Total, China join first Iran gas deal since sanctions eased

Iran signed a $4.8bn natural gas development project with energy giants Total SA and China National Petroleum Corp, marking the first joint venture with international partners since sanctions were eased on the Gulf nation in January.
Paris-based Total will control 50.1% in the project, with CNPC taking 30% and Iran’s Petropars the rest. The deal, for the 11th phase of the giant South Pars gas field that stands between Iran and Qatar, is still preliminary, with both sides signing a “heads of agreement,” according to Gholam-Reza Manouchehri, deputy director of National Iranian Oil Co.
Total put the cost of the first phase of the project at $2bn, with Total’s share at $1bn, Chief Executive Officer Patrick Pouyanne said on a call yesterday.
“It’s definitely in the interests of the country and now the partners to finalise the contract within the coming months,” Stephane Michel, Total’s head of Middle East exploration and production, said at a signing ceremony in Tehran yesterday.
The agreement signals Iran is trying to fast-track projects to boost oil and gas production amid low prices, analysts said.
“Iran wants to go very quickly and they are looking to sign agreements as soon as possible,” said Homayoun Falakshahi, an expert on the Iranian oil industry at consultant Wood Mackenzie in London. The project is the first signed with an international oil company since Iran developed new oil contracts to attract foreign investment. Tehran earlier signed an agreement with a domestic company, Persia Oil & Gas Co, using the new contracts.
Alastair Syme, oil analyst at Citigroup in London, described the South Pars deal as “attractive,” estimating it would deliver returns of 19% for Total. In Iran’s previous buyback deals, which foreign groups disliked and were used in the late 1990s and early 2000s, companies often achieved single-digit returns.
Still, companies are likely to be wary about investing in Iran too quickly, or too much. “While the project terms look attractive, the political history clearly warrants limiting exposure,” Syme said. Total was working on developing the South Pars natural gas project until sanctions designed to halt the nation’s nuclear program forced the company to pull out in 2009. “I thank Total for returning,” Iran’s Oil Minister Bijan Namdar Zanganeh said.
Iran has the world’s biggest natural gas reserves, estimated by BP Plc at 1,201.4tn cubic feet (34tn cubic metres). The offshore South Pars gas field is Iran’s part of the world’s biggest deposit, also shared with Qatar.
The South Pars phase 11’s projected production capacity is 569bn cubic metres, Manouchehri said. Daily production is estimated at 2bn cubic feet a day, and was originally intended to supply gas to Iran for liquefied natural gas, according to the website of Pars Oil & Gas Co.