Iran will spend up to $4.8 billion from its sovereign wealth fund to develop its oil and gas fields

A proposal approved by Iran’s parliament Tuesday will allow the country to draw on its sovereign wealth fund in order to develop its oil and gas industry. The proposal will allow Iran to draw up to $4.8 billion from the fund to help cope with falling oil prices as the country tries to attract new business.

The sovereign wealth funds will supplement other budgetary allocations for the sector as Iran looks to modernize its oil fields and aging energy infrastructure, reports Reuters. “Members of parliament gave permission to the National Development Fund to pay $4.8 billion into bank deposits for use in expansion projects at combined oil and gas fields,” state news agency IRNA reported on Tuesday.

Iran’s National Development Fund is worth about $62 billion, according to the Sovereign Wealth Fund Institute, which tracks the industry. Some of Iran’s assets may be frozen by international sanctions imposed over Iran’s disputed nuclear program.

Iran looks to attract investors despite sanctions

The low oil prices and international sanctions against Iran are straining the country’s budget. The Iranian government slashed its 2015 oil price assumption to $40/bbl from $72/bbl last month. Earlier estimates from the IMF and Bloomberg put the breakeven price for Iranian oil at $130/bbl and $143/bbl, respectively.

Iran is currently in talks with world powers to resolve the dispute over the country’s nuclear program and lift sanctions. To prepare for such an agreement, Tehran has started circulating new draft oil contracts to foreign firms to attract business in the event that sanctions are lifted, reports Reuters.

The new contracts will offer more favorable terms than those offered before sanctions were put in place. “The new contract is more competitive than other oil producers,” a senior Iranian oil ministry official said. “It provides higher potential profits and lower investment risks.” The new contracts will offer long-term durations of up to 25 years, a favorable rate of return and joint venture options with local Iranian firms, the official said.

Monthly Iranian Exports of Crude Oil and Condensate

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UPDATE: Expert Opinion

When asked by Oil & Gas 360 for her opinion on news that Iran planned to pull $4.8 billion from its sovereign wealth fund in order to develop its oil and gas fields, Dr. Sara Vakhshouri, President of SVB Energy International, said that the main reason the Iranian government made this decision was in order to finish developments that were already under construction.

“This money is particularly important for the remaining phases of the South Pars expansion,” said Dr. Vakhshouri. The expansions in the South Pars field are targeted at increasing the country’s condensate production. Export of condensate is not included in the sanctions against Iran, meaning that the country can export the additional production, or use it domestically.  

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