From the oil and gas industry point of view, the lifting of inteational sanctions provides the country, as well as Inteational Oil Companies (IOCs), with opportunities at a time when oil prices are down to levels not seen for a decade. Although there is every likelihood that prices will rebound, the drivers of demand and supply indicate that this may not happen for some time.
The IOCs are hurting, reflected largely by their cut back in dividend as well as profit falls and job cuts. Under these circumstances, IOCs need to look for exploration and production opportunities that require comparatively little capital and operational expenditure. As such, Iran presents itself as a great opportunity – with costs to produce a barrel of crude in Iran estimated at around US$ 12 compared to an average of around US$ 9 in Saudi Arabia, around US$ 36 in the USA and around US$ 52 in the UK. Provided the IOCs are willing to accept the risks and challenges that arise with investing in Iran, the offering of about 18 E&P blocks and 50 oil and gas projects worth US$ 185 billion by 2020 under the new ‘Iranian Petroleum Contract’ (IPC), might just be the need of the hour.
On the other hand, Iran itself seems anxious about the incoming investment, as it is looking to update its aging oil & gas infrastructure, in order to increase production to meet the rising local demand alongside helping fund govement spending. An initial foreign investment of around US$ 25 billion is targeted and several leading European E&P companies (BP, Eni, Repsol, Shell, Statoil, Total) are believed to have been in discussions. In late September 2015, the Minister of Petroleum, Bijan Zangeneh, declared the path chosen by the country by announcing that Iran will not hold back its oil production once economic sanctions are removed and that the country’s crude output will reach an ambitious 4.2 MMbo/d by the end of 2016. Crude oil production currently stands at around 2.85 MMbo/d and in an effort to reclaim its lost share of exports, Zangeneh anticipates the country taking back a market share of more than 1 MMbo/d. More conservative estimates, however, suggest an increase in production of between 600,000 bo/d and 1 MMbo/d within six months of the lifting of sanctions – subject to the negotiations ongoing for freezing oil production.