TEHRAN, Jan 29: Iran has signed a preliminary agreement with Spain's Repsol and Royal Dutch Shell to produce liquefied natural gas from its South Pars gas field, the student news agency ISNA reported.

“This contract is the biggest project in terms of investment and the volume of gas converted to LNG,” said the head of National Iranian Oil Company, Gholam Hossein Nozari, quoted by ISNA.

But he added the final decision on the investment, which the agency valued at $10 billion, would be made by the end of 2007.

“The upstream work of phases 13 and 14 (of South Pars field) will be carried out on buyback terms,” Nozari said, adding the Anglo-Dutch firm Shell and Repsol would each have a 25-per cent share while Iran maintained a 50 per cent share in the project aimed at producing an annual 16 million tons of LNG.

Iran's buyback system skirts around the constitution, which prohibits foreign companies from taking equity stake in its oil and gas sector.Instead, it enables foreign companies to develop a project for a set time, after which they are paid by the government in oil or gas revenues at market prices.

Iran sits on the world's second largest reserves of natural gas after Russia but faces investment problems in developing the fields. —AFP