A Project Report On Iranian

Petroleum Act

Under the Guidance of Dr. Sanjay Kar (Professor RGIPT)

Submitted By
Md. Shahrukh (201161013)
Neeraj Kr Yadav (201161014)
Neha Mishra (201161015)
 Iran: Background Reference
• Iran holds almost 1/10th of the world’s crude oil reserves. Most Iranian reserves are located onshore (about
71%), with the Khuzestan Basin containing roughly 80% of total onshore reserves.
• Iran also has 0.5 billion barrels of proved and probable reserves in the Caspian Sea, but to date very limited
upstream activity has occurred in Iran’s portion of the Caspian Sea.
• Iran also shares a number of onshore and offshore fields with neighboring countries, including Iraq, Qatar,
Kuwait, and Saudi Arabia.
• Iran is the second-largest oil-consuming country in the Middle East after Saudi Arabia. Iranian domestic oil
consumption is mainly diesel, gasoline, and fuel oil.
• Iran is one of the founding members of the Organization of the Petroleum Exporting Countries (OPEC), which
was established in 1960.
• The largest buyers of Iranian crude oil and condensates are China, India, Turkey, and South Korea.
 Management of Oil Sector

• The state–owned National Iranian Oil Company is responsible for all upstream oil and natural gas projects. The
Iranian constitution prohibits foreign or private ownership of natural resources.
• However, International oil companies have the option to participate in the exploration and development phases
through the Iranian petroleum contract, a relatively new model for its upstream oil and natural gas fiscal
regime.
• On 3 August 2016, Iran's Council of Ministers passed a regulation governing the general conditions, structure
and terms of upstream oil and gas contracts (the IPC Regulation).
• The IPC Regulation provides that there will be three types of Iranian petroleum contract: a contract for
exploration, development and production.
• IPC Resolution makes various key changes to the buyback contract. The IPC Resolution explicitly states that
priority will be given to the development of joint fields.
 Key Changes In IPC Resolution :

✔ A longer term (up to a maximum of 20 years from the start of development operations, with the opportunity to
extend further in 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(standard cubic feet) amount, established in order to incentivize
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(Improved/Enhanced Oil Recovery) projects.
 Production Sharing Agreement
• Production sharing agreements (PSAs) is a common type of contract signed between a government and a
resource extraction company (or group of companies) concerning how much of the resource (usually oil)
extracted from the country each will receive.
• Production sharing agreements can be beneficial to governments of countries that lack expertise and/or capital
to develop their resources.
• In production sharing agreements the government awards the execution of exploration and production activities
to an oil company. The oil company bears the mineral and financial risk of the initiative and explores, develops
and ultimately produces the field as required.
• When successful, the company is permitted to use the money from produced oil to recover capital and
operational expenditures, known as "cost oil". The remaining money is known as "profit oil", and is split
between the government and the company.
 Joint Venture Arrangements
• The IPC Regulation provides that each Contractor must form a joint venture between one or more IOCs and an
Iranian entity. According to the IPC Regulation, the purpose of this joint venture is to facilitate technology
transfer. The NIOC has pre-qualified eight Iranian entities who can serve as joint venture partners.

Control Over Investment

• IOCs will take all the risk of petroleum operations under the IPC. Accordingly, they will look very closely at
how decisions regarding major investment decisions are made. With respect to the Exploration Terms in
particular, IOCs will be very interested to learn how decisions regarding the commerciality of discoveries will
be made and how much discretion the Contractor has in this regard.

Technology Sharing(Local Content)

• Under the IPC, the local content requirement may be 51 per cent. High local content requirements have been
challenging for IOCs in other countries with rapidly expanding oil and gas exploration and production
industries.
In addition, foreign investors will be expected to share technology and management expertise with their
Iranian partners.
 The Fiscal Arrangement of IPC
• Under the IPC the foreign company is allowed to participate in all phases of upstream activities including
exploration, development and production. The investor recovers all its accrued costs from the proceeds of oil
and gas from the field. In addition, it also benefits from the profit of the field via a per barrel remuneration fee.
 Cost Categories of IPC
• Direct capital costs: these include field development and appraisal costs needed for achieving the development
goals.
• Indirect capital costs: Include all costs paid by the foreign company to government agencies such as customs,
pensions and national insurance costs, etc. These costs are also recoverable.
• Cost of money: These are the financial costs, including interest payment relating to indirect costs or delay in
cost recovery. The base interest rate for these costs is LIBOR plus an agreed premium.
• Operating costs (OPEX): These include all costs and expenses incurred and paid by the contractor relating to
the operation and maintenance of the field such as labor, consumables and energy.

Cost Recovery
• Contrary to the stringent provisions of the buyback contract that saw a ceiling placed upon the recovery of
costs, the proposed terms of the IPC allow for costs to be based on an annual financial-operational plan
approved by the contracting parties – essentially an annual work program and budget that will be approved by a
joint committee.
• This appears to be a more flexible structure than under the buyback contracts, and should provide foreign
investors with greater investment certainty, although obviously the exact terms of the IPC will be critical.
 Remuneration Fee
• The remuneration fee will be set as a fee per barrel of oil (or per standard cubic feet of gas) produced and will
be one of the main factors for determining the tender winner.
• The remuneration fee may fluctuate depending on factors such as the level of production capacity of each field
or reservoir and also the risk index of the relevant exploration areas. It will be designed to incentivize the
foreign investor in deploying efficient methods and modern and advanced technologies of exploration and
development. 

Term
• The term has been set at a maximum of 20 years for all contracts from the start date of development operations,
with the opportunity to extend for a further 5 years in the case of IOR/EOR projects. (For integrated
exploration, development and production projects, the exploration period will be added to the contract’s
20-year period)
• This longer term should provide foreign investors with greater certainty and increased prospects of recovering
costs and earning a return on investment. It should also help benefit Iran as it will provide an incentive for
foreign investors to make longer term investments and implement measures to maximize the life of the field.