Comparative Financial Analysis of IPC, the New Iran's Oil Fields Development and Production Enhancement Framework IPC vs. Buyback Contracts

Abstract

Abstract Iran’s petroleum industry with a great potential and need for production enhancement, valued about $100 billion is in necessity of international cooperation by absorbing IOCs’ technology and investment through new Iranian petroleum contracts. This study compares the financial aspects of new Iran's oil fields development and production enhancement framework, called IPC, with the former Iran’s upstream contracts based on Buyback scheme. In this study, a financial analysis was performed aiming to compare the efficiency of fiscal regime of Buyback with IPC by applying cash flow model on three oil field sizes, as case studies. For this purpose, some influential indices such as IRR, NPV, DPP, PVR, and GT have been selected under three scenarios of base, high and low price. The conceptual investigation shows that IPC covers all costs and expenses incurred for the benefit of better reservoir recovery factor, as per best E&P practices and reservoir behavior in production period. Therefore, the expenses are Open Capex and will be chargeable as Petroleum Costs fully recoverable based on Field Development Plan estimations, tender results or authorized yearly budgets. Furthermore, the financial analyses results demonstrate that IPC is not only more eligible for the contractors compared to the Buyback contracts, but also supports adequate and noticeable, however reduced, Government Take. Nevertheless, this might not happen in small and big fields with low price scenario. It is notable that out of the discussed variables that affect GT in IPC, contractual agreed Fee/bbl plays the most crucial role. This study, as the first public analysis that compares the efficiency of fiscal regimes of Buyback and IPC for all types of oil fields from both IOC’s and HG’s viewpoints, can help to simultaneously meet both IOC/contractor and GT expectations by optimizing Fee/bbl which is one of the most important negotiable term in IPC.