Home / ANALYSIS / IOCs redefining plans to justify MENA operations


IOCs redefining plans to justify MENA operations

by Arabian Oil & Gas Staff on Mar 6, 2017


While IOCs continue to play an important role in the Middle East, several economic and geopolitical factors are making them rethink their strategies in the region.
While IOCs continue to play an important role in the Middle East, several economic and geopolitical factors are making them rethink their strategies in the region.

The Middle East has always been an important region for the IOCs, thanks to its vast and cheap-to-extract reserves. Companies like ExxonMobil, BP, Shell and Total have competed in countries like the UAE, Iraq, and Iran.

Their interest in the region has always been strong and their presence has spanned many decades. However, the scene has fundamentally changed over the last few years, prompting IOCs to rethink their strategy in the Middle East. US majors ExxonMobil and Chevron are focussing more on their investments in North America, where they see more value and quicker returns. BP has been selling off assets to settle the Deepwater Horizon oil spill claims, while Shell’s recent takeover of BG is making its Middle East position less clear. Only Total is showing a clear capability to expand its portfolio in the region.

Multiple factors and trends have led to such a recalibration. Falling oil prices and capital discipline has impacted overall investment, and the emergence of US shale offering new opportunities in the unconventional sphere have upset the previous dynamics of supply and demand. Meanwhile the unattractive fiscal terms on offer have caused some IOCs to reconsider their position in key producing countries. Furthermore, competition from Asian players for limited opportunities, the international sanctions on Iran and heightened geopolitical uncertainty have all contributed to the change of approach.

Shell’s position in the Middle East remains unclear Shell’s recent $70bn worth takeover of BG has turned its attention to restructuring its business and focussing on existing assets. The company is sending mixed signals about its desired role in the region. It decided against renewing its stake in the ADCO concession, but refused to rule out a return. It also withdrew from the $10bn Bab sour gas field in the UAE. On the other hand, it is expressing interest in Iran, becoming one of the 29 pre-qualified companies that will be allowed to bid for upstream contracts. It has signed an MoU to study the South Azadegan and Yadavaran fields, in addition to the Kish gas field. Shell’s presence in Iran before sanctions will put it in a favourable position if it decides to bid for some of the fields.

The picture is different in Iraq, where Shell is looking to sell its stakes in Majnoon and West Qurna 1. The company has a 45% stake in Majnoon’s 220,000 bpd-capacity field and around 15% in the 450,000 bpd-output West Qurna 1. Once sold, the company’s main oil-producing asset in the region will be Petroleum Development Oman, where it owns a 34% stake in the 600,000 bpd company. Shell’s desired departure from Iraq’s oil sector is a testament to the more challenging financial environment and the unattractive terms on offer, as IOCs effectively operate as contractors for the government and receive margins of under $2 per barrel. However, Shell is heavily involved in the country’s gas sector and holds a 44% stake in the Basrah Gas Company. The 25-year joint venture commenced in 2013 with the aim of capturing Iraq’s flared associated gas.

BP recovering lost ground

Over the past six years, BP has focussed on recovering from the Deepwater horizon spill in 2010. The company was forced to sell in excess of $40bn worth of assets to fund payouts. But after a difficult few years, BP is beginning to invest again. It recently acquired a 10% stake in the ADCO concession, having been part of the old concession that expired in 2014. The 1.66mn bpd concession will run through to 2054 and will also involve ADNOC (60%), Total (10%), CNPC (8%), Inpex (5%), CEFC (4%) and GS Energy (3%). Having been adamant that a $2.2bn signing fee is excessive, it structured the deal in a way that allows the company to raise capital by giving the Abu Dhabi government approximately 2% of its shares, with estimates suggesting that those shares are worth around $2.3bn.

The deal reinforces BP’s commitment in the UAE, and more specifically, to low cost barrels. The company’s share of the ADCO concession is estimated to be 165,000 bpd in 2017 and will send its Middle East output to around 400,000 bpd. Additionally, BP has around 96,000 bpd from its 14.67% share in the ADMA concession, where it intends to remain beyond the concession’s expiration in 2018.

But the recent increase in BP’s oil output is mainly attributed to Iraq where it receives its payments in oil. In Iraq, BP was the first major to return in 2009 when it was awarded a 25-year technical service contract for the large 1.35mn bpd Rumaila field. BP (47.6%) partnered with PetroChina (46.4%) and State Oil Marketing Organisation (6%) for the project.


FEATURED COMMENT

Please click here to comment on this article

COMMENTS

Name *
Email *
City
Country
Subject: *
Comments: *
Math Question: *
Solve this simple math problem
and enter the result. E.g. for 1+3, enter 4.
Refresh the image if not clear
Remember me on this computer



NEWSLETTER SUBSCRIPTION
Email:
ArabianOilandGas Awards
LinkedIn
Utilities middle east
Construction Week Online Middle East
Hotelier Middle East
Arabian Supply Chain Middle East

RELATED ARTICLES


NEWSLETTER SUBSCRIPTION
Email:
Articles
Companies