German E&P company Wintershall is eyeing opportunities in Iran, where it recently signed a Memorandum of Understanding (MoU) for collaboration on energy and infrastructure projects.
“Iran is opening at the moment. Clearly, we are looking at it like everybody else because the types of things we offer they need in Iran,” Martin Bachman, head of Exploration & Production (E&P) for Europe, Middle East and Africa, told Arabianoilandgas.com on the sidelines of the company’s annual press conference in Kassel, Germany.
On the question whether Wintershall is looking at any specific projects, Bachman said: “They (Iran) have published a list of fields which we are looking at but we have very little data this is a question of getting data first and looking at what needs to be done.
The majority of Iran’s assets require complex recovery methods and heavy use of technology to come on stream.
Although less numerous, gas fields are the biggest projects on offer currently in Iran.
Out of the potential for 28bn barrels of oil equivalent (boe), gas represents 17bn boe, almost all of which are greenfield developments. In fact, 19 of the 20 gas assets are greenfield compared to 19 of the 29 crude oil projects. With gas comprising some two thirds of Wintershall’s portfolio, the company has significant capabilities to develop Iran’s fields.
In addition to greenfield projects, many of Iran’s hydrocarbons are trapped in challenging formations that demand investment in infrastructure and technology.
“They have a lot of the big old fields which need to increase recovery. I don’t think they are quite at the stage where they would need EOR, first thing is conventional IOR, water injection, gas injection I think that’s one. EOR will eventually be one of the things. There are also new fields to develop,” Bachman said.
However, much uncertainty continues to surround the terms and conditions on which foreign companies would operate, leading them to adopt rather cautious approach.
“We are basically very careful, we are going into it step by step It is easier for European companies to do business [with Iran] than American companies, some sanctions which apply to American companies don’t apply to others,” said Bachman.
“You can see that most European companies are looking and talking and that’s what we are doing – trying to find out what are the opportunities, what’s the environment, learn about the oil industry there, that’s what we are doing but in a very careful and in a very measured way,” Bachman said.
To go into Iran, like every commercial entity, Wintershall would want to see the economic incentives and so far, despite being considered an improvement to the old buy-back contracts, the new Iran Petroleum Contract doesn’t offer awfully much.
Foreign E&P companies would not be entitled to a production share in a field, but rather receive a floating remuneration fee linked to oil prices, similarly to a PSC.
On the plus side, there will be opportunities for 20 to 25-year long term contracts, setting up joint ventures with Iranian companies, and sharing risk. Priority or riskier projects will have higher returns, while exploration terms have also been made more attractive.
Furthermore, the new terms are more competitive with no ceiling for cost recovery and a floating remuneration fee per barrels of oil equivalent (boe) based on oil price, exposing investors to upside oil price risk.
“The ambitions they have are quite clear but they still haven’t fully published the Iran Petroleum Contract. There you see there is still a debate going on inside the country on how to do it and I think we need to give the country some time to have this debate and decide what it wants to do,” said Bachman.
“The old contracts were not economic and that’s the first thing we will be looking — does this actually provide an economic framework for the development of oilfields and for operations because we will only invest in a country that provides economic [incentives] and that makes sense to us from a business point of view,” he added.
