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Analysts: Bullish On O&G When Iran Sanctions Lifted
Aspire, Hot Picks, Investments | 13 July 2015
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By: Lim Si Jie
Articles (169) Profile

Deadline On Nuclear Deal Nears

A Joint Comprehensive Plan of Action regarding Iran’s nuclear program has been in the midst of discussion, reflecting the significant progress that has been made in discussions between the P5+1, the EU, and Iran.

This is important for Iran because it will mark Iran’s return to the global oil market. Iran holds the largest deposits of proved oil and natural gas reserves in the world.

Once the International Atomic Energy Agency (IAEA) verifies that Iran has complied with key nuclear-related measures, the US and EU sanctions would be nulled.

Another Deadline Missed

Talks on Iran’s nuclear program were in a deadlock and missed another deadline as the Islamic Republic’s interlocutors argued over persistent differences, including lifting restrictions on arms sales.

Friday morning was the last chance for Iran to qualify for a 30-day review in the US Congress. After missing the deadline, an agreement now would be subject to 60 days of scrutiny, pushing back the date when Iran could qualify for its objective: sanctions relief.

Even if this hurdle were to be overcame, important implementation details are still subject to negotiation, and the US Congress would also require time to review the deal.

The Potential Of Iran

According to the EIA, Iran holds some of the world’s largest deposits of proved oil and natural gas reserves, ranking as the world’s fourth largest and second largest reserve holder of oil and gas, respectively. It is also among the world’s top ten oil producers and top five natural gas producers.

Effects Of Iran’s Sanctions Relief

Analysts estimate that Iran has 40-45 millions of barrels stored on crude tankers, many of which belong to its national carrier NITC. Iran, which is reeling from significantly lower export revenue with the collapse in oil prices, is likely to seek a sale of its crude tanker stocks to boost its oil revenue.

Longer-term rise in daily exports

Iran is currently exporting oil as little as one million bbl/day due to sanctions. The potential for Iran’s oil exports to ramp up is great, considering that it was once Organization of the Petroleum Exporting Countries’ (OPEC) 2nd-largest producer after Saudi Arabia.

Under sanctions, Iran’s crude oil exports had nearly halved in three years, from 2.6 million bbl/day in 2011 to 1.4 million bbl/day in 2014 with China and India being Iran’s top importers.

According to the International Energy Agency, Iran is capable of producing as much as 3.4 million bbl/day to 3.6 million bbl/day within a few months after sanctions are lifted. Iranian Oil Minister Bijan Zanganeh mentioned in early June that Tehran could boost exports by 1 million bbl/day roughly seven months after sanctions are removed.

Currently, analysts in the market expect an additional “0.5 million bbl/day in exports from Iran, accounting for ~0.5% of current global production”.

Considering The Flip side

Though this recent development is bearish for oil prices as Iran is a step closer to releasing its stock in the market, analysts note that:

1) Sanctions will only be lifted as Iran implements various measures and after verification of its nuclear commitments by the IAEA. The exact timing of relief is still unclear.

2) Some degree of expectations for a successful deal have already been priced in the market. Also, considering the significant initial capital required for investment in the country, production expansion in Iran could prove more moderate after sanctions are lifted.

SGX-listed Companies with Iran/ME exposure

Amidst the gloom, analysts focused their search for oil & gas companies that have had a history of dealings in Iran, which could give them an added edge. We specifically look for those whose contracts had ran into an impasse due to the imposition of sanctions, as they could be the first to benefit as sanctions are lifted.

Analysts focused on SGX-listed companies that have established a foothold in the Middle East. This is interesting as:

1) the Middle East is now the only remaining bloc that has reaffirmed its intention to maintain oil and gas production during this environment of lower oil prices, and is a relatively bright spot.

2) These companies may also be able to leverage on their working knowledge and relationships in the Middle East to capitalise on opportunities in Iran.

SBI Offshore, Vallianz Holdings, Atlantic Navigation, KTL Global

Analysts highlighted SBI Offshore, Vallianz Holdings, Atlantic Navigation and KTL Global as Offshore & Marine (O&M) companies that have significant exposure to the region.

However, analysts also warned that though significant steps have been reached, there is still some way to go before financial and travel sanctions are removed, all of which are necessary for oil companies to resume investments in Iran.

Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

SBI Offshore  -- -- --   
Business: Distributes offshore drilling & pdtn rig eqmt to offshore players in APAC.

Insight: Feb-18, FY17 revenue decreased 65.2% to US$0.4m ma... Read More
Atlantic Navigation Hldgs (S)  -- -- --   
Business: Integrated offshore supply operations supplier. [FY17 Turnover] Marine logistics services (MLS) (93.7%), ship repair, fabrication and other marine services (SRM) (6.3%)

Insight: Aug-18, 1H18 net loss narrowed 80.2% to US$0.5m as... Read More
KTL Global  0.045 -- --   
Business: Co is a supplier of rigging equipment and related services.

Insight: Feb-19, FY18, revenue for the 18 months ended 31 D... Read More

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