Thursday, July 13, 2017

Big Oil Stays Wary On Iran

BP CEO says firm is looking elsewhere for deals.

By Benoit Faucon
The Wall Street Journal
July 13, 2017

Iran’s ambitious agenda for its oil-and-gas industry is running up against the caution of big energy companies.

At a major energy conference here, Iranian officials said French oil giant Total SA’s TOT 0.08% commitment of $1 billion toward a gas project this month marked a new chapter in the country’s energy business since the end of Western sanctions. Iranian officials promised 10 contracts like it in the next year and said they were seeking $92 billion in foreign investment to raise oil production by a third and gas exports by 15-fold by 2021.

“Our hands are full,” Iran’s Deputy Oil Minister Amir Hossein Zamaninia told reporters here at the World Petroleum Congress, saying 25 contracts were being negotiated with foreign companies. “We think that the situation is normal enough now for major international oil business to get engaged in Iran.”

But other big oil companies have been more shy than Total about wading into Iran, even with its enormous oil and gas reserves.

Western companies are wary of running afoul of remaining U.S. sanctions on Iran for weapons, human rights and terrorism allegations. Overall, the industry is still smarting from an oil-price downturn that isn’t letting up in its third year, making companies wary of new spending.

Speaking at the same conference here, BP BP 1.48% PLC Chief Executive Bob Dudley said he was looking beyond Iran for now, as the company had already committed to $15 billion in spending elsewhere this year.

“We have a full plate,” Mr. Dudley said at a news briefing. “We have to stay on a capital diet.”

U.S. companies like Exxon Mobil Corp. and Chevron Corp. are barred from doing business in Iran, but European companies like London-based BP can still try to make a deal work. One factor slowing things down: U.S. President Donald Trump has criticized the deal over Iran’s nuclear program and threatened to pull out or tighten sanctions.

“BP’s decision to be cautious on Iran [was] a ripple effect” of U.S. pressure against doing business in Iran, Mr. Zamaninia said.

A BP spokesman declined to comment.

Total’s commitment in Iran is evidence that oil companies have concluded “the return of sanctions is very unlikely, if not impossible,” Mr. Zamaninia said. Total said it was in compliance with all sanctions.

Mr. Zamaninia has tried to use the World Petroleum Congress conference here as a sort of coming out party for Iranian energy investments after the Total deal. He cracked jokes while sharing a panel with Mr. Dudley and Barry Worthington, the executive director of the U.S. Energy Association, an industry body that advocates for American oil companies.

But the panel also underscored Iran’s challenges. While Messrs. Dudley and Zamaninia talked before the panel, Mr. Dudley said they only discussed its topics—not any potential business. Mr. Dudley, a U.S. citizen, didn’t elaborate but Washington’s sanctions bar Americans from discussing oil deals with Iran.

Mr. Dudley called Total’s deal a “very good sign for the industry” but he hadn’t seen its terms. Total and Iranian officials have said the 20-year contract was longer-term than deals Iran allowed in the past and allowed the company more flexibility to recoup costs.

Total Chief Executive Patrick Pouyanne said the company and its partners were already preparing tenders to contractors in the project. Total’s partners include China National Petroleum Corp. and an Iranian company.

Royal Dutch Shell PLC signed a preliminary agreement to explore opportunities in Iranian oil fields late last year. The Anglo-Dutch company held meetings in Tehran and Dubai in the two past months with the National Iranian Oil Co. and Chinese state-run China Petroleum & Chemical Corp. to work together on an oil field called Yadavaran, according to a person familiar with the discussions. But people who work with the company said it is concerned about its exposure to the U.S. and is more selective in the choice of its banks than Total.

A Shell spokeswoman said: “Shell is interested in exploring the role it can play in developing Iran’s energy potential. We have been engaging with Iranian officials but it is still too early to discuss potential Shell investment in any project.”

Oil companies are closely watching a political debate playing out in Iran since the Total deal. On Wednesday, Iranian Oil Minister Bijan Zanganeh was grilled in the country’s parliament over what some hard-liners said was a sweet deal for Total. Some lawmakers threatened to block it, though they relented.

Iran is also working against a persistent chill in oil investments globally. While global oil and gas investments are set to increase by 3% this year, most of it is flowing to the U.S. shale oil, according to the International Energy Agency, an adviser to governments on energy issues.

Iran’s old oil fields are a challenge, requiring “patience and high technology,” Laszlo Varro, the IEA’s chief economist, said.

Further, Iran’s geopolitical risks, complex contracts and risk of sanctions could deter investors who can go to other growing oil regions like Brazil instead, Mr. Varro said. “Iran will remain under its geological potential for quite some time,” he said.

Article Link To The WSJ: