Is Iran The World's Next Big Oil Story?

Yesterday, Iranian oil minister Bijan Namdar Zanganeh said that the country’s oil output has now gone above 3.8 million barrels per day, of which about 2 million barrels are exported.

Production Up Significantly from Sanction Days

The current production marks a considerable jump from an average of around 2.8 million barrels per day in 2013 when Tehran was under international sanctions for its nuclear program. Exports languished at about 980,000 barrels per day.

On November 24, 2015, Iran reached a temporary accord with six world powers – the U.S., Great Britain, France, Russia, China and Germany – to restrict its nuclear activities in return for the Persian nation’s relief from international sanctions on oil, auto parts, gold and precious metals. Ultimately, the embargo was lifted in January this year after certification from the UN nuclear watchdog.

Is Iran the Next Big Oil Destination?

Despite oil’s massive recovery since February, it’s still under $50 and far below the breakeven price for many energy companies. The commodity’s collapse has threatened the industry’s creditworthiness by hurting cash flows, drying up liquidity and pummeling producer’s profit margins.

Consequently, multinational oil producers have been looking at opportunities to explore/produce oil in a way that is less capital intensive and requires low operational cost. With an estimate saying that a barrel of crude in Iran can be produced by shelling out just $12 as compared to around $36 in the U.S., the country is a prime candidate to become the ‘next big destination’ for oil biggies.

A Head Start for European Companies

With the U.S. still maintaining certain bilateral sanctions, domestic companies can’t enter into physical partnerships with their Iranian counterparts. However, some U.S. firms have been trying to bypass this by approaching the Office of Foreign Assets Control (OFAC) – the Treasury Department’s sanctions administrator – for licenses in specific sectors including oil and gas, provided these do not hurt U.S. policy interests.

However, there is no such problem for European and Asian companies, who have already started negotiating with local players to expand and fortify their presence in the Iranian market. Biggies from across the pond like Royal Dutch Shell (LON:RDSa) plc RDS.A), BP plc (LON:BP) (NYSE:BP) , Eni SpA (TO:E) , Statoil (OL:STL) ASA (NYSE:STO) and TOTAL SA (TO:TOT) are currently in talks with the OPEC member’s policy makers regarding investment of as much as $25 billion in the country’s upstream sector till 2020.

Upcoming Oilfield Tenders Eyed

In order to restore the health of its energy industry following years of crippling sanctions, the Iranian government plans to solicit bids for oilfield development rights from foreign operators starting June 21. If reports are to be believed, as many as 70 different fields could be on offer for joint venture with foreign partners.