Iran's oil and gas projects may see international investment as the US and EU lift sanctions crippling the country's economy.

Holding the world's fourth largest proven oil reserves and the world's second-largest natural gas reserves, according to the U.S. Energy Information Administration, the Islamic Republic of Iran's coveted natural resources are at the forefront of the industry's minds.

In a landmark interim deal struck last November between P5+1 (Britain, China, France, Germany, Russia, and the United States) and Iran – over the latter's nuclear program, it is believed around 200,000-300,000 barrels of oil per day of additional oil could be released into the markets in 2014.

"The sanctions on Iran are one of the key factors keeping oil prices high," stated G. Allen Brooks, an energy securities analyst, to Rigzone. "Iran exports roughly 1 million barrels of oil a day. If Iran is fully allowed to export oil again, oil prices will drop."

The nuclear deal, formally known as the Joint Plan of Action which went into effect Jan. 20 and expires on July 20, has eased some of the economic sanctions against the Islamic Republic, which in return, the country has agreed to restrict its uranium enrichment program.

The parties also agreed on a six-month timetable to reach a final agreement, though the schedule can be extended six months by mutual consent. If Iran defaults during the next six months, new sanctions can be imposed and the suspended ones can be re-applied.

"The temporary deal includes new and more frequent inspections," stated President Barack Obama Nov. 23, 2013, to ensure that Iran follows through on pledges to eliminate stockpiles of highly enriched uranium and dismantles "some of the infrastructure that makes such enrichment possible."

The president also noted "we will continue to vigorously enforce the broader sanctions regime, and if Iran fails to meet its commitments we will move to increase our sanctions."

In return, the European Union and the United States will suspend some restrictions on the Iranian petrochemicals, automotive and precious metals industries and also begin the staggered release of $4.2 billion in Iranian cash frozen in overseas banks. Other Western provisions that will be eased include restraints on insurance for Iran's oil shipments and licenses for services and parts needed by the country's commercial airlines.

The agreement is expected to boost Iran's economy by $6 - $7 billion over the next six months.

What's at Stake?

"We will immediately export more crude oil once sanctions are lifted," said Iran Oil Minister Bijan Zanganeh to the Gulf News, Dec. 4, 2013. "Immediately we can return to full export capacity of 4 million barrels per day," he told the publication.

The economic sanctions imposed by the United States and European Union targeting Iran's oil and banking sector have squeezed the country's oil output and made it difficult for it to sell its oil in the international market. These sanctions have also dissuaded Western companies from investing in Iran, causing oil production in the country to fall to its lowest levels in two decades, according to the International Energy Agency.

Oil exports have dropped by almost half from pre-sanction levels, costing billions of dollars in lost revenue annually.

"Longer term, Iran's oil and gas resources will have to be developed to meet demand," stated Peter Voser, chief executive of oil and gas Royal Dutch Shell plc, during an Oct. 1, 2013 press conference in London.

Additionally, at that same press conference, Christophe de Margerie, the chief executive of Total S.A., said that the company was eager to return to Iran if sanctions were eased and Tehran made energy contracts more lucrative.

"There will be a fresh wave of organizations that see opportunities and will explore them," said Daniel Martin, a partner at Holman Fenwick Willan law firm, to Rigzone. "And then there will always be those who may have been historically in the region and trade with Iran and may have decided that they will wait [to see what happens] before they make a decision. Because I think everyone is acutely aware of how complicated [this matter] is."

Iran knows hesitation awaits foreign investment, so to lure it, the country is developing new hydrocarbon contracts and reforming the country's buyback contracts.

"The Iranian constitution prohibits foreign or private ownership of natural resources, and all production-sharing agreements are prohibited under Iranian law," as outlined by the Energy Information Administration (EIA).

To get around this issue, buyback contracts allowed international oil companies to enter into exploration and development contracts through an Iranian affiliate. Through these buyback contracts, investors were paid in oil and gas from projects they developed with their own money, and then ownership of the field reverted back to the National Iranian Oil Company once development completed. With the lax in economic sanctions and Iran's attempt to lure foreign investment, it is believed that these contracts are a thing of the past.

"Because the relaxations are staged, there will be a progressive increase in what you can do," commented Martin. "But until the legislation is available, people can't commit to doing anything in particular."

In addition, Iran's oil exports will still be limited to the six nations (China, India, Japan, Russia, South Korea and Taiwan) currently receiving Iranian crude. The P5+1 also agreed to suspend efforts to halt Iran's exports to those nations.

If and when the sanctions are fully lifted, many suspect a big rise in Iranian exports could push the Organization of the Petroleum Exporting Countries (OPEC) production well beyond the 29.6 million barrels per day in 2014, but "analysts do not expect to see any significant increase from the Islamic Republic before the second half of this year at the earliest," according to a Jan. 10 Platts survey. "A full lifting of the oil and banking sanctions that have crippled Iran's economy will depend on a comprehensive agreement on the nuclear issue."

Oil, Gas Properties

China, India and Japan, accounting for half of the country's oil exports, have increased their purchases in the past year. But with the ease of sanctions, Iran is set to unveil new oil and gas investment opportunities to Western oil companies in November – the conference was delayed from early April – according to a Jan. 21 Reuters report. The London conference would offer international oil companies the first opportunity to see Tehran's more attractive commercial terms, according to Reuters.

Tehran is seeking Western oil companies' technical know-how to revive its giant aging oilfields and develop new oil and gas fields once sanctions are lifted. The National Iranian Oil Company has "grown its overall volumes from 4.9 million to 6.1 million barrels of oil per day," according to a Nov. 17, 2013 Forbes article.

"The Iranian oil industry needs experience," stated Brooks. "Horizontal wells are crucial for the effective development of many Iranian oil and gas reservoirs.

Two major assets that the country needs to revitalize are the Marun field and the South Pars field, located in the Khuzestan region close to the border with Iraq.

Marun, the second largest oil field in the country, which produces from onshore wells, flows about 520,000 barrels per day of oil. The field holds an estimated 22 billion barrels of oil.

Iran's largest non-associated gas accumulation is the South Pars field, an extension of Qatar's 241-trillion cubic feet (Tcf) North field. Originally appraised at 128 Tcf, the South Pars field is now estimated to contain 240 Tcf, of which a large fraction is recoverable, and holds at least 3 billion barrels of condensate. Since development began in 2002, Iran has developed the field in 24 phases out of which only 10 are active and 14 are under development without any production timeline.

The field needs at least 1,800 miles of new pipeline to accommodate its capacity, said Abdol-Hossein Samari, deputy director of the National Iranian Gas Co., according to Iran's official energy news website Shana. New pipelines are needed to transport the 7.2 billion cubic feet of gas expected from the first five phases of the field's development.