They did not advertise their presence. But in the days and weeks before Tuesday’s nuclear deal between the west and Iran, a steady trickle of visitors from some of the world’s largest energy groups have flown into Tehran.

By some accounts, they have done more than exchange business cards. As one senior western executive puts it, few of the industry’s big players can ignore the “candy store” that is Iran — now preparing to throw open a multibillion-dollar shop window of oil and gas projects.

An array of US and EU oil-related sanctions, in place since 2012, has prevented detailed negotiations. But once these are lifted, serious talks about a return to the country will get under way, with the European majors first.

For the likes of Royal Dutch Shell, Eni of Italy and France’s Total, among those whose officials have met Iranian counterparts in Tehran, that day may be months away. Negotiations with US energy groups — absent since the nationalisations that followed the 1979 Islamic revolution — could be even further off. A complex range of restrictions will need to be rolled back in the US.

Even so, for cash-starved Iran, desperate to rehabilitate a domestic oil and gas industry laid low by mismanagement, corruption and under-investment, there is now the real prospect of a new lease of life — and a huge increase in revenues from higher production and exports. Tehran is estimated by the US to have foregone $160bn in oil sales in the past three years as exports to Europe collapsed and Asian countries such as India sought alternative supplies.

“Iran needs investment and technology big time,” says Daniel Yergin, author of the classic history of oil, The Prize. But talks will be far from easy, requiring pragmatism from the Iranians after a 50 per cent plunge in oil prices. “What’s changed is the companies are no longer chasing barrels as they did when oil prices were going up. It is really now a buyers’ market when it comes to oil and gas deals,” he adds.

“Tehran will need to put a century of turbulent relations with the international oil industry behind it and focus on being commercial and competitive. The big companies are preoccupied with costs and profitability.”

Seeking investment

Assuming key economic sanctions are removed by early 2016, Bijan Zanganeh, Iran’s oil minister, is confident it can swiftly raise output and exports, by as much as 1m barrels a day. A release of 40m barrels of oil stored on Iranian tankers is also thought likely, weighing further on prices.

But his eyes are fixed on a greater prize. He wants western expertise to revive Iran’s ageing fields and creaking infrastructure, and restore its position as the fourth biggest producer after Saudi Arabia, the US and Russia. The goal is to increase output by 50 per cent in just five years, to as much as 5m b/d.

Behind the scenes, and alongside the remaining diplomatic talks, work is already under way. Mehdi Hosseini, an adviser to Iran’s oil ministry, says Tehran is finalising a new-style contract that it hopes will lead to deals with foreign investors worth up to $100bn.

As many as 50 projects could be up for grabs, with deals covering exploration, the development of onshore and offshore fields and the provision of new technology. They are likely to include the huge gasfields of South and North Pars, between them holding nearly 350tn cubic feet of undeveloped reserves, and major oilfields such as Ahvaz, Gachsaran, Marun and Aghajari, which were estimated to have held 200bn barrels of crude originally and have been producing for decades. There could be co-operation, too, in petrochemicals and liquefied natural gas.

In particular, Tehran is said by industry insiders to be keen to bring in a foreign oil company to help with the construction of an LNG plant to handle the gas from South Pars, part of a reservoir Iran shares with Qatar. Among those rumoured as possible partners is Shell, which has pioneered gas-to-liquids technology and will be the biggest private sector LNG supplier after its proposed £55bn takeover of BG Group.

“Qatar has gone far ahead of Iran,” says Mr Hosseini. “This injustice is because of sanctions. Our gas is produced from Qatari wells instead of ours. This hurts national feelings.”

Iran’s appeal for foreign investors is clear. According to Wood Mackenzie, a consultancy, the country ranks as the world’s third-largest holder of oil and gas, with more than 250bn barrels of oil equivalent in remaining reserves.

Unlike, say, the unexplored Arctic, its resources have been mapped and production costs are low. Its political stability relative to that of Iraq, riven by conflict with the Islamic State of Iraq and the Levant, is another attraction. Indeed, with energy groups struggling to make big discoveries, Wood Mackenzie says Iran offers a “golden” opportunity for integrated oil companies and nationally owned giants.

“We still need to review the details, especially regarding sanctions removal” says Patrick Pouyanné, chief executive of Total. “[But] Total has a long history in Iran and is willing to go back when the sanctions are lifted and if the conditions are interesting.”

