Total Pledges $1 Billion Investment in Iran Gas Field--2nd Update

By Sarah Kent Features Dow Jones Newswires

France's Total SA said Tuesday it would push forward with a $1 billion investment this summer in a giant Iranian gas field, the first commitment by a Western company to put real money into the Islamic Republic's re-emerging energy industry.

Continue Reading Below

The Paris-based oil giant has been at the forefront of Western energy companies looking to return to Iran after sanctions on its energy industry were lifted in January 2016. Total reached a preliminary agreement late last year with Iran to invest $4.8 billion to develop parts of a giant gas field in the Persian Gulf, but the deal is still being finalized.

In May, Iran's oil minister Bijan Zanganeh told The Wall Street Journal he was "very optimistic" about reaching an agreement with Total "very soon." CNPC didn't respond to requests for comment, and its investment commitment wasn't disclosed Tuesday.

A Total spokeswoman said the $1 billion represented Total's 50.1% share of the joint venture's costs in the $2 billion first phase of development. Total is the project's operator, with CNPC taking a 30% stake and Iranian firm Petropars a 19.9% stake.

The imminent investment decision was first reported by Reuters. A spokeswoman for Mr. Zanganeh didn't respond to a request for comment. Total declined to comment on its investment plans.

The finalization of the deal would mark a step forward for Iran's oil industry, which the country's oil ministry says needs tens of billions of dollars in foreign investment. Until now, companies including Total have signed preliminary agreements in Iran and penned memorandums expressing interest but haven't committed because of uncertainty over U.S. sanctions still looming, weak oil prices and uncertain financial terms.

Continue Reading Below

"You can see it as a sign that things are slowly beginning to progress in Iran's upstream, but you can also see it as a sign of just how cautious western companies are being," said Richard Mallinson, an analyst at consultancy Energy Aspects, of Total's investment figure.

U.S. companies like Exxon Mobil Corp. are essentially prohibited from working in Iran by remaining U.S. sanctions over terrorism, human rights and weapons proliferation concerns. European companies are allowed to work with Iran, but energy firms have moved cautiously.

Royal Dutch Shell PLC agreed to explore future projects with Iran's state oil company last December but hasn't moved forward yet. "Shell is exploring potential business opportunities in Iran in line with our long-term strategy," a company spokesman said.

Italian oil company Eni SpA said Tuesday it has signed an agreement to study two Iranian oil and gas fields as part of a wider deal to recoup $280 million still owed to the company for previous investments. Eni said the agreement didn't include a commitment to invest.

Iran's oil sector has endured a turbulent history marked by waves of nationalization and successive sanctions. The country holds the world's fourth-largest crude oil reserves and second-largest natural gas reserves, but production growth has been stymied by the political turmoil and uncertainty.

Remaining U.S. sanctions forbid American banks from dealing directly with Iran and prevent all business with the Iran's Revolutionary Guards Corps., a hard-line security service that is deeply involved in the country's oil and gas sector. Companies are leery of the financial terms they may have to accept to invest in the country. Depressed oil prices remain a general obstacle to big ticket investments.

Pushing forward with its Iranian investment would give Total a foothold in one of the world's largest gas basins, known as South Pars. The field, which Iran shares with Qatar, contains almost 40% of Iran's total proved natural gas reserves, according to the Energy Information Administration.

Total was long one of the most active Western oil companies in Iran and kept an office open in the country throughout the sanctions period. It was the first European oil company to buy Iranian oil and ship it to the continent after restrictions were lifted in early 2016. It has previously touted the benefits of being a first mover in returning to the country.

--Benoit Faucon contributed to this article.

Write to Sarah Kent at sarah.kent@wsj.com

(END) Dow Jones Newswires

June 20, 2017 12:09 ET (16:09 GMT)