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Royal Dutch Shell And Others Interested In Iran Following Nuclear Deal Agreement

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Published: Apr 7, 2015 at 8:20 am EST

Iran’s oil exports are set for a boost after a framework nuclear agreement was reached between the country and world powers in Lausanne, Switzerland. The deal also paves the way for international energy groups to make a comeback to the country after a five year pause.

Western sanctions against Iran have badly hurt its oil and gas industry. The Iranian government now wants foreign investment to return and it’s expected that Tehran will start preparations for new contracts with western companies.

Total SA (ADR) (NYSE: TOT), Royal Dutch Shell plc (ADR) (NYSE: RDS.A) along with Statoil ASA (ADR) (NYSE: STO) and Repsol SA (ADR) (OTCMKTS: REPYY) left the Persian Gulf state in 2010.

Details on the framework agreement still have to be worked out before a formal accord can be reached in June. Even so, Iran’s oil production and exports will soon begin reaping the deal’s benefits.

The sanctions were imposed to arrest the progress of Iran’s nuclear program. The sanctions regime resulted in the country’s crude output dropping from 3.6 million barrels a day (bpd) in 2011 to 2.8 million bpd. Oil exports have fallen by around half their pre-sanctions level to 1.1 million bpd. With approximately 30 million barrels of crude stored onshore and on tankers ready for the market, some observers believe exports from Iran can improve within months.

Facts Global Energy says, Iranian oil production can 500,000 bpd in three to six months and up 700,000 bpd within another year.

Others aren’t so sure. The Head of Commodities Research at Citigroup Inc (NYSE:C), Ed Morse, believes Iran will be unable to increase production any time before 2016. He reasons that any accord signed between the parties would need time to enforce and verify Iran’s compliance. He said this can have an effect on oil flows.

Pinsent Masons Oil and Gas Lawyer George Booth said the nuclear deal was just the beginning, that the existing complicated restrictions on trade will take time to untangle.

He added that even if Iran was able to lift output and exports, maintaining the increased levels of production and sale would be difficult. If the country wanted to achieve and maintain a level of 4 million bpd, its ageing fields will require western technology and capability to do so.

Foreign investors will have to examine the condition of Iran’s oilfields before committing any investment. With the world’s fourth-largest reserves of oil and its second-largest gas deposits, Iran remains an exciting prospect even after years of animosity with the west. An oil executive said: “Everybody is waiting. Nobody really knows what they [Iran] are cooking”.

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