On 3 August 2016 the Ministers Cabinet of the Government of the Islamic Republic of Iran passed a resolution (the “IPC Resolution”) to approve the “general terms, structure and model” of the Iran Petroleum Contract (“IPC”).
While many uncertainties remain, these general terms give a strong indication as to the key terms that will govern future IPCs. Consultants with whom we have spoken indicate that they believe that it is likely that the drafting and finalisation of the terms will take place through the bilateral negotiations with the first bidding parties, rather than being settled fully in advance.
Given the huge amount of international interest in this area, the IPC Resolution has been translated into English by the energy consulting company, Energy Pioneers Ltd, and the full text in English is available at the following link:
The IPC Resolution confirms many of the key terms that were released during the two-day Tehran Summit conference, which was held in Tehran on 28 and 29 November 2015. HSF summarised the discussions that took place at this conference in our newsletter of 3 December 2015, which can be found at the link below:
The IPC Resolution makes various key changes to the buyback contract and it is hoped that these changes will be looked upon favourably by both foreign investors and Iranian entities. The IPC Resolution explicitly states that priority will be given to the development of joint fields.
In summary the key changes are as follows:
- A longer term (up to a maximum of 20 years from the start of development operations, with the opportunity to extend further in the case of IOR/EOR projects);
- Ability of the foreign investor to be involved in operating the fields during production;
- A remuneration fee set as a $/bl or $/scf amount, established in order to incentivise production efficiency, and linked to the market prices for oil and condensate and also to the regional or contractual prices of gas;
- Incentives for higher risk fields, as well as IOR/EOR projects; and
- Requirements and incentives for the transfer of technology and know-how, as well as participation of Iranian entities in all phases of the project.
2. Key terms of the IPC
The structure of the IPC is also a risk-based service contract and therefore appears, initially, to be similar to the buyback structure. However, a number of key changes seem to have been made and these changes address many of the previous concerns that foreign investors had in relation to these contracts.
We have set out below the proposed key terms of the IPC (as put forward in the IPC Resolution) and what these may mean to investors.
Click here to view table.