Total to exit Iran investments unless sanctions waiver is granted

16 May 2018 16:28 Source:ICIS News

LONDON (ICIS)--French energy major Total said on Wednesday that it will have to pull out of its investments in sanctions-targeted Iran unless it is granted a project waiver by the US with the support of the French and European authorities.

The South Pars Epecial Energy Economic Zone, Iran (source: FLPA/REX/ShutterstockIn a press release, Total, which was planning to follow up its South Pars gas field development project in Iran with major petrochemical investments, stated: “On 8 May 2018, President Donald Trump announced the United States’ decision to withdