Investors target Libya, Iraq oil ventures

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Updated 18 December 2012
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Investors target Libya, Iraq oil ventures

Global oil and gas transactions have suffered a modest decline in both deal count and total value in the first half of 2012. However, increasing merger and acquisition (M&A) interest by MENA-based energy and petroleum (E&P) companies and investors has been witnessed, says a new report from Deloitte.
The MENA region has seen some significant developments and opportunities for upstream M&A in recent months, says the white paper entitled ‘Mergers and Acquisitions in the Oil and Gas Industry: Current Upstream M&A Issues and Transaction Considerations.’
It points out that foreign investors are eyeing opportunities regionally with the expectations for Libya, now poised to return to full-scale oil production in the near future and Iraqi oil production, which has now passed the 3 million barrels per day level.
“When we assess the current state of the oil and gas sector in the MENA region, the question remains as to whether these nations will achieve optimum production levels or whether they will continue to face constraints due to outdated infrastructure, political challenges, policy uncertainty and continued security threats,” said Kenneth McKellar, energy and resources leader, Deloitte Middle East.
“These are some of the issues that interested E&P companies are being faced with,” he added.
North African countries are also now seen to be returning to the ‘business as usual’ mode, with an increase in foreign investments. Legacy risks remain, however, off-take contracts with national oil companies continue to experience disruption during the transition period of governments with E&P companies in the region facing significant challenges to working capital management, the white paper highlights.
The Deloitte white paper also sheds light on the unconventional sources of hydrocarbons, such as US shale gas exploration, oil production from the bituminous sands in Canada and deep water production in Brazil’s pre-salt blocks that have provided new opportunities and a recent surge in interest from international oil companies (IOCs).
“While the uncertainty caused by the Arab Spring might be keeping certain investors out of these markets, there are other investors who are taking a longer term view on opportunities in MENA, particularly strategic investors who have the financial and operational resources, to acquire these assets at low prices,” said Adnan Fazli, oil and gas financial advisory leader, Deloitte Middle East.
The Deloitte white paper takes a closer look at the M&A issues that face investors looking to transact in the region, and how these are being managed through the screening, diligence and valuation phases of the transaction.
Here are some of the issues outlined in the Deloitte white paper:
Fiscal regime and pricing uncertainty: The fiscal terms being offered by governments have been on the top of the agenda for contractors with assets in countries affected by the Arab Spring and consequent regime change.
Operational challenges and valuing risk: Although it is unlikely that there will be any radical overhaul to the current systems in place, the transitional challenges around cash collection by the operators has led to financial distress for a number of operators, who are offering such assets for sale.
Capital and carry commitments and decommissioning liabilities: As investors look to enter new upstream geographies they need to give adequate consideration to asset retirement obligations that are being introduced into new agreements or renewals and their impact on the project economics, the government’s take and operator’s carry obligations.
Unconventional assets: The operational resources and effort required to develop unconventional assets are more complex and the costs significantly higher than development of conventional assets.
Tax considerations: The tax provisions applicable to oil and gas exploration and production companies vary significantly according to the specific terms included in their contract with the government as well as the type of the contract agreed.
While oil and gas prices rise and fall, a resurgent regional and global energy market driven by increased demand from many Asian economies and the MENA region, and the investment needs that accompany that resurgence, should set the stage for sustained M&A activity over the longer term, the Deloitte whitepaper highlights.


Iran sanctions shadow falls on smaller German banks

Updated 27 May 2018
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Iran sanctions shadow falls on smaller German banks

  • Some German companies plan to press on with Iran dealings
  • German exports to Iran rose 15.5 percent last year

Germany’s biggest lenders have shied away from business with Iran after past penalties for breaching US sanctions, but smaller banks have leapt on opportunities afforded by the nuclear deal rejected by Donald Trump.

There are just months to go until a November deadline issued by Washington after the US president abandoned a hard-fought agreement that loosened business restrictions on the Islamic Republic in exchange for Tehran giving up its pursuit of nuclear weapons.

But some firms plan to press on in their dealings with Iran despite the looming threat of penalties.

“We will continue to serve our clients,” for now, said Patrizia Melfi, a director at the “international competence center” (KCI) founded by six cooperative savings banks in the small town of Tuttlingen in southwest Germany.

The center, which supports companies operating in sensitive markets like Iran or Sudan, has seen demand “rising sharply in the last few years, from firms listed on the Dax (Germany’s index of blue-chip firms), from all over Germany and from Switzerland,” she added.

German exports to Iran have grown since the nuclear deal was signed in 2015, adding 15.5 percent last year to reach almost €2.6 billion ($3.0 billion) after 22-percent growth in 2016.

Such figures remain vanishingly small compared with Germany’s €111.5 billion in exports to the US — its top customer.

Nevertheless, the KCI will “wait and see what the sanctions look like” before turning away from Iran, Melfi said.

Already, firms dealing with Tehran must take great care not to fall foul of US restrictions.

Transactions are carried out in euros, and the KCI does not deal with businesses that have American citizens or green card resident holders on their boards.

What’s more, products sold to Iran cannot contain more than 10 percent of parts manufactured in the US.

One of the most important inputs for the business is “courage among our managers” given the high risks involved, Melfi said.

Germany’s two biggest banks, Deutsche Bank and Commerzbank, avoid Iran completely after being slapped with harsh fines in 2015 over their dealings there, with Deutsche alone paying $258 million in penalties.

DZ Bank, which operates as a central bank for more than 1,000 local co-op lenders, is withdrawing completely from payment services there, a spokesman told AFP.
That left KCI to seek out the German branch of Iranian state-owned bank Melli in Hamburg.

Even that linkage could break if Iran’s biggest business bank appears on a US list of barred businesses as it has before.

Meanwhile, among Germany’s roughly 390 Sparkasse savings banks, business with the regime is mostly limited to producing documents linked to export contracts.
“We will be looking even more closely at those” in the future, a person familiar with the trade told AFP.

Elsewhere in the German economy, the European-Iranian Trade Bank (EIH) founded in 1971 is another conduit to Tehran.

Also based in Hamburg, it for now remains “fully available to you with our products and services,” the bank assures clients on its website, although “business policy decisions by European banks may result in short term or medium term restrictions on payments.”

Neither does the Bundesbank (German central bank) believe that much has so far changed for business with Iran.

“Only the European Union’s sanctions regime will be decisive,” if and when it is changed, the institution told AFP.

Any payment involving an Iranian party would have to be approved by the Bundesbank if things return to their pre-January 2016 state.

German banking lobby group Kreditwirtschaft has called on Berlin and other EU nations to clarify their stance — and to make sure banks and their clients are “effectively protected against possible American sanctions.”

KCI’s Melfi said time is running out for EU governments to act.

“Many firms just want to stop anything with Iran, since they can’t calculate the risk of staying,” she noted.

On Friday for the first time since the Iran nuclear deal came into force in 2015, China, Russia, France, Britain and Germany gathered in Vienna — at Iran’s request — without the US, to discuss how to save the agreement.

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