FINANCIAL TIMES: Iran plans oil reforms to attract greater investment: “The oil ministry is also in talks with Italy's ENI over phase 12, and Spain's Repsol and Royal/Dutch Shell over phase 13. “….Shell or Total would draw up the master plan for the Yadavaran oil field in south-west Iran, which has reported reserves of 15bn barrels and will be developed by China's Sinopec.” (ShellNews.net) 9 March 05

By Najmeh Bozorgmehr in Tehran and Javier Blas in London

Published: March 9 2005

Iran, the second-largest producer in the Organisation of Petroleum Exporting Countries, is planning reform to make its oil projects more attractive to international energy groups.

Speaking before next week's Opec meeting in Iran, Mohammad-Hadi Nejad-Hosseinian, deputy oil minister, said Iran was "improving" the buy-back scheme under which foreign companies can operate in the sector. "For instance, we may sign a contract for 25 years, with a rate of return that we agree at the beginning," he said.

Mr Nejad-Hosseinian said Iran was discussing ways of keeping foreign contractors involved once they have developed a field.

"During the operation, as a consultant they [could] work with us," he said. "Maybe after two or three years the field needs new work, so they make proposals and they do investment again, and they are paid back the same rate of return."

The current system has been criticised for offering investors a low rate of return.

Foreign companies receive a fixed return for developing the field, so their profit does not reflect any rise in prices. Brent Oil yesterday hit a new all-time high at $53.15. Once development is complete and the field operational, management passes to Iran's state oil company.

Iran's need for foreign investment has been underlined by the fact that it has been pumping at full capacity. Even as other Opec members were increasing production last year, Tehran had no room for manoeuvre.

Mr Nejad-Hosseinian said oil companies had expressed "satisfaction" over Iran's reform proposals.

Pressure to increase returns for companies willing to do business in Iran is magnified by a US embargo, which excludes US oil companies and others with significant interests in the US.

Iran has reserves of 133bn barrels of oil and 27,500bn cubic metres of natural gas. But it needs foreign investment to increase its oil production of under 3.74m b/d, of which 2.39m b/d are exported, and gas exports of 3.4bn cubic metres a year.

The country is well behind Qatar, its Arab neighbour, in developing the shared gas field in the Gulf - called South Pars on the Iranian side and the North Field on Qatar's side - believed to be the world's largest. Iran has divided South Pars, which has around 28bn cu m of gas, into 28 phases.

Mr Nejad-Hosseinian said agreement with France's Total on developing phase 11 had been "finalised". The oil ministry is also in talks with Italy's ENI over phase 12, and Spain's Repsol and Royal/Dutch Shell over phase 13.

Mr Nejad-Hosseinian also said Shell or Total would draw up the master plan for the Yadavaran oil field in south-west Iran, which has reported reserves of 15bn barrels and will be developed by China's Sinopec.

Bijan Namdar-Zanganeh, Iran's oil minister, yesterday announced new discoveries increasing the value of Iran's oil and gas reserves by at least $25bn.

He said a new gas field was an eastern extension of South Pars, and an independent oilfield called Ramin would produce 90,000 b/d.

Mr Zanganeh, who will be hosting next Wednesday's Opec meeting in Isfahan, said that none of the cartel's members had so far argued for an increase in the current oil production ceiling of 29.5m b/d.