Total Breaks Pars Deadlock
Friday 7 July 2017
FRANCE's Total has signed a long-awaited contract in Iran to develop Phase 11 of the giant South Pars gas field in a $2 billion deal that is expected to open the way for other international oil companies to return to Iran after a decade of sanctions.
The contract signing on 3 July followed several earlier abortive efforts to finalise the deal, which had been politicised by opponents of moderate President Hassan Rouhani.
At least two scheduled contract signings in mid-May and mid-June were postponed at the last minute.
Total leads a consortium that has China National Petroleum Company International as a 30% partner, with the local state-owned Petropars holding another 19.9% stake. Total, which earlier this year started making preliminary enquiries for a series of large tender invitations, said first gas and condensate from Phase 11 is scheduled to flow in 2021.
The 2 billion cubic feet per day of gas will be piped onshore via two 32-inch subsea pipelines to existing treatment facilities for domestic consumption, while about 80,000 barrels per day of condensate will be exported to finance the contract.
Total said the project’s output in barrels of oil equivalent would be 400,000 bpd. There are additional mounts of sulphur, liquid petroleum gas and other products.
Total’s contract specifies a second development stage for Phase 11 involving large compression facilities, which will be required to maintain reservoir pressure. The compression facilities will involve at least one giant platform weighing nearly 20,000 tonnes, according to sources.
The overall cost of the project over the next 10 years could rise to an eventual $4.9 billion, according to the Oil Ministry.
Iranian officials suggested the second development stage involving compression facilities would require three years of reservoir studies, with one or two compression platforms being built in five years.
Hailing the agreement as the start of the return to Iran of foreign companies, oil minister Bijan Zanganeh said about 70% of the work at Phase 11 — including drilling, platform construction, pipeline installation – would be carried out by local companies, creating thousands of jobs.
Total pioneered the return to Iran of western companies two decades ago when it signed contracts to develop and oilfield and Phases 2 & 3 of South Pars.
It subsequently carried out other gas and oil projects in post-revolutionary Iran.
“This is a major agreement for Total, which officially marks our return to Iran,” said the supermajor's chief executive Patrick Pouyanne at the signing ceremony in Tehran, which was also attended by Zanganeh.
The previous involvement in Iran by Total and other foreign companies was under the so-called Buy-Back formula introduced in the 1990s.
The Oil Ministry has under president Rouhani introduced the Iran Petroleum Contact (IPC), which offers foreign investors more incentives and runs over a much longer period of 20 years.
The US, which is reviewing its Iran policy despite a nuclear agreement in 2015 opening the way for the easing of anti-Iran sanctions, has not officially reacted to the news of the French giant's contract.
Most of Total’s negotiations since last year were with a team led by Mohammad Meshkinfam, managing director of Pars Oil & Gas Company (POGC), the state company responsible for the overall South Pars development.
“Today is a huge day for Iran’s oil and gas industry (with the signing of its) first upstream contract with a foreign firm... in 10 years,” said Homayoun Falakshahi, senior research analyst at Wood Mackenzie in London.
“The deal could be Zanganeh’s legacy, as he sets out on a new path for Iran’s upstream sector. It may also be his farewell to politics,” Falakshahi said in reference to continued speculation that Zanganeh might want to retire when Rouhani picks his Cabinet at the start of his second term in August.
Zanganeh and Rouhani had to overcome considerable opposition from hardliners since announcing plans for foreign contracts under IPC in late 2013.
At least part of the delay in signing the contract with Total was due to political opposition.
Deputy Oil Minister Amir Hossein Zamaninia said on the eve of the 3 July signing that the politicisation of oil deals was harming the country’s long-term interest by giving the impression to foreign companies that Iran was perhaps not such an attractive investment destination.