Iran has reportedly been involved in talks with South Korean shipyards over a possible offshore drilling rig order.
According to the Wall Street Journal, Iranian Offshore Oil Co. (IOOC) is in discussions with Daewoo Shipbuilding & Marine Engineering to buy five or more jack-up drilling rigs.
The newspaper has cited an unnamed source who claims that the rigs would cost $205 million each. However, the person added that IOOC was also looking at other yards for the order.
This is not the first time Iran and South Korea have been linked together in the post-sanctions era. Earlier in May, Iran signed a deal with South Korean energy company Kogas, over the development of one of Iran’s ‘key gas fields in the Persian Gulf’ – the Balal. Kogas will carry out technical studies over the gas layers of the Balal field, after which it will propose a development solution to NIOC.
Also worth noting, the news of the potential drilling rig order comes only a fortnight after it has been reported that Iran was ordering five rigs from Russia.
To remind, Reuters in May reported Russian shipyard Krasnye Barrikady secured a contract to construct five offshore drilling rigs, to be used in the Iranian section of the Persian Gulf.
Citing an unnamed official from Krasnye Barrikady, Reuters said the value of the contract is around $1 billion, with the advanced payment for the first rig expected “soon.” The first installment will be around $200 million, the official reportedly said.
Iran is working to increase its production to the pre-sanction levels, the reason why the OPEC meeting last week ended up without the members agreeing on the Saudi-proposed output ceiling aimed at stabilizing the oil market.
Iran’s current production has been estimated to be somewhere between 3.5 and 3.8 million barrels per day.
The country’s petroleum minister Bijan Zangeneh in April said that Iran was aiming to raise its crude oil production to 4 million barrels a day by March 2017.
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Headline crude prices for the week beginning 7 January 2019 – Brent: US$57/b; WTI: US$49/b
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At some point in 2019, crude production in Venezuela will dip below the 1 mmb/d level. It might already have occurred; estimated output was 1.15 mmb/d in November and the country’s downward trajectory for 2018 would put December numbers at about 1.06 mmb/d. Financial sanctions imposed on the country by the US, coupled with years of fiscal mismanagement have triggered an economic and humanitarian meltdown, where inflation has at times hit 1,400,000% and forced an abandonment of the ‘old’ bolivar for a ‘new bolivar’. PDVSA – once an oil industry crown jewel – has been hammered, from its cargoes being seized by ConocoPhillips for debts owed to the loss of the Curacao refinery and its prized Citgo refineries in the US.
The year 2019 will not see a repair of this chronic issue. Crude production in Venezuela will continue to slide. Once Latin America’s largest oil exporter – with peak production of 3.3 mmb/d and exports of 2.3 mmb/d in 1999 – it has now been eclipsed by Brazil and eventually tiny Guyana, where ExxonMobil has made massive discoveries. Even more pain is on the way, as the Trump administration prepares new sanctions as Nicolas Maduro begins his second term after a widely-derided election. But what is pain for Venezuela is gain for OPEC; the slack that its declining volumes provides makes it easier to maintain aggregate supply levels aimed at shoring up global oil prices.
It isn’t that Venezuela doesn’t want to increase – or at least maintain its production levels. It is that PDVSA isn’t capable of doing so alone, and has lost many deep-pocketed international ‘friends’ that were once instrumental to its success. The nationalisation of the oil industry in 2007 alienated supermajors like Chevron, Total and BP, and led to ConocoPhillips and ExxonMobil suing the Venezuelan government. Arbitration in 2014 saw that amount reduced, but even that has not been paid; ConocoPhillips took the extraordinary step of seizing PDVSA cargoes at sea and its Caribbean assets in lieu of the US$2 billion arbitration award. Burnt by the legacies of Hugo Chavez and now Nicolas Maduro, these majors won’t be coming back – forcing Venezuela to turn to second-tier companies and foreign aid to extract more volumes. Last week, Venezuela signed an agreement with the newly-formed US-based Erepla Services to boost production at the Tia Juana, Rosa Mediano and Ayacucho 5 fields. In return, Erepla will receive half the oil produced – generous terms that still weren’t enough to entice service giants like Schlumberger and Halliburton.
Venezuela is also tapping into Russian, Chinese and Indian aid to boost output, essentially selling off key assets for necessary cash and expertise. This could be a temporary band-aid, but nothing more. Most of Venezuela’s oil reserves come from the extra-heavy reserves in the Orinoco Belt, where an estimated 1.2 trillion barrels lies. Extracting this will be extremely expensive and possibly commercially uneconomical – given the refining industry’s move away from heavy grades to middle distillates. There are also very few refineries in the world that can process such heavy crude, and Venezuela is in no position to make additional demands from them. In a world where PDVSA has fewer and fewer friends, recovery will be extremely tough and extremely far-off.
Infographic: Venezuelan crude production:
Headline crude prices for the week beginning 31 December 2018 – Brent: US$54/b; WTI: US$46/b
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