The newly-appointed chairman of Royal Dutch/Shell Group said yesterday that international oil firms had no place expecting Iran to tailor its buy-back energy investment formula to their needs. "I think the important thing is that every country has to decide what are the arrangements that are best for themselves that are in line with the constitution. They have to be politically acceptable within the country," Phil Watts told reporters after Shell executives held a news conference.

"I don't think it's our job as international oil companies to try to impose on a particular country what specific formula they should have," added Watts when asked if he found Iran's investment restrictions frustrating.

Under Iran's controversial buy-back programme foreign firms receive crude as compensation and profit in return for investing in projects under a formula that denies them a direct equity stake.

While international oil firms want sweeter terms, conservative politicians and officials in the Islamic Republic look at deeper foreign investment with suspicion and fear it could amount to selling out the country's most valuable resources to the West.

Foreign investment in oil is a politically sensitive issue in a country with complex struggles between reformers and conservatives. Buy-backs began in the mid-1990s in a bid to help the government skirt constitutional bans on foreign ventures and attract much-needed capital to revamp the ageing energy sector, badly damaged by the 1980s war against Iraq and U.S. sanctions.

Shell last year won an $800 million buyback deal to develop the Soroush and Nowruz offshore fields with the National Iranian Oil Co (NIOC) and is competing for a project to develop the giant Bangestan field.

Watts also said yesterday that it was seeking opportunities in all areas of Egypt's natural gas industry. "If you want my vision of Shell in gas for Egypt it is to be involved in every part of the gas value chain," he said.

Shell said last month it had agreed to acquire an 18 per cent stake in Egypt's NATGAS from majority shareholder and investment company Egypt Kuwait Holding Co. NATGAS, which is traded on the Egyptian stock exchange, has been awarded a 20-year concession to build and operate a natural gas network on behalf of the Egyptian General Petroleum Corp.

Shell is currently exploring for gas in Egypt and proposing midstream activities and a liquefied natural gas scheme, Watts said. "I am pleased that we are also involved at the downstream end and getting into gas distribution and with industrial customers. And the possibility of going further with individual consumers of gas. There is a very large market," Watts added.

Shell has plans to invest $1.7 billion in an Egyptian Gas-to-Liquids (GTL) plant that could lead to the use of domestic gas reserves to satisfy its entire oil products for over 50 years. An Egyptian affiliate of Shell last year won a 10 million acre offshore block.

Initial indications from Shell's block, in which Exxon Mobil acquired a 25 per cent stake, contributed to Egyptian Oil Minister Sameh Fahmy's higher gas reserve estimates of 120 trillion cubic feet. Some 42.5 trillion are proven. Watts said Shell was drilling the second well in its deepwater block but he declined to elaborate. He also would not comment in the block's first well.

Shell paid a signature bonus of $35 million for its block and was committed to a production bonus of $4 million for production of 60,000 barrels per day of oil equivalent of $6 million for 120,000 bpd of oil equivalent. It was also committed to spending about $140 million in the initial explorations period of five years. A further $90 million was slated for the following seven years.

Egypt puts its proven reserves of natural gas at 42.5 trillion cubic feet and total reserves at around 120 trillion. It hopes to export natural gas to Turkey, Lebanon, Jordan, Spain and other buyers in the Mediterranean. Shell also wants to exercise its right to acquire a further stake in Kazakhstan's giant Kashagan oilfield when BP formalises the sale of its 9.5 per cent stake, Watts said.

France's TotalFinaElf said last week it had agreed to buy BP's stake in the giant Caspian Sea find for an undisclosed sum, which analysts put at over $400 million. But under a shareholder agreement each of the nine partners has a right of first refusal on its share of any stake that comes on the market. "As far as Shell is concerned we are in for the long haul, a committed long-term presence, and... we would be inclined to exercise our preemptive rights which as you know are in the joint venture agreement," Watts said.

He would not say whether there had been any contact with BP, which also declined to comment. The prized field owned by nine foreign partners in the Offshore Kazakhstan International Operating Co (OKIOC) has estimated reserves of more than 10 billion barrels, making it one of the world's biggest untapped oil reserves.

The operator is due to be decided soon. Asked whether Shell was interested, Watts replied: "Who wouldn't be?" But he added: "Whoever is chosen has the full-hearted support of the consortium. This will be a bigger project than just one company. It will need whole-hearted support from all the partners... it is too important for us and it is massively important for the government of Kazakhstan."

Several other OKIOC members are keen to win the right to operate the field. Shell and Total each have a 14.3 per cent stake at present, as do BG Plc, ExxonMobil and ENI's Agip. Phillips Petroleum and Japan-based Inpex have 7.14 per cent each and Norway's Statoil has 4.8 per cent.

OKIOC discovered oil in its first test well on Kashagan last July. It is now drilling a second test well and will start appraisal drilling in May or June. First oil, if OKIOC decides to develop the field, is not expected to flow for several years.