Oil companies look to Iran and Mexico for opportunities amid tighter budgets

Oil companies' investment this year will be focused on new opportunities in Iran and Mexico as they cut budgets sharply amid continued low oil prices, a new report by industry consultant Wood Mackenzie forecasts.

The investment environment overall remains weak, according to Wood Mac, which recently estimated that US$380 billion of oil and gas projects had been cancelled or delayed with a further $170bn worth at risk as oil prices plumb depths not reached for more than a decade in the low $30s per barrel.

“Ageing, high-cost fields and a lack of new investment combine to challenge operators and governments alike,” according to Wood Mac. “But opportunities will exist despite the tough environment – Iran and Mexico both offer new potential and mergers and acquisitions activity is expected to increase.”

Iran last year identified 52 development projects that it will seek investment partners for post-sanctions, and it is expected next month to give more detail on its new enhanced investment petroleum contracts, Wood Mac noted.

Indeed, on Thursday, the chief executive of Total, France’s largest oil company which had been one of Iran’s biggest industry partners before sanctions, announced that it had struck a deal to lift up to 200,000 barrels of crude oil from Iran. The marketing deal is no doubt a precursor to a bigger investment deal to develop production in Iran.

Additionally, the Italian oil services company Saipem said earlier in the week that it had signed an initial agreement with Iran to undertake pipeline work.

But Wood Mac adds that “negotiations will take time [and] we do not expect any meaningful ramp-up in production from new developments this year.” The consultant forecast an increase of 400,000 barrels per day in Iranian exports this year as existing wells that had been shut in are brought back onstream. But that falls well short of the Iranian oil minister’s projection of an increase of 1 million bpd within six months.

Mexico will also attract investors when it opens up deepwater exploration acreage to investors for the first time later this year, according to Wood Mac. The most attractive prospects – the four Perdido blocks in the Sabinas-Rio Grande basin – are estimated to contain up to 20 billion barrels of oil.

Oil companies are also expected to pick up their mergers, acqui­sitions and asset disposal activities.

“As companies prepare for a ‘lower for longer’ outlook, we anticipate a number of non-core divestments,” Wood Mac says. “Shell, ConocoPhillips, Chevron, Repsol and Total are among the players looking to rationalise South East Asia portfolios, where growth prospects have been impacted by challenging fiscal terms, poor exploratory results, regulatory uncertainty and emboldened national oil companies [NOCs].”

Buyers will include regional NOCs, such as the Indonesian gas utility PGN. The chief executive of Mubadala Petroleum said recently that his company is looking to make further acquisitions in the region, where it already has a significant exploration and production presence.

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