Iran courting US oil interests in secret talks

Iran is wooing American oil companies in anticipation of a time when Western interests can take advantage of the Middle Eastern nation’s vast crude reserves.

A delegation of U.S. oil company leaders and investors heads to Tehran this week to discuss opportunities to operate there if  the U.S. lifts sanctions on Iran this summer as part of a deal to restrict its nuclear capabilities, Iran’s state media reported.

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The trip is shrouded in secrecy. Iran’s government has declined to identify the participants, and none of several major oil companies and trade groups contacted by The Hill would confirm attendance.

However, Deputy Oil Minister Abbas Sheri-Moghaddam proudly touted American involvement as evidence of heightened interest in doing business with Iran.

“We will witness involvement of major international American oil and gas companies in Iran in the future,” Sheri-Moghaddam told Mehr News Agency.

Iran’s oil ministry said that companies from Germany, Italy and the Netherlands have also expressed interest in oil and natural gas projects.

To be sure, Iran can offer a substantial bounty to potential partners.

The U.S. Energy Information Administration (EIA) estimates that the nation has up to 30 million barrels of oil in storage due to export restrictions, and its production could grow by about 700,000 barrels per day next year with a deal that eases restrictions on the Iranian industry.

The sanctions took a significant bite out of Iran’s oil output and its government revenue, and Tehran is eager to get the business back. It now exports about 1.1 million barrels of oil per day, down from 2.5 million before 2012’s sanctions.

Oil money accounts for more than half of the government’s budget, which is also being squeezed amid historically low international oil prices.

Thus far, however, the level of Western interest in partnering with Iran is unclear, in part because of the secrecy surrounding the talks.

A Royal Dutch Shell spokeswoman said the company is “interested in exploring the role Shell can play in developing Iran’s energy potential,” and Exxon Mobil Corp. declined to comment on its communications with Iran.

Representatives of the American Petroleum Institute, BP and ConocoPhillips Co. told The Hill they did not send anyone on the trip, and the two oil producers said they are not currently negotiating with Iran on oil projects.

France’s Total, Norway’s Statoil and Italy’s ENI did not return requests for comment on the trip nor on their interests with Iran.

Analysts, meanwhile, said Iran would have to make major changes to the way it has dealt with foreign oil companies previously if it hopes to attract any investment.

Iran likely had a small amount of foreign oil investment, mostly in the form of joint ventures with the government, before the United States and the European Union implemented sanctions in 2012 that prohibited many Western companies from working there. 

Those sanctions were meant to pressure Iran to scale back its nuclear program. Loosening the restrictions is one of the county’s top demands as it negotiates a nuclear deal with the United States and five other countries, with a self-imposed June 30 deadline.

“Assuming some agreement is reached, the assumption is that, as time goes on, the sanctions are going to be relaxed,” said Andy Lipow, a Houston-based analyst of the oil industry.

But while some companies had long histories in Iran — including BP, which started as a British company producing oil in pre-revolutionary Iran — the oil ministry’s contract terms were difficult for the private sector to handle.

Carlos Pascual, a senior vice president at energy consulting firm IHS who left the State Department last year as its top energy envoy, said contract terms are probably the top agenda item for Western oil companies negotiating with Iran.

“Under current contracts, no one is going to rush in,” he said.

“The only ones who might rush are suppliers of turbines and other inputs Iran needs to get equipment working again. But the oil and gas companies are not going to invest under current contract structure.”

Iran’s basic oil production contract takes the form of a buyback agreement, according to the EIA. Under such an arrangement, a foreign company, through an Iranian subsidiary, develops the expertise and resources for an oil or gas drilling project and gets paid a share of the value of the oil from Iran. After a set period of time, the project reverts to Iranian control.

“There were always disagreements between Iran and the major oil companies over the type of contracts that were being discussed for oil production,” Lipow said.

In preparation for a loosening of sanctions, Iran’s government earlier this year started to revise its contract terms in an attempt to give the foreign companies more control over the projects and better payment terms, according to a Reuters report.

In addition to inviting more foreign investment, eased sanctions are likely to boost Iran’s production and increase international oil supplies, which would in turn depress world oil prices.

As part of the agency’s annual energy outlook, EIA head Adam Sieminski said in April that if sanctions are rolled back, oil prices could be between $5 and $15 per barrel lower next year than they would be without the nuclear deal.

“A lifting of sanctions against Iran, should a comprehensive nuclear agreement be concluded, could significantly change the forecast for oil supply, demand and prices,” he said.

Correction: A previous version of this story contained inacurate information about the amount of oil exported from Iran. It now exports about 1.1 million barrels of oil per day, down from 2.5 million before 2012’s sanctions.