An Analysis of Risk as Perceived by the Investor in Iranian Oil Service Contracts and its Impact on Feasibility of Investing in Upstream Activities

Since the national wealth of oil-rich countries including Iran is connected to petroleum resources, these countries attempt to make their fiscal regimes and licensing system more attractive to international oil companies and investors. On the oil company side risks and uncertainties in oil and gas exploration and production are important challenges when deciding between different projects. This paper identifies the uncertainties and risks present in all stages of an oil and gas development project. Each of the identified risks is quantified using sensitivity analysis. Comparing contractual parameters of Iranian Petroleum Contracts with those of Iran’s buy back contract and other selected oil contract models in the Middle East including Qatar’s production sharing agreement and Iraq’s technical service contract, the paper proposes some changes to the contractual parameters of the Iranian Petroleum Contract. We notice that the amended contract reduces risks both for investing company and IranAfter applying the mentioned amendments, the standard deviation measured for the financial indicators of both the government and the investor was reduced confirming the reducing of contractual risks and improving the contract performance for both parties. In addition, all persons involved in preparation and implementation of Iranian petroleum contract whether as the first or the second party agree with the proposed amendments. JEL Classification: C20، C51، C36، E27،G28، Q48