Why Iran is courting BP and ExxonMobil

As it attempts to reap the benefits of easing international sanctions, Iran is wooing western oil companies in hopes of luring them back to the country. The potential suitors on Iran’s list include Shell, Exxon Mobil XOM -1.95%, ConocoPhillips COP -1.22%, and BP BP -1.1%. Its end game, though, may have more to do with intra-OPEC politics than with capitalizing on Western investment and technology.

BP, in particular, has a long history in Iran. Its origins as a company are rooted there.  William Knox D’Arcy, the founder of what became BP, secured almost a half-million acres in what was then Persia in the early 1900s, which led to the creation of the Anglo-Persian Oil Co. Persia became Iran in 1935, and it remained BP’s primary source of oil into the 1950s. The terms of D’Arcy’s leases, though, left the country with little revenue from the oil being produced, which led to the government’s seizure of its assets in 1951. 

OPEC headquarters (Photo credit: Wikipedia)

U.S. and British intelligence agencies, worried that Iran’s new regime was becoming aligned with Soviet Russia, arranged the overthrow of the prime minister and installed a pro-West shah as head of the government. The shah quickly restored BP’s Iranian assets, but they were seized again in the 1979 revolution.

Clearly, by opening its arms once again to Western investment, the Iranian government has two goals in mind. One, BP and Shell in particular are on its list of companies it claims still owe debts that predate the ’79 revolution. While Iran hasn’t put an amount on these debts, Shell has estimated its tab at $2.3 billion. 

In other words, the ante is going to be high, and for BP, which has been selling assets to pay tens of billions in claims related to the Deepwater Horizon disaster, the hefty price for returning to its roots comes at a bad time.  The upside, of course, is that it knows the reserves as well as any company, and perhaps as well as the Iranians.

Collecting on its debt claims after decades of economic sanctions would be a nice windfall for Tehran, as would ongoing capital investment and the technology that would come with it. Iran’s production has stagnated for much of the past decade, and the economic sanctions imposed over its nuclear program left it cut off from new drilling technology that could boost production.

But there’s another game afoot here. In recent years, the Iranians have been challenging the Saudis for control of OPEC. For the past several years, the Iranians and other OPEC such as Venezuela have been pressuring the Saudis to limit production and drive up crude prices. The Saudis, the only OPEC member with excess capacity, have resisted.

Make no mistake, the rise of U.S. oil production has put pressure on Iran, forcing it to accept the nuclear deal reached with the U.S. last year. The U.S. oil boom has kept global crude prices stable, which has hurt Iran as its economic problems mounted. But the U.S. energy renaissance is reshaping power in petro-politics, and Iran may see an opportunity to press its hand within OPEC and settle some old scores.

The flirting with western companies has made the Saudis uneasy, but the kingdom no longer has the grip on world oil prices that it once did. As U.S. production rises – the International Energy Agency estimates U.S. oil production may rival Saudi’s as early as next year – the Saudi’s are losing leverage with their best customer. With the easing of sanctions, Iran isn’t jus trying to reassert itself on the world stage, it may be angling for a starring role.

http://www.forbes.com/sites/lorensteffy/2014/01/30/why-iran-is-courting-bp-and-exxonmobil/?ss=business%3Aenergy