Iran revamps oil and gas deals to woo Turkey

Changes come after Iran president's Ankara visit failed to result in expected deal.
Iran revamps oil and gas deals to woo Turkey
By Hashem Kalantari
Tue 26 Aug 2008 12:35 AM

Iran's revised oil and gas development contracts offer more incentives to foreign firms and Turkey's reservations about the deals reflect an initial lack of knowledge, the Iranian oil minister said on Monday.

A Turkish Energy Ministry source said last week Turkey would not sign a natural gas accord with Iran until changes acceptable to global investors were made to so-called "buy-back" deals, which are often criticised by foreign firms.

The gas deal was expected to have been signed when President Mahmoud Ahmadinejad visited Turkey earlier in August.

"The Oil Ministry's international agreements have made good progress.

The modification of the buy-back contracts provides more incentives for foreign companies to participate in Iranian projects," Oil Minister Gholamhossein Nozari said. He did not give details.

"The Turks were not informed about the culture of the buy-back contracts. But with the negotiations that took place there [in Turkey], they were told the price ceiling of the contract is determined after carrying out tenders," he said.

His comments were made to journalists, according to the Oil Ministry's news website SHANA.

Turkey and Iran last year signed a preliminary accord on joint gas production and export under which Iranian gas would be exported to Europe through Turkey and Turkey would produce 20.4 billion cubic metres of natural gas in the South Pars gas field.

The United States, which is seeking to isolate Iran in a row over Tehran's nuclear ambitions, has opposed the deal.

The Turkish ministry source said the proposed buy-back system created "serious risks" for Turkey in terms of pricing.

Turkey wants to buy gas directly from the fields and wants Iran to give a guarantee on contributing towards investments.

Under such buy-backs, firms generally hand over operations of fields to Iran after development and receive payment from oil or gas production for a few years to cover their investment.

Iran says it is revising terms but has not given details. The Turkish source said the risks linked to the buy-back system included issues such as commodity price rises, financing costs, the lack of a production guarantee and insurance costs.

Nozari dismissed the idea of production sharing deals, a form of oil contract found elsewhere. "Such contracts have been abolished in the world and less than 10 percent of oil production is done using this mode of contract," he said.

An Iranian oil official told newswire Reuters this month Iran was negotiating a deal with Asian oil firms for two oil and gas blocks in the Caspian Sea and this could involve a production sharing contract, if parliament and the authorities agreed that the model was best for the high-cost Caspian area.

Iran says a study has shown Iran's Caspian region contains an estimated 21 billion barrels of oil and gas equivalent.

"A number of wells have been drilled in the shallow parts of the Caspian Sea in order to determine commerciality but we have not received a definitive answer on that," Nozari said, adding that seismological tests were also going ahead. (Reuters)

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