Iran opens contacts with oil groups

Iran’s oil ministry has opened contacts with western majors as the government of Hassan Rouhani tries to capitalise on progress in nuclear talks and encourage companies to prepare for an eventual lifting of sanctions.

Bijan Namdar Zanganeh, the veteran oil minister who has returned to government after an eight-year absence, told the Financial Times he had held meetings with European companies and “indirectly” with US firms with a view to inviting them back to Iran.

In his first interview with the foreign media, the minister who persuaded the likes of Total, Royal Dutch Shell, Eni and Statoil to invest in the oil and gas sector in the 1990s despite US sanctions, said these companies were now among those he was seeking to attract back to Iran.

All have withdrawn from Iran in recent years, frustrated with unattractive oil contract terms and under pressure from a raft of new financial and oil sanctions, which have slashed Iran’s production. Oil exports have declined, from more than 2m barrels per day at the beginning of 2012 to an average of 1.1m b/d in the first nine months of this year, according to the International Energy Agency.

Some oil majors appear to be open to an Iranian approach. When asked last month if Total would return to Iran if sanctions were lifted, Christophe de Margerie, chief executive of the French energy group, replied: “Of course.”

Indeed, last month its head of exploration and production for the Middle East, Arnaud Breuillac, travelled to Tehran to meet the head of Iran’s national company, Rokneddin Javadi, reportedly telling him that Total would resume oil and gas operations in Iran as soon as sanctions were lifted.

Others have also talked up Iran’s long-term prospects. Peter Voser, Shell’s outgoing chief executive, told an industry conference last month that Iran had “vast resources” of oil and gas and “in the longer term, [its] hydrocarbons will have to be developed to meet [rising world] demand”.

But it is clear Iran is way down most oil companies’ list of priorities. “With the shale revolution, there are a lot more opportunities out there for us,” said a senior executive at one European oil major. “Iran will have to compete for investment with lots of other places that offer much more attractive terms.”

The Iranian government is reviewing the terms of oil contracts and intends to replace the unpopular agreements known as buybacks with a form of service contract. Production-sharing agreements favoured by companies are not on the table, said Mr Zanganeh, but Iran was planning to offer better terms than its neighbours, including Iraq.

Mr Zanganeh was clear that no energy deal could be signed before Iran and world powers agreed on a comprehensive settlement to the nuclear programme, which would lead to a lifting of sanctions. But he said negotiations would, in any case, take months to complete.

While he did not expect an immediate impact on Iran’s exports from Sunday’s interim nuclear deal, which kept most sanctions in place, he said the accord signalled to international markets that the long-running nuclear dispute had a good chance of being resolved. “It sends a positive signal to start negotiations.”

The deal reached in Geneva will also lift what the minister called “psychological sanctions”. Many companies not specifically prohibited from dealing with Iran have cut all contact, fearing damage to their reputation.

Iran has the fourth-largest oil reserves and the largest gas reserves in the world but it has been one of the few countries off-limits to foreign companies. Mr Zanganeh said the sector needed at least $50bn in foreign investment.