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Total’s deal in Iran to pave way for investors

Mena / 05-07-17 / by
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French energy company Total has signed a billion-dollar contact with the National Iranian Oil Company (NIOC) to help develop the world’s largest gas field, South Pars, in the Persian Gulf.

The agreement, with which the energy giant has committed to an initial investment of US$1bn, marks the country’s first deal with a European oil company in more than a decade.

Total has worked on the South Pars oil field before, and was one of the biggest investors in Iran until international sanctions forced it to pull out of the country in 2006.

Commenting on the new deal, Total’s chairman and CEO Patrick Pouyanné says it is a “major agreement for Total” and that it officially marks the company’s return to Iran following the implementation of the Joint Comprehensive Plan of Action (JCPOA), also known as the Iran nuclear deal, in January last year.

“We are proud and honored to be the first international company to sign an IPC (Iran petroleum contract), which offers an attractive commercial framework, and to therefore contribute to the development of relations between Europe and Iran. Total will develop the project in strict compliance with applicable national and international laws,” he says.

Total has taken a 50.1% stake in the gas project alongside the Chinese state-owned CNPC (30%), and Iran’s Petropars (19.9%), a wholly-owned subsidiary of NIOC.

The first phase of the South Pars gas field development is estimated to cost about US$2bn, Total says in a statement, and consists of 30 wells and two wellhead platforms connected to existing onshore treatment facilities by two subsea pipelines. A second phase, which involves the construction of offshore compression facilities, will be launched at a later stage.

 

Political message

It has taken some 18 months since sanctions were officially eased to sign the first international oil contract in the post-sanctions economy. Still today, many foreign investors are cautious about entering the Iranian market, a trend the Total deal could change.

“It marks a new era in Iran’s upstream sector,” Hamid Soorghali, strategy consultant at Iran-focused energy consultancy Energy Pioneers, tells GTR. “The revenues of this deal are estimated to be US$84bn in the next 20 years.”

But, he adds, the political significance is even higher than the economic, as the deal demonstrates that Europe is serious about Iran and will not be bullied by the US: “It conveys a very strong message to the US that irrespective of what happens in Washington, Iran and France will co-operate. Washington has been claiming that they are having a comprehensive review of Iran’s JCPOA, which is increasing the fear of sanctions.”

He says the deal could break the “taboo of investing in Iran” that exists among major companies today. This also goes for the many western banks who thus far have stayed away from Iranian business altogether, for fear of falling foul of the US sanctions that remain in place. And as previously reported by GTR, very few banks are willing to publicise their engagement with Iran.

“Many other international companies will follow Total, and it will remove those fears of investing in Iran,” Soorghali says. “And as the volume of these investments get bigger and bigger, it will be very difficult for banks to ignore such deals. It will compel them to gradually open up their relationships with Iran.”

 

IPC framework

Total’s agreement is one of the first to be signed under the IPC, a new contractual framework for the Iranian upstream oil and gas sector, which was ratified in September, and followed by the government’s announcement to hold the first round of tenders under the framework.

Soorghali says the IPC framework creates a more attractive environment for foreign investors, and that the deal with Total makes it clear that the new contracts are functioning as they should.

“With the older contracts, the companies would come and just develop the field and leave,” he says. “Today, these contracts are 20-year in nature and the international operator has a share in that field. Another obligation is that everyone will co-operate, and the Iranian side has to be a part of this contract.”

His comments are echoed by Mehrdad Parhizkar, Iran country head at Frontier Partners, which advises corporations on investments in the Iranian market.

“The government’s introduction of the IPC contract and the nomination of approved domestic local players for the purpose of partnerships have made this sector relatively easy to navigate by potential investors, and easier for Total to take the plunge,” he tells GTR, but adds that other sectors, where the regulatory environment is more ambiguous, such as banking and mining, will be more challenging for foreign investors to enter.

He agrees that Total’s deal will pave the way for other energy companies looking to enter the Iranian market.

“This deal will likely be looked into as a case study by other players to find out what has been agreed in relation to the snap back provision eventuality, introduction of further US sanctions and arbitration mechanism in the contract. Potential investors will also be keen to find out the financial institutions behind the deal and the transaction mechanisms that Total will use,” he says.

It has not been revealed which banks are involved in the transaction, but they are likely to be European, and funded in euro.

“Total has been testing a number of European banks – without naming them – in order to establish ease of transactions in the last couple of months. As CNPC is involved in the deal, Chinese banks are also more than likely to be involved,” Parhizkar says.

Total will begin producing gas for the Iranian market in 2021, at which point the project is expected to have a capacity of 2 billion cubic feet per day, the equivalent of about 400,000 barrels of oil.

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Privacy Policy

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Information collected at one Site may be shared between Exporta Publishing & Events Ltd and other group companies for the purposes listed above.

We may transfer, sell or assign any of the information described in this policy to third parties as a result of a sale, merger, consolidation, change of control, transfer of assets or reorganisation of our business.

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Some of our Sites may have a message board, blogs or other facilities for user generated content available and users can participate in these facilities. Any information that is disclosed in these areas becomes public information and you should always be careful when deciding to disclose your personal information.

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Services on the Internet are accessible globally so collection and transmission of personal data is not always limited to one country. Exporta Publishing & Events Ltd may transfer your personal data, for the above-listed purposes to other third parties, which may be located outside the European Economic Area and/or with a different level of personal data protection. However, when conducting transfers, we take all necessary steps to ensure that your data is treated reasonably, securely and in accordance with this Privacy Statement.

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We are committed to keeping the data you provide us secure and will take reasonable precautions to protect your personal data from loss, misuse or alteration.

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Everyone who works for or with Exporta Publishing & Events Ltd has some responsibility for ensuring data is collected, stored and handled appropriately. Each team handling personal data must ensure that it is handled and processed in line with this policy and data protection principles. However, the following people have key areas of responsibility. The board of directors is ultimately responsible for ensuring that Exporta Publishing & Events Ltd meets its legal obligations.

Name of Data Controller


The Data Controller is Exporta Publishing & Events Ltd. Exporta Publishing & Events Ltd is subject to the UK Data Protection Act 1998 and is registered in the UK with the Information Commissioner`s Office.

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Upon request, we will provide you with a readable copy of the personal data which we keep about you. We may require proof of your identity and may charge a small fee (not exceeding the statutory maximum fee that can be charged) to cover administration and postage.

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In certain circumstances, the Data Protection Act allows personal data to be disclosed to law enforcement agencies without the consent of the data subject. Under these circumstances, Exporta Publishing & Events Ltd, will disclose requested data. However, the Data Controller will ensure the request is legitimate, seeking assistance from the board and from the company’s legal advisors where necessary.

Changes to this Privacy Statement

We will occasionally update this Privacy Statement to reflect new legislation or industry practice, group company changes and customer feedback. We encourage you to review this Privacy Statement periodically to be informed of how we are protecting your personal data.

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Exporta Publishing & Events Ltd aims to ensure that individuals are aware that their data is being processed, and that they understand.

  • How the data is being used
  • How to exercise their rights

To this end, the company has a privacy statement, setting out how data relating to individuals is used by the company. This is available on request and available on the company’s website.

Review of this policy

We keep this Policy under regular review. This Privacy Statement was last updated in April 2018.