International oil companies (IOCs), which play key role in the Middle East, are apparently revisiting their strategy towards the region, a move that could be advantageous for the Asian giants, according to Arab Petroleum Investments Corporation (Apicorp).
“Structural changes in the oil market, political uncertainty and the emergence of shale in North America are changing the way IOCs view the Middle East,” Apicorp said.
Finding that multiple factors and trends have led to such a rethink, it said falling oil prices and capital discipline have impacted overall investment, the emergence of US shale offering new opportunities in the unconventional sphere have upset the previous supply-demand dynamics, and the “unattractive” fiscal terms on offer have led some IOCs to reconsider their position.
Although their (IOCs) interest in the region has always been strong and their presence has spanned many decades, it, however, said the scene has “fundamentally” changed over the last few years, prompting them to rethink their strategy in the Middle East.
US oil majors ExxonMobil and Chevron are focusing more on investments in North America and BP has been selling off assets to settle the Deep-water Horizon oil spill claims, while Shell’s recent takeover of BG is making its Middle East position less clear.
“In an environment of declining capital expenditure, IOCs are increasingly focusing on low cost barrels,” Apicorp said, adding some IOCs no longer see the Middle East as their preferred destination.
Chevron’s main involvement in the Middle East remains the Saudi-Kuwaiti neutral zone - with no indication on expanding its regional presence.
ExxonMobil didn’t renew its stake in ADCO after the 75-year concession expired in 2014, although it continues to operate in the UAE with a 28% stake in 670,000-bpd Zadco.
Apicorp also said IOCs are still wary of entering Iran over fears of violating regulations and risking heavy fines. Iran has made some progress with international shippers and insurers; but US residual sanctions are still in place, limiting access to global banking services.
Many firms had reservations prior to the elections and are now seeking clarity over the US administration’s ‘Iran policy’ before committing. Iran also runs the risk of having sanctions re-imposed under the ‘snap-back’ provisions in the event of non-compliance, it said.
Highlighting that the type of contracts would be key in attracting IOCs, it said some of the largest reserves in Saudi Arabia and Kuwait are not open to foreign players and IOCs like Shell, ExxonMobil and Total have had their involvement limited to some technical service agreements, technical studies and research and development.
“The real potential remains in Iraq and Iran though the opportunities are limited,” it said, adding IOCs in Iraq are usually offered low margins, and essentially operate as contractors.
This has been the main reason behind Total’s small presence in the country, while Shell is considering selling its stake in Majnoon and West Qurna 1. In Iran, as many as 29 IOCs have prequalified for bidding later this year, of which 15 were Asian companies.
On the implication of IOCs revisit strategy, Apicorp said Asia’s players would likely want to “fill the void” left by some of the Western majors.
“Companies like CNPC are putting the Middle East – particularly Iraq and Iran – at the forefront of their global upstream strategy. This makes good sense, given that Asia is the main importer of the region’s oil,” it said, adding Middle Eastern governments will also be keen to build stronger ties with Asian countries, the main source of demand growth for their commodity.

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