration 2 Integrated Exploration and Development operation for new areas. 3 Enhance Oil Recoveries of the Brown fields ( IOR&EOR) 4 Development of the Common fields with neighboring countries. 5 Exploration, Development & Production Operation in the “High Risks” areas and Deep Waters. 6 Integrated Exploration, Development, Production & IOR/EOR 7 Development of the Green fields prepared by: Aye katebi

20 Integrated Operations for:
5. New model Contract (IPC) Exploration Development Production Integrated Operations for: prepared by: Aye katebi

21 Joint Operating Company for Production operations:
5. New model Contract (IPC) transfer of technology and management skills less intervention in operation more financial transparency more efficient operations internationalization Partnership Joint Operating Company for Production operations: JV for Development operations prepared by: Aye katebi

22 5. New model Contract (IPC)
In case of success ED Exploration Phase Chronology of I PC 7-9 years First Production Production Phase EC ED Appraisal and Development Phase JOC JDC E O R 15-20 years Term: as required prepared by: Aye katebi

23 Direct Capital Costs (DCC)
5. New model Contract (IPC) Costs of project : Direct Capital Costs (DCC) Indirect Costs ( IDC) Cost of Money ( CoM) 1 2 3 prepared by: Aye katebi

24 5-7 years after first production .
5. New model Contract (IPC) 5-7 years after first production . Cost Recovery prepared by: Aye katebi

25 (Gold Plated)for avoidance
5. New model Contract (IPC) (Gold Plated)for avoidance Incentive for decreasing costs (“ CSI” Costs Saving Index Decrease the costs prepared by: Aye katebi

26 5. New model Contract (IPC)
Fee) ): EC ED 20 YEARS FIRST PRODUCTION Cost Recovery and fee prepared by: Aye katebi

27 5. New model Contract (IPC)
(B) 1 Low Risk Onshore Financial scheme of the IPC FOR Development- Production (A) 1.2 (B) 1.2 Medium Risk (onshore) Low Risk (offshore) (A) 1.4 (B) 1.4 Green Fields High Risks (onshore) Med Risks (offshore) Area & Risk factors Fee (OIL): A (Gas): B Very High Risks (onshore Offshore) Common fields (A) 1.6 (B) 1.6 (A) 1.6 (B) 1.6 prepared by: Aye katebi

28 Exploration-Development- Production Very High Risks (onshore
5. New model Contract (IPC) (A+1)1 (B+1)1 Low Risk Onshore Financial scheme of the IPC FOR Exploration-Development- Production (A+1)1.2 (B+1)1.2 Medium Risk (onshore) Low Risk (offshore) Area & Risk factors EXPLORATI ON E & D & P Fee (OIL): A+ 1 (GAS): B +1 (A+1)1.4 (B+1)1.4 High Risks (onshore) Med Risks (offshore) Very High Risks (onshore Offshore) Common fields (A+1)1.6 (B+1)1.6 prepared by: Aye katebi

29 A1>B1>C1>D1>E1
5. New model Contract (IPC) Fee base on level of production Production Rates: (Kbd) For crude oil field: RI Less Than 1 1<RI<2 2<RI<3 3<RI<4 RI>4 Fee ( $/b) Upto 50 A1 B1 C1 D1 E1 50 to 100 A2 B2 C2 D2 E2 A3 B3 C3 D3 E3 More Than 200 A4 B4 C4 D4 E4 Remarks: A1>A2>A3>A4 A1>B1>C1>D1>E1 B1>B2>B3>B4 B1>C1>D1>E1 C1>C2>C3>C4 C1>D1>E1 D1>D2>D3>D4 D1>E1 E1>E2>E3>E4

30 For natural Gas fields: F1>G1>H1>I1>J1
5. New model Contract (IPC) Fee base on level of production Production Rates: (mCFD) For natural Gas fields: RI Less Than 1 1<RI<2 2<RI<3 3<RI<4 RI>4 Fee ( $/mCF) Upto 1(bcfd) F1 G1 H1 I1 J1 1 to 2(bcfd) F2 G2 H2 I2 J2 2 to3(bcfd) F3 G3 H3 I3 J3 More Than 3(bcfd) F4 G4 H4 I4 J4 Remarks: F1>F2>F3>F4 F1>G1>H1>I1>J1 G1>G2>G3>G4 G1>H1>I1>J1 H1>H2>H3>H4 H1>I1>J1 I1>I2>I3>I4 I1>J1 J1>J2>J3>J4

31 Flexibilities of New Model
1. Flexible Development Plan 2. Annual Work Program and Budget instead of fixed caped costs 3. Full Cost Recovery 4. Balance Risk- Reward approach 5. Flexible Reward considering the oil price changes 6. Flexible fee for different areas with different risk involved prepared by: Aye katebi

32 Flexibilities of New Model
7. Cost Saving Index 8. Reforming the Decision Making process 9. Chance of further Exploration operations in neighboring blocks in case of failure 10. Flexibility for long term cooperation 11. Flexibility for longer term in case of EOR 12. Flexible in partnership prepared by: Aye katebi

33 Thank you
prepared by: Aye katebi

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