What’s Up With The IPC (interview with JPT, Sep’2016)

Part of our CEO’s interview with Journal of Petroleum Technology (JPT) which is to be published on September 2016. Please contact us if any questions.

  1. How is the Iran Petroleum Contract now shaping up? What does it hold for potential international companies wishing to invest in Iranian projects? The Iran Petroleum Contract has gone through several phases of scrutiny by the Energy Committee of the Iranian Parliament, National Audit Council and few trustees close to the Iranian leadership. However, the IPC has not changed much. The ministry of petroleum has been able to defend the overall framing of the generation 4 of Iranian technical service contracts. Please see more in our article in JPT and OGFJ (Dec’2015).
  2. Tendering was supposed to be scheduled this month [July 2016]. Is it still on track or has it been delayed. If it is proceeding, how is the process going? Upcoming presidential election in US and other strategic reasons have signaled NIOC to negotiate few major projects with select IOCs prior to IPC bid rounds. The main driver is to make sure that the 1.0+ millions barrels production boost by 2020 is on schedule. Announcements on these contracts could be out by the end of summer. The first round of IPC tenders has been delayed several time to make sure that political parties in Iran are in support of the oil contract. Also, to make final touch-ups on sensitive areas such as local partner, technology transfer and the possibility of treating competitive-drainage fields differently (more favorable terms). Just in July this year a list of 8 local companies were published who deem to be qualified and able to take a part in IPC contracts as local partner. This is in line with NIOC’s strategy to build Iranian private oil and gas companies. The other issue that delayed IPC tenders is poor engagement of European banking system into Iranian banking and financial system. President Rohani initiated a banking reform in July to enforce single currency exchange, better transparency and make Iranian financial market closer to what called to be “ready to connect”. The latter was required by European banks and insurance institutions so they could support their clients (i.e. IOCs) prior to their engagement into any major contract in Iran such as IPC. Market observers believe that the first IPC bid round could open up in fall/winter 2016.
  3. Do you believe there will be a significant “first mover advantage” for international companies that involve themselves in Iran now, rather than waiting? There are risks and advantages of being the first-mover in Iranian IPC. The advantages are within each camp, their priorities and their risk profile. Woodmac’s report on Buy-Back projects (1995-2010)  indicated that none of the IOCs made any ROI better than 11%, while their contract signed for up to 15% ROI. Our advise to those interested in Iranian oil and gas sector and IPC projects is to start early so you can engage wisely. And by engagement we mean risk assessment and market analysis, and not just taking part in the first bid round. Several IOCs have screened and engaged to the market since 2014, well before the JCPOA. Front runners might face lengthy clarifications on ambiguities left on IPC, but might be able to negotiate the gray areas in their favor. The contract will mature in later rounds, but then the terms might be less favorable as the market become more competitive. Mid-size IOCs have to aim for the right asset size, so they have to engage when their top-3 targets are at the table. Some IOCs that we are in touch are formulating integrated solutions such as FLNG and gas-to-wire. Bottom line is to start your study early, so you could formulate right strategy.

 

More information:

eMail: iran@naft.ca

Phone:
Calgary: +1 (403) 400-4665
Tehran: +98 912 3234 051

Syd Nejad is an expert in commercial and operations of upstream projects. He has served the industry in a variety of roles including strategy and corporate planning, acquisition and divestiture, portfolio optimization, asset management, production/field operations; and reserves, reservoir/exploitation engineering.

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