Mr Zanganeh will set out Tehran’s terms of engagement — a set of conditions known as the Iran Petroleum Contract and billed as more rewarding than past deals — later this year. The big question is whether the contracts will be sufficiently attractive. While Tehran will not offer production-sharing deals, preferred by most foreign investors, it will enhance the terms of its widely disliked service or “buyback” contracts. Fereidun Fesharaki of consultancy Facts Global Energy says they will “look and smell” more like production sharing deals, where foreign companies win the rights to output and reserves, and risk is shared.

Doing deals

The new contracts will enable foreign companies to set up joint ventures with the state-owned National Iranian Oil Company or one of its subsidiaries. They are expected to run for longer, say 20 to 30 years. Remuneration will be more flexible. Instead of a fixed fee, rates of return would be based on a sliding scale and proportionate to risks surrounding development. Payments could be linked to oil prices. It is thought there will be no cap on capital spending.

Crucially, companies will also be able to book the value of reserves on their balance sheets. But, says Elham Hassanzadeh of consultancy Energy Pioneers, this will be subject to “strict conditions”. Iranian law forbids foreign ownership of reserves and Mr Hosseini says: “If the booking of reserves is interpreted as a transfer of ownership to the IOCs, we [Iran] will not let that happen.”

He adds that international oil companies have been sounded out on the details and the response has been positive. But one European executive denies any such involvement, while another is sceptical. Describing the flat fees paid under the old service contracts — which lasted from six to 12 years — as “lousy”, he believes a meeting of minds with Iranian officials, known as tough negotiators, will be elusive. “Companies will be active, but I’m uncertain we will see an immediate explosion in contracts.”

One western oil observer in Tehran, who claims to have seen elements of the contracts, also questions the benefits. The proposed terms bear little resemblance to production sharing, he says. Capital, investment and output would not be shared, nor would financing risk.

Moreover, political and legal uncertainties remain. The nuclear agreement could swiftly unravel and sanctions be reimposed if Iran breached the terms of the deal.

Oil executives will be wary, too, of requests that they work with local suppliers suspected of links with Iran’s elite Revolutionary Guards, which have in the past benefited from big contract awards. The fact that NIOC was designated by the US as an affiliate of the guards could damage the reputation of any company doing business with it.

For those companies that do invest, there is also the threat of legal action from individuals with claims against Iran based on its support for terrorism. Mark Dubowitz of the Foundation for the Defense of Democracies, a Washington-based think-tank, says about $18bn has been awarded in US courts to plaintiffs against Iran. Efforts could be made to enforce those awards against any companies with operations there.

Nor should the technical hurdles be underestimated. Sanctions have taken a heavy toll on output. Crude production capacity has dropped to about 2.8m b/d, from 3.6m b/d in 2011. Natural gas output slowed to 5.7 tcf in 2013. “Many wells have been shut down. Some may have been damaged so much that we need to have new ones,” says Mr Hosseini. Per Magnus Nysveen at consultants Rystad Energy says: “I don’t want to be overly pessimistic. There is the potential for a large amount of condensate [ultralight oil] production and exports. However, with crude production, I’m more sceptical.”

Mr Nysveen points to the Marun, Ahvaz, Gachsaran and Aghajari fields, where recovery rates are as low as 25 per cent, demanding heavy spending. Projects such as South Azadegan and extensions to South Pars — where Tehran has been unhappy with its Chinese partners — have also suffered problems. “A lot of industrial activity needs to be done to stimulate these fields, such as drilling and water and gas injection,” he adds.

Playing the long game

Even if projects are agreed in months, actual implementation will take years, and analysts say the investment needed could easily rise to $200bn. Wood Mackenzie sees crude production rising to 3.4m b/d by 2020, less than Tehran’s target, but adds that output could reach 4.4m b/d in a decade with enough foreign investment. Gas has “enormous” potential in the longer run.

It is suspected that Iran wants US expertise, though officials insist it has no preference. Such a return would be momentous. But ExxonMobil, Chevron and ConocoPhillips are well behind their European rivals in positioning for a lifting of sanctions as US regulations are more restrictive. American companies have been estranged from Iran for longer and the threat of legal action against any business that tries to invest there is greater.

Legislation and executive orders impose such wide-ranging restrictions on US business dealings with the country that American companies take them to mean that even hypothetical discussions about post-sanctions contracts are illegal. Not one US oil company says it has held talks about possible deals with Iran. Exxon’s understanding of the law is that its executives are barred from talking about business with any Iranian officials. Chevron says that it “acts in full compliance with US law and does not engage in business discussions with Iran.” Conoco, similarly, says it is not engaged in any such talks.

For now, they will not even be drawn on their interest in Iran should conditions change.

Deals, eventually, will be struck. But do not expect a stampede: “Big Oil” will be treading carefully in this sweet shop.

Additional reporting by Anjli Raval

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