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Iran Sweetens The Deal For Foreign Oil Companies

Iran Sweetens The Deal For Foreign Oil Companies

We see a slight uptick in U.S crude imports this week as crude oil keeps on stockpiling. Both WTI and natural gas are getting slammed right after the December futures contracts expired. 

(Click to enlarge)

Related: This British Bank Is Backing The Bullish Case For Oil

Iran is hosting a two-day conference on November 26 to attract international investment for its oil and gas sector. At the conference, Iran will lay out 50 potential oil and gas projects to interested parties. Iran is looking to attract at least $100 billion in investment, capital that it says will help it achieve production gains of over 1 million barrels per day. The Iranian government is eagerly preparing for the removal of international sanctions, which is expected within a few months. Since reaching a historic agreement with the P5+1 nations in July, Iran has since overhauled its contract program with international oil companies, sweetening the deals in order to woo companies. Each individual project will have tailor-made contracts, rather than a standard contract for all projects.

The details could indeed attract more investment than Iran has seen in the past. For example, companies will be allowed to sell production abroad. That will allow companies to earn more if they produce more, a situation that didn’t exist in the past under fixed-payment schemes. The contract terms could last as long as 20 years, whereas prior contracts only lasted 7 years. Foreign companies will still have to partner with a local Iranian entity. The bidding process could begin in March 2016 and the Iranian government has signaled its intent to sign contracts within two years.

State-owned Mexican oil company Pemex saw its credit rating cut by Moody’s this week. The ratings agency cited falling oil prices and declining production for the reasons it downgraded the Mexican company. The move comes after Pemex reported a third quarter loss of $10.2 billion. Pemex could also see its overall oil and gas production fall for an 11th straight year. “Moody’s believes that Pemex’s credit metrics will deteriorate further in the short to medium term,” Nymia Almeida, a credit analyst at Moody’s, said in the statement. “The company’s credit metrics, particularly its financial leverage, will deteriorate further as debt is used to fund capex and taxes remain high.” Related: Shell Forced to Scale Back Ambitions

The troubles at the state-owned firm largely motivated the historic opening of Mexico’s energy sector for private investment. The two auctions held thus far have not lived up to the hype, but a large part of the disappointment stems from low oil prices rather than a lack of interest on behalf of the industry in Mexican oil and gas fields generally. Mexico is planning another round of bidding for December, in which onshore fields will be auctioned off.

Canadian oil producers are once again turning to the railways to export their product as the lack of pipeline capacity continues to dog the industry. Punctuated by the rejection of the Keystone XL pipeline by the U.S. government, Canada’s oil sector continues to face obstacles to shipping their production out of Alberta. With pipeline projects stalled, more oil is making its way to the rails. Oil-by-rail shipments increased by 38 percent in the third quarter to 116,000 barrels per day. Genscape says that the rejection of Keystone XL will be a “short-term boon” for the rail sector. Of course, moving oil by rail costs more than pipeline, and as such, the discount of Western Canadian Select to WTI has increased to $14.98 in the third quarter, up from $9.72 in the second.

The state of Alaska bought a 25 percent stake in an LNG project from TransCanada (NYSE: TRP) in an effort to repair the state’s declining fiscal position. The Alaskan government agreed to pay TransCanada $64.6 million for a stake in a proposed project that would consist of a long distance natural gas pipeline, carrying gas from the North Slope to an LNG export terminal on Alaska’s southern coast. The LNG would be shipped to Asia. The state legislature passed a bill that allowed the state to take a direct position in the project. The state’s partners include ExxonMobil (NYSE: XOM), BP (NYSE: BP), and ConocoPhillips (NYSE: COP). Related: Oil Sands Producers Can Live With Alberta’s New Carbon Taxes

While Alaska’s objective is to bolster its finances as oil prices remain depressed and Alaskan oil production continues to fall, the move is a risky one. LNG spot prices in Asia have also plummeted over the past year and a half, and the market remains oversupplied and will continue to suffer from excess capacity for a few years. Moreover, the price tag is enormous: estimated at between $45 and $65 billion. The project has not received a final investment decision and would not begin exporting LNG before 2023. The proposed export terminal would have the capacity to ship 20 million tonnes of LNG per year.

Norway continues to see declining investment in its oil and gas fields, a worse outlook than just a few months ago. Oil companies will invest only around $20 billion in Norway next year, a decline of 25 percent from 2014. The decline in spending could send Norway into a recession. The country’s state-owned firm Statoil (NYSE: STO) has already announced 25,000 lost jobs, but there is no rebound in site.

Finally, a new report concludes that the major natural gas discovery by Eni (NYSE: ENI) in the Eastern Mediterranean earlier this year could spark accelerated natural gas development in the region. Eni’s Zohr discovery has been painted as a rival project to Noble Energy’s (NYSE: NBL) massive Leviathan discovery. Noble has struggled to make progress as it faced regulatory uncertainty in Israel, and Eni’s discovery raised the possibility of leaving Noble behind. However, a report from GlobalData says that the shared used of infrastructure and derisking the geology through development could help the region scale up and help all parties.

By Evan Kelly of Oilprice.com

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