On February 17, Royal Dutch Shell plc (ADR) (NYSE:RDS.A) announced plans to repay $2 billion in debt to Iran accrued over several years. The Wall Street Journal regards the move as “easing a key hurdle” for the Anglo-Dutch energy company to conduct business in the country.

Prior to the lifting of US sanctions on Iranian crude oil imports, European energy companies owed $4 billion to Iran as import payments were hindered. Shell — which has to pay $2.16 billion to the country — owes the largest among its peers. In July 2015, Iran had entered a nuclear deal with the US and the international community to curb its nuclear power program.

Last month, the International Atomic Energy Agency (IAEA) reviewed Iran’s efforts to perform the necessary steps under the deal, following which the international community lifted economic sanctions on the country. Iran is expected to increase its crude oil exports by one million barrels of crude oil per day (bpd) by March.

The ease of restrictions on Iran may allow for global oil and gas companies to resume operations in the country. In January, the French oil giant, Total SA (ADR) (NYSE:TOT) secured a deal with Iran. The transaction would allow the energy giant to import 150,000–200,000 barrels per day (bpd) from Iran, WSJ reported citing Total’s spokesperson.

Shell-BG Deal
Earlier this week, Shell completed its $70 billion deal with London-based BG Group plc (ADR) (OTCMKTS:BRGYY). The merger may allow Shell to increase its exposure to liquefied natural gas (LNG) and the Brazilian offshore market.

Amid depressed crude environment, Shell struggles to make the deal work at low oil prices. It is adopting several measures to streamline its global operations and is, thus, evaluating its stake in New Zealand and other countries. Moreover, the oil and gas company is only looking to invest in projects that strengthen its balance sheet position.

Despite a deteriorating crude oil market, Shell seems adamant to improve its liquidity position. Earlier this month, according to news sources, Iran's deputy oil minister, Amir Hossein Zamaninia said that the company is in talks with the Central Bank and the oil ministry.

The repayment of debt to Iran is likely to allow for increased trade between the two countries. Previously, Shell expressed interest in returning to Iran as the country is the world’s fourth largest owner of oil reserves. In November, top executives of Shell and other energy giants, including Total, Statoil ASA, and BP plc attended a two-day conference in Tehran, where the Iranian Oil Minister, Bijan Namdar Zanganeh, presented a new oil and gas contracts model.

Shell and Iran have yet to agree on a deal. However, following the debt repayment, Shell is likely to commence an energy project in the country to boost reserves and increase production. Both the repayment and the introduction of new projects may exert pressure on the company’s balance sheet and liquidity position — which has worsened ever since the market downturn and its merger with BG Group.

By Bidness ETC