Total signs South Pars 11: Iran's first deal with an EU energy major in over a decade

Total signs South Pars 11: Iran's first deal with an EU energy major in over a decade
South Pars onshore facilities seen near Asaluyeh City. The development of Phase 11 of the giant gas field could be worth up to $4.8bn. / Hamed Malekpour.
By bne IntelliNews July 2, 2017

Iran signed a long-awaited multi-billion-dollar contract on July 3 to develop part of its giant South Pars gas field in the Persian Gulf with French energy major Total and China's China National Petroleum Corporation (CNPC). 

The deal, focused on developing Phase 11 of what some estimates say is the world's largest gas field, is valued at up to $5bn and marks the first major Western energy investment since nuclear sanctions against Tehran were lifted early in 2016 and the first such contract between Tehran and one of the big European oil companies in more than a decade.

On June 20, Total CEO Patrick Pouyanne said the company was well aware that investments in Iran could be disrupted if Washington was to tighten sanctions against Tehran but that it was worth risking $1bn on entering the investment.

He said: “It is worth taking the risk at $1bn because it opens a huge market. We are perfectly conscious of some risks. We have taken into account [sanctions] snapbacks, we have to take into account regulation changes.”

Saeed Laylaz, a reform-minded Iranian analyst, told the Financial Times on July 3 that the Total contract showed “that the US’s new [Iran sanctions] policies are either rhetoric or have failed.” He reportedly added: “This is more evidence that the nuclear agreement is irreversible and is respected by all sides while no side has any intention to breach it.”

Total holds a 50.1% stake in South Pars Phase 11 with state-owned CNPC owning 30% and Iran's Petropars 19.9%.

Iran has the second-largest gas reserves and fourth-largest oil reserves in the world, but has estimated it needs towards $200bn of investment to revive its rundown energy sector over the next five years.

Royal Dutch Shell and Italy’s Eni have provisional agreements with Tehran to help develop other parts of Iran’s oil and gas industry.

Total expects the 20-year South Pars Phase 11 project to produce gas from 2021.

The investment will be the first deal conducted under Iran’s new Iranian Petroleum Contract (IPC). It differs from its predecessor by offering the operator remuneration based on production rather than a simple percentage of development costs.

The offshore field was first developed back in the 1990s. Total was one of the largest investors in Iran – for instance, it worked on Phases 2 and 3 developing South Pars – until international sanctions were imposed in 2006 over Tehran's nuclear development programme.

The vast offshore gas field is shared between Iran and Qatar, where Total is also present as a substantial gas production, oil and refining investor. Doha calls the field North Field.

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