Total marks Iran return with South Pars gas deal

DUBAI/PARIS (Reuters) - France’s Total signed a deal with Tehran on Monday to develop phase 11 of Iran’s South Pars, the world’s largest gas field, marking the first major Western energy investment in the Islamic Republic since the lifting of sanctions against it.

The logo of French oil company Total is seen at a Total gas station in Paris, France, April 19, 2016. REUTERS/Jacky Naegelen - RTX2AN65

Total will be the operator with a 50.1 percent stake, alongside Chinese state-owned oil and gas company CNPC with 30 percent, and National Iranian Oil Co subsidiary Petropars with 19.9 percent.

The project will have a production capacity of 2 billion cubic feet per day, or 400,000 barrels of oil equivalent per day including condensate, Total said in a statement, adding that the gas will supply the Iranian domestic market starting in 2021.

The first stage of the South Pars development will cost around $2 billion, Total added.

The project will cost up to $5 billion and production is expected to start within 40 months, Iran’s oil ministry said in a statement.

“This is a major agreement for Total, which officially marks our return to Iran to open a new page in the history of our partnership with the country,” Total Chief Executive Patrick Pouyanne said.

The offshore field was first developed in the 1990s. Total was one of the biggest investors in Iran until the country drew international sanctions in 2006 over suspicions that Tehran was trying to develop nuclear arms.

Total signed an initial agreement with Tehran on Nov. 8, a day after the U.S. presidential election victory of Donald Trump, who had criticized the deal lifting sanctions against Iran.

Total had delayed the final investment decision as it waited for the Trump administration to renew the U.S. sanctions waivers.

Trump extended sanctions relief for Iran in May, but is imposing new measures against Iran’s ballistic missile program.

Iran, the third-largest producer in the Organization of the Petroleum Exporting Countries, hopes its new petroleum contracts will attract foreign companies and boost oil and gas output after years of under-investment.

A senior Iranian official said at the signing ceremony that he hoped the deal with Total would encourage other international companies to invest in Iran’s oil and gas fields, which need tens of billions of dollars of foreign money.

“This contract will send a strong political message to the world especially at the time that the Americans have adopted a confrontational course (against Iran),” Iran’s SHANA news agency quoted the head of the country’s petroleum contracts committee, Mehdi Hosseini, as saying.

“This shows that the world is not following their path,” Hosseini was quoted as saying.

He added that experience has shown that after a deal with Total, other European and Asian companies would sign deals with Iran.

“In the 1990s, the French were the first who took the risk and invested in South Pars, but ended up paying a huge penalty to the United States later. They are taking the same risk again,” said Reza Mostafavi Tabatabaei, president of London-based ENEXD, a firm involved in oil and gas equipment in the Middle East.

“However, phase 11 of South Pars is twice the size of other phases, a lucrative opportunity that cannot be ignored,” he added.

Reporting by Bozorgmehr Sharafedin and Rania El Gamal; Additional reporting by Bate Felix in Paris; Editing by David Goodman and Dale Hudson