Iranian oil officials introduced a new type of investment contract for its upstream energy industry at a two-day conference in Tehran on Feb. 23. The new Iran Petroleum Contract will offer greater incentives to international oil and gas investors by offering higher potential profits and lower investment risks. The goal of contract is to attract investment and technology to the Iranian oil industry and to increase the industry’s overall crude oil and natural gas production.

Over the past decade, international sanctions have thwarted the required (and necessary) levels of investment and technology for Iranian oil and gas fields. Sanctions reduced Iranian oil production capacity from over 4 million barrels a day to around 3.5 million to 3.7 million. Iran possesses the second-largest natural gas reserves in the world, but has less than 1% of global market share. Iran still might not be able to gain any new oil and gas investment contracts — largely due to sanctions still in place — until it reaches a complete agreement with the West on its nuclear program. Only then, by offering more flexible terms, could Iran once again draw investors’ attention toward potential exploration and development projects.

From buy-back to Iran Petroleum Contract

After the Islamic Revolution in 1979, Iran revised its policies toward international investors in the energy sector. In the 1990s and early 2000s, Iran introduced buy-back contracts (a kind of service contract) to international investors for the first time. At that time, buy-back contracts allowed investors to participate in developing old oil fields with the aim of increasing their recovery factors. Later on, Iran extended the terms of buy-back contracts to exploration projects. Similarly, this allowed investors to work on green fields and sign exploration projects.