Iran signed a formal contract with Total SA to develop its share of the world’s biggest natural gas field — the first investment in the country by an international energy company since sanctions were eased last year.
The 20-year deal with National Iranian Oil Co. and China National Petroleum Corp. to develop phase 11 of the South Pars offshore gas field represents the “first of many” projects for Total in Iran, Chief Executive Officer Patrick Pouyanne said Monday at a signing ceremony in Tehran. Total will be operator of the project, with the first phase estimated to cost the partners about $2 billion. Iran’s Oil Minister Bijan Namdar Zanganeh put the overall value of the contract at about $5 billion.
The agreement is “a big deal” for Iran and “will open the door for more companies to sign contracts” with the country, said Robin Mills, the head of Dubai-based consultant Qamar Energy. It “also gains the Iranians some diplomatic cover from both France and China in the event of attempts to impose further sanctions,” he said, referring to antagonism to Iran expressed by some U.S. government officials, including President Donald Trump.
South Pars is Iran’s section of the world’s biggest gas deposit, shared also with Qatar, and the Persian Gulf field lies at the center of a dispute embroiling Qatar and several Arab neighbors. Saudi Arabia severed commercial links with Qatar last month, accusing it of cozying up to arch-rival Iran. Qatar initially faced a Monday deadline to comply with 13 demands from a Saudi-led coalition, including a cutback in relations with Iran. The coalition agreed later to extend its deadline by two days, the state-run Saudi Press Agency reported.
Iran holds the world’s largest gas reserves, estimated by BP Plc at 1,183 trillion cubic feet (33 trillion cubic meters), and is the third-biggest oil producer in the Organization of Petroleum Exporting Countries. The producer is wooing companies such as Total, Royal Dutch Shell Plc and Russia’s Lukoil PJSC to invest in its oil and gas fields to boost output. Its oil production climbed 33 percent last year after sanctions related to its nuclear program were eased in January 2016, according to data compiled by Bloomberg.
Total will have a 50.1 percent stake in the project, with CNPC at 30 percent and Iran’s Petropars, a NIOC subsidiary, at 19.9 percent. The deal is the first to be done under Iran’s new energy investment contract, which the government crafted to offer more attractive terms to international companies.
Total was working on South Pars until sanctions forced it to withdraw in 2009. Production from the project will be 2 billion cubic feet of gas a day, or 400,000 barrels of oil equivalent a day including condensate, the company said in a news release. Over the 20-year life of the contract, phase 11 will produce 335 billion cubic meters of gas and 290 million barrels of gas condensate, Ali Kardor, deputy oil minister and managing director of NIOC, said at the ceremony.
Total was the clear front-runner for the project for a long time, said Mills, the consultant. “The initial commitment of $1 billion is relatively limited, giving it the flexibility to invest more if the situation is favorable,” he said. Total’s shares gained 2.1 percent in Paris trading to 44.20 euros at 4:33 p.m. local time.
State-run CNPC has been present in Iran since 2004, operating in oil, gas and oil field services, according to the company’s website. In 2006, it was awarded a three-year contract to provide offshore well-logging and other services at South Pars.