(Reuters) - Iran is sweetening the terms it offers on oil development contracts to draw the interest of foreign investors deterred by sanctions and low crude prices, as its pragmatic president seeks to deliver on his promise of economic recovery.

Tehran is engaged in talks with world powers about its disputed nuclear program as it tries to strike a final deal to lift the sanctions that have halved its oil exports to just over 1 million barrels per day since 2012 and hammered its economy.

To prepare for any agreement, it has already circulated new draft oil contracts to foreign firms to attract business once the restrictions end, Iranian oil officials and Western diplomatic sources said. Such deals would involve helping Iran revive aging fields and develop new ones, they added.

But there is no certainty about the outcome of the nuclear negotiations. The contracts offer far more favorable terms than those offered pre-sanctions as many companies would be hesitant to sign even a preliminary deal which U.S. and European governments could regard as jumping the gun.

Companies may also require greater persuasion to invest in Iranian fields due to low crude prices, which have more than halved since June, and the turbulent relationship Iran has had with foreign firms in the past, especially after the 1979 Islamic revolution.

"The new contract is more competitive than other oil producers. It provides higher potential profits and lower investment risks," said a senior Iranian oil ministry official who declined to be named due to the sensitivity of the matter. The contract offered a favorable rate of return and joint venture options with local Iranian firms, he added.

The new contracts will offer long-term durations of up to 25 years, oil officials say.

A spokesman for Iran's oil ministry declined to comment on the nature of the contracts.

Previously, foreign investors have only been involved in exploration and development of oil fields. They operated under buy-back contracts, whereby they were paid a fixed rate of return and did not own the assets and were contractors without rights to the fields.

Analysts and industry sources said companies had failed to cover their costs under this mechanism, which offered no long-term guarantees of income.

The situation has changed, however. President Hassan Rouhani, who won power in 2013 with pledges to improve the economy, is seeking to end a malaise that has seen prices of food, water and electricity rise beyond the reach of many Iranians as high unemployment and low wages take their toll.


The new oil contracts will allow investors to be involved in production, giving them far greater control and certainty over long-term revenue in a country where foreign ownership of oil resources is banned.

"The Iranian petroleum contracts are more relaxed to encourage major investors ... For example in previous contracts, the commerciality was decided by an Iranian committee but under the new contracts it has been changed in a way to accommodate the foreign party," the oil ministry official said.

Another oil ministry official said: "The major incentive for an international oil company (IOC) is the possibility to book the reserves, something that was not possible in the past ... One of the terms (on offer) is the long-term joint venture between the IOC and the Iranian operator."

"The investors will have no rights over the reserves but ... after exploration is completed, they can report output they receive as payment," the official added.

Iran's Oil Minister Bijan Zanganeh has met with Western oil executives at recent OPEC meetings in Vienna, including Italy's Eni, Royal Dutch Shell and Austrian oil and gas group OMV.

Iranian sources declined to identify which companies had seen the draft oil contracts. There has been oil industry speculation that Shell and ConocoPhillips could be among parties to have been courted.    

Shell declined to comment. ConocoPhillips said it acted in full compliance with U.S. law and was "not engaged in business dealings with Iran".

One Western diplomatic source said the interest in oil dialogue with foreign companies was "one-sided and mostly coming from Iran's side".

"Iran is looking a lot less interesting and desirable from the perspective of Western oil companies. There's too much oil on the market so the last thing they want is for Iran to come back on-line," the source said.

Another Western diplomatic source said: "There are still great doubts on profitability at the moment given the lack of direct access to fields in Iran. It is unlikely that any oil company - in the current uncertain environment - would sign even an open contract. It is very much wait and see."  


The new contracts, which include those in the upstream - exploration and development - sectors are expected to attract more than $40 billion in foreign investment, Iranian media have recently quoted officials as saying.

Iran has postponed a planned oil conference in London, which was due to have taken place in February to reveal its new contracts, until November. An Iranian official said "the U.S. urged Tehran to hold off" until a final nuclear deal was penned.

Washington has reiterated it continues to enforce sanctions.

Iran and six world powers are trying to meet a self-imposed deadline of the end of June to resolve the nuclear standoff over Iran's nuclear work, which the West fears is aimed at developing a weapons capability - a charge Iran denies, saying it is for peaceful, civilian purposes.

When contacted, a British Foreign Office spokesman said the government did not support the London oil conference.  

"It would be premature in the absence of a comprehensive nuclear deal," the spokesman said, adding that encouraging trade with Iran "would send the wrong signal".

"The UK government does not encourage trade with Iran. Until we have a nuclear agreement that fully restores international confidence in the nature of Iran's nuclear activity it will be necessary to maintain consistent pressure on Iran through sanctions," he said.    

Analysts say Iran is still not open for business.

Mehdi Varzi, a former official at the state-run National Iranian Oil Co, said discussions with foreign oil companies had been "on and off for some time", adding that Iran had to offer more attractive incentives to get the ball rolling.

"With the current situation, even if sanctions are lifted, I cannot see many companies going to Iran," said Varzi, who now runs an energy consultancy in Britain, adding that Iran's energy sector would be in deep trouble if market conditions deteriorated further.

"If things get worse, the survival of the Iranian oil and gas industry is at stake."