What the Iran Nuclear Deal Could Mean for U.S. Oil Companies

The latest news cycles have been dominated by talk of a deal between world powers, including the United States (U.S.) and Iran, regarding Iran’s nuclear program. To the casual observer, it may not seem like this will have any effect on the day-to-day life of Americans; however, those who are currently connected to the energy industry know better.

Iran is currently siting on approximately 30 million barrels of oil that it has been unable to export over the past few years due to the sanctions imposed by the European Union (EU) and the U.S. In addition, Iran is estimated to have the fourth-largest proved oil reserves in the world, approximately 158 billion barrels. With the lifting of the sanctions that have previously hampered Iranian exports, the flow on Iranian oil coming on to the market could increase global supply, driving prices down. While this may be good for consumers in the form of lower gas prices, this can have the effect of suffocating cash flows for drillers in shale regions like Pennsylvania, which have already slashed costs and improved efficiency to stay competitive.

A good risk-management strategy can be an integral part of the solution for these companies. There are a variety of tools available, from futures to options to even more exotic instruments and strategies that can help companies lock in a risk profile that is acceptable to them.  

U.S. companies that have a vested interest in the market price of oil should follow developments closely while adjusting their risk management strategies accordingly. If history has taught us anything, nothing is guaranteed when it comes to oil prices and politics. There is a lot of uncertainty, as the deal will still need to be approved by Congress, where it will surely meet opposition. Iran will also need to approve it and live up to all of its stipulations, which is far from a certainty. As events unfold either way, swings in the price of oil will happen. If a company is not prepared for that volatility, severe impacts to cash flows and/or operations are possible.  

Contact us with questions regarding accounting for the oil and gas industry and visit our Energy and Resources Industry Group Services page to learn more about the services we offer.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2020 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on

IRS Announces 2019 Marginal Well Credit
Natural Gas Rig Count Declines in Major Basins
The Future of your Business - Natural Resources and Construction
What do I do after I receive my Paycheck Protection Program (PPP) Funds?
Postcard from the AADE 2020 Operators Forum
California Utility Crisis Could Reshape Regulatory Environment

Register to receive our weekly newsletter with our most recent columns and insights.

Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us

contact us

Map of Pittsburgh Office

One PPG Place, Suite 1700
Pittsburgh, PA 15222

p:412.261.3644     f:412.261.4876

Map of Columbus Office

65 East State Street, Suite 2000
Columbus, OH 43215

p:614.621.4060     f:614.621.4062

Map of Washington Office
Washington, D.C.

1660 International Drive, Suite 600
McLean, VA 22102