GE Oil Chief Weighing Iran Opportunity in Crude Growth Strategy
General Electric Co. (IW 500/6) is plotting a strategy for its oil and gas business in Iran as the U.S. eases sanctions with the petroleum-rich country.
Lorenzo Simonelli, head of the company’s crude division, said he visited Iran in recent weeks to “understand what was taking place in the country.” GE will only proceed if government rules allow the company to do business there, he said.
“Iran is a big market from an oil and gas perspective,” Simonelli said earlier this week in an interview at Bloomberg’s New York headquarters. “We will abide by the sanctions, but it’s a market where we used to transact.”
Geographic expansion is part of a broad growth strategy for London-based GE Oil & Gas that may include acquisitions and more-advanced product offerings. Building out the division is central to Chief Executive Officer Jeffrey Immelt’s transformation of GE into a more streamlined industrial manufacturer. The company has agreed to sell more than $150 billion of finance assets in the past year and is unloading the home-appliances unit.
Huge Bonanza
For oil explorers and the service companies, Iran represents a huge bonanza. The Persian Gulf nation’s 157.8 billion-barrel cache of untapped oil is more than four times the U.S. endowment, according to the Energy Information Administration in Washington. The country also boasts large natural gas reserves.
A number of nations eased trade restrictions with Iran in January as the Islamic Republic curbed its nuclear program. Remaining U.S. sanctions allow foreign subsidiaries of American companies to operate in Iran, but they require a separation of those projects from U.S. employees and offices.
GE, which sells and services equipment for oil exploration and production companies, is pursuing growth as it weathers a slowdown in global activity driven by the collapse in crude prices. Revenue in GE Oil & Gas fell 14% last year to $16.5 billion and may drop another 10% to 15% in 2016, the company has said.
The energy industry slashed more than $100 billion in spending worldwide last year and cut 250,000 jobs amid the oil price decline. Brent, the global benchmark for crude, has fallen by almost two-thirds since June 2014.
The weakened industry may provide opportunities for GE Oil & Gas, division CEO Simonelli said. The business benefits from the resources of its parent company, which has forecast rising profit and sales this year despite contraction in the oil division.
“There’s no doubt that when you go through a down cycle, it’s good to be part of GE,” he said.
