Iran needs ‘better incentives’ to entice oil firms

Iran needs to offer better incentives to lure foreign energy companies forced by low oil prices to slash investments, the head of Austrian energy group OMV said ahead of a trip to the country next month.

Tehran reached an historic deal with world powers last month to curb its nuclear program in exchange for much-needed sanctions relief which could trigger an influx of billions of dollars into the country.

“Iran is a big opportunity for OMV,” OMV’s new Chief Executive Rainer Seele told reporters, but added: “Currently the conditions for potential investors are not sufficient for us to enter into investment commitments.”

He said current Iranian production sharing agreements were not good enough, but did not elaborate on why investment conditions were insufficient or what conditions OMV would want.

However, he acknowledged “a strong will to offer attractive conditions” on the part of the Iranians.

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Last month, Tehran said it had identified nearly 50 oil and gas projects worth $185 billion that it hoped to sign by 2020. OPEC-member Iran has the world’s largest gas reserves and is fourth on the global list of top oil reserves holders.

In negotiations with potential foreign partners, Iran said it had defined a new model contract - called an integrated petroleum contract (IPC) - offering longer terms and more liberal conditions.

Full details are expected in the next few months.

Oil prices dropped more than 15 percent in July and have roughly halved in the past year mostly due to an expanding global glut, forcing oil companies, including OMV, to slash their investment programs.

“If we get active in Iran in the future, this would compete with other opportunities at a time of limited investment volumes which we face in this phase of low oil prices,” he said, pointing to Russia as an attractive low-cost location for OMV.

OMV is considering jointly developing part of Siberia’s Urengoy oil and gas field with Russia’s Gazprom.

Seele, who will travel to Iran in September as part of an Austrian political and business delegation, said OMV was not interested in Iranian gas projects, due to a lack of infrastructure.

Seele attended the Vienna conference where Iran’s deputy oil minister said Iran’s new oil concession contracts will iron out many problems oil firms had with previous ones.