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Oil report

UPDATE 4-Inpex eyes Iran Azadegan exit under U.S. pressure

* Inpex’s business would be at risk if target of US sanctions

* Inpex weighing all options - Japan trade ministry

* Japan seen prioritising US alliance amid row with China

* Japan government is biggest shareholder in Inpex

* Impact on Inpex from withdrawal seen limited - analyst (Adds analysts’ comments)

By Osamu Tsukimori

TOKYO, Sept 30 (Reuters) - Inpex Corp 1605.T, Japan's top oil explorer, is likely to withdraw from Iran's Azadegan oil field project, acceding to a request from the United States due to Washington's sanctions on Tehran over its nuclear programme.

Inpex is considering the move as it would have trouble raising funds from U.S. financial institutions and its global development projects could be hindered if the company was featured on a new list of Iran-related firms to be targeted for U.S. sanctions.

“Inpex would face the risk of harming its business outside Iran if it becomes a target of U.S. sanctions and it (the withdrawal from Azadegan) is unavoidable as it has to choose between Iran or the United States,” Koichiro Tanaka, Iran specialist at Institute of Energy Economics.

Earlier this month, Japan imposed additional sanctions on Iran, following the United States and European Union in pressuring Tehran despite Tokyo’s reliance on oil imports from the country. [ID:nTOE681077]

A senior trade ministry official in charge of fuel and resource policy told Reuters that Inpex, in which Japan’s government holds a 19 percent stake, was now weighing all possible options.

“Inpex said that given the current circumstances, it is putting on the table all possible (strategic) positions to consider,” the official said.

An Inpex spokesman said that the company has not made any decision on withdrawing from the project, and that it would consult the Japanese government on the issue.

Japan also needs to repair strained ties with its biggest security ally, the U.S., while mired in a bitter territorial feud with China. [ID:nTOE68T041]

“This is a setback for Japan’s energy policy but it’s inevitable that Japan had to prioritise its security alliance with the United States, especially at a time when it is having trouble with China,” said Taisuke Abiru, research fellow at think tank Tokyo Foundation.

Shares of Inpex slid 3.7 percent on Thursday, although energy industry sources said a withdrawal would unlikely deal a significant blow to Inpex.

“A 10 percent stake would allow Inpex to buy 45,000-50,000 barrels per day (bpd), a small fraction of about 3.9 million bpd that Japan consumes,” said Osamu Fujisawa, an oil economist at industry consultant FE Associates.

“It is also under what is called a buyback scheme, which is not profitable, so it would not cause major damage to Inpex,” he said.

BIG FIND

Iran is the fourth-biggest oil supplier to Japan after Saudi Arabia, the United Arab Emirates and Qatar.

Resource-poor Japan did not impose any restrictions on oil imports, but the government said it would exercise “utmost due diligence with strict conditions” when providing short-term export credits for trade with Iran, possibly making it difficult for Inpex to develop in the country.

Tokyo also requested oil and gas companies take every caution in transactions based on existing contracts, such as the one held with Inpex, currently Japan’s sole energy-related stake in Iran.

Azadegan was the OPEC member’s biggest oil find in 30 years when announced in 1999, with oil-in-place of 26 billion barrels and recoverable resources then estimated at about 6 billion barrels, and it is believed to cost at least $2 billion to develop.

The field started partial output in 2008. Peak output is estimated at 260,000 bpd. Inpex said it has so far invested about 12.4 billion yen ($148 million) in Azadegan.

When tension was growing in 2006 between the U.S. and Iran over the country’s uranium processing and nuclear power development, Iran cut Inpex’s stake in the Azadegan project to 10 percent from the 75 percent share agreed in February 2004. Iran holds the remaining 90 percent.

Losing Azadegan would hurt the Japanese government’s efforts to lift the share its companies produce overseas to the equivalent of 40 percent of the country’s oil imports by 2030. ($1=83.71 Yen) (Additional reporting by Chikako Mogi, Kiyoshi Takenaka, Risa Maeda, Chisa Fujioka and Yoko Nishikawa; Editing by Joseph Radford and Chris Gallagher)

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