Total fails to obtain US waiver on Iran sanctions, exits the country

LONDON (ICIS)–Total is withdrawing from its investments in Iran after failing to obtain a business waiver from the US following Washington’s re-imposition of sanctions, the French energy and petrochemicals major confirmed to ICIS on Tuesday.

Total was planning to follow up its South Pars gas field development project in Iran with major petrochemical investments.

“The contractual process is ongoing. Total has notified the Iranian authorities of its withdrawal from the [South Pars Phase 11] contract following the 60-day period specified in the contract to obtain a potential waiver from the US authorities,” said the company.

“Despite the backing of the French and European authorities, such a waiver could not have been obtained.”

Total owns 50.1% of the South Pars Phase 11 project, while the Chinese National Petroleum Corporation (CNPC) has 30% and Iran’s Petropars holds the rest.

Under the contract, CNPC has the right to take over Total’s stake in the event of the latter’s withdrawal.

“As for the future of Total’s stake in the contract, we have not been informed of an official CNPC position, but as we have always said, CNPC, a Chinese state-owned company, has the right to take over our participation should it decide to do so,” Total added.

In mid-May, while warning that a project withdrawal was ahead unless Washington granted the business waiver, Total said that it had always been clear that it could not afford to be exposed to any secondary sanctioning.

“[Secondary sanctioning] might include the loss of financing in dollars by US banks for its worldwide operations (US banks are involved in more than 90% of Total’s financing operations), the loss of its US shareholders (US shareholders represent more than 30% of Total’s shareholding) or the inability to continue its US operations (US assets represent more than $10bn dollars of capital employed),” said the company at the time.

Total added that its actual spending had until May 2018 being “less than €40m in Group share”, arguing it was not planning to meet any further commitments related to the contract while the waiver application was under way.

Total became the first energy major to return to Iran since the January 2016 implementation of the nuclear deal curbing the country’s nuclear activities.

In July 2017, the French major signed a deal under which it would invest an initial $1bn in developing Phase 11 of South Pars, a large gas field in the Persian Gulf shared by Iran and Qatar.

Subsequently, an industry source told ICIS news that the French energy major was also lining up a $2bn petrochemical investment that would include the construction of an ethane cracker as well as three polyethylene (PE) lines.

Despite the US exiting the nuclear deal, the EU, Russia and China have pledged to work with Iran to try and salvage the deal, formally known as the Joint Comprehensive Plan of Action (JCPOA).

The JCPOA shields Iran from crippling sanctions in return for compliance with a programme designed to prevent Tehran from moving towards the development of a nuclear weapon.

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 oil, gas and petrochemicals sector over the next five years, with towards $40bn needed for the petrochemicals industry alone.

Pictured: A plant in the South Pars Special Economic Energy Zone
Source: KeystoneUSA-ZUMA/REX/Shutterstock