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Contracts worth billions to greet Iran’s Norouz
$Seven Billion Contract Deal with Kuwait and $One Billion MoA with Oman
Days before the celebration of Iran’s New Year (Norouz), Iran entered into lucrative contracts with Kuwait and Oman, in two different deals.
Iran and Kuwait have signed a deal, which would bring Iran $Seven billion a year for a period of 25 years, said Iran Oil Minister Bijan Namdar Zanganeh.
Under the deal, Iran would start exporting 10 million cubic meters of gas per day (300 million cubic feet), beginning 2007. The gas would be carried from Genaveh (Bushehr province) to Kuwait, where part of it (gas) would be exported through sea and part through Assalouyeh and Genaveh, he said.
On the same day, Zanganeh and Mohammad bin Hamad al Rumhi, Oman’s Minister of Oil and Gas signed a Memorandum of Agreement for export of 10 billion cubic meters of gas per year via underwater pipeline from Assalouyeh in south western Bushehr province starting 2008, which Iran officials expect to rise to 70 million cubic meters, by 2012
Oil Minister announces two new oil and gas field discoveries
Iran Oil Minister Bijan Namdar Zanganeh has announced the discovery of Ramin Oil Field, located some 40 kilometres to the north east of Ahvaz in the south western province of Khuzestan.
The discovered oil layers, situated at a depth of 5,300 metres, have 855 million recoverable barrels of crude oil out of the 5.7 billion bbl total reserves; while the onshore field associated gas reserves stand at 242 billion cubic meters, of which 36 bcm is recoverable, he said.
He valued the oil reserves at $17 billion at a market price of $20/bbl or $25 billion at a market price of $30/bbl.
Zanganeh has also announced the discovery of a non-associated natural gas field, an extension of the South Pars. The offshore field in south eastern Iran, discovered at a depth of 3,430 meters, has 168 billion cm of recoverable gas reserves and 182 million bbl of condensates.
The minister valued the condensates at $8 billion at a market price of $25/bbl.
“All the data related to these two fields have been unified and that these two fields would produce a total of 70,000-80,000 barrels of crude oil as well as 20 million cubic metres of gas and 20,000 barrels of gas liquid per day,” he added
Iran Holds 135th OPEC Meeting
After over 34 years, OPEC meeting was once again held in Isfahan, Iran, four days shy of the Iranians’ New Year called the Norouz. OPEC agreed on that date to lift output by 500,000 barrels with immediate effect. This decision will officially raise the group’s ceiling to an all-time high of 27.5 million barrels a day.
It is worth taking note, however, that OPEC member-countries are already producing over 700,000 bpd at present and that current production actually exceeds the planned increase. EIA estimates the current eleven OPEC members account for almost 40 per cent of world oil production and about two-thirds of the world's proven oil reserves.
 Announcing the output increase, Iran’s Oil Minister Bijan Namdar Zanganeh said, “We decided to raise the OPEC production ceiling by 500,000 barrels as of May 1. We also authorised the president of the conference to mull over another 500,000 barrels increase in case of the market need.”
“OPEC is trying its best to minimise the market fluctuations. But of course the cartel is not responsible for the entirety of the market conditions,” he added.
In a press statement made by Kuwait's Minister of Energy and Oil Shaykh Ahmad Fahd al-Sabah , a week before the meeting, he said there were sufficient oil supplies in the international market. He said that OPEC is committed to protect the market's stability by meeting the demands of the market in all circumstances emphasizing that the organization raised its production three times during 2004.
However, despite the decision to increase output, crude futures traded above $57 a barrel, a day after the OPEC’s declaration to increase production. OPEC President Sheikh Ahmad Al-Fahd Al-Sabah thereafter said that members might begin telephone consultations as early as next week to discuss a second production rise if prices do not ease. “If prices continue as they are now, then starting from next week we will start our discussions,” he said.
“Still, we think there is enough supply in the market, but even if another 500 (500,000 barrels per day) means oversupply, we will make the decision. This is our part of sharing the responsibility.”
FIPPA’s protection to the oil & gas industry
Despite the sanctions Iran is facing and its restrictive ‘Buy Back’ policy, the country is keen to develop a law that will balance all these.
Albeit massive debates, Foreign Investment Promotion and Protection Act (FIPPA) has been passed to replace Iran’s first law on foreign investment, which dated back in 1950, to further safeguard the interests of foreign investors, with the oil and gas sector comprising the majority of it.
Babak Namazi, Managing Director of Atieh Associates, one of the original figures in the drafting of this law updates Pipeline of its applicability and implications to the oil and gas sector. Namazi is one of the limited private sector participants, called by the Ministry of Economic Affairs and Finance and Organization for Investment, Economic and Technical Assistance of Iran (OIETA), to assist in drafting the executive by-laws of FIPPA.
Has FIPPA been able to push the safeguards needed by the foreign investors in the oil and gas industry and why?
As regards the oil and gas industry, most of FIPPA’s applicability has been in the downstream sector whereby direct foreign and private investment is authorized. Particularly, those foreign investors being active in the establishment of LNG and GTL projects will be able to enjoy the coverage of FIPPA. This is also true in the joint ventures being established in the petrochemicals area.
It should be noted that upstream oil activity in Iran remains a government monopoly due to legal restrictions. As such, no direct foreign and/or private domestic investment is allowed in such areas. For the most part, foreign companies act as contractors for exploration and development purposes which are not investment activities that can be covered by FIPPA. This is not a short coming of FIPPA, but rather due to the legal restrictions concerning direct foreign investment in the areas of upstream oil and gas activity. FIPPA provides for coverage in all areas that private domestic investment is authorized as well.
What protection does it give?
FIPPA primarily provides non commercial risk cover for those investors that qualify under it. This includes guarantees of compensation in case of nationalisation as well as availability and transferability of foreign currency for the benefit of the foreign investor.
There are no specific provisions in FIPPA for protection of investors in the oil and gas industry. Rather, the applicability of FIPPA is general in nature and would cover most foreign investors including those in the oil and gas industry.
To be covered in this new investment law, is there a process or application that has to be undergone ?
Foreign investors must apply to the investment authorities in order to obtain an investment license under FIPPA. As such, there is no automatic coverage.
Do you think of any provision that could be added to further guarantee protection?
We believe stabilisation provisions such as protecting the foreign investor from detrimental changes in law for a certain period of time would be beneficial. While the earlier drafts of FIPPA provided for such coverages, the final ratified draft excluded these provisions. Moreover, there is very limited applicability of FIPPA in terms of situations dealing with creeping expropriations or detrimental changes in laws and regulations
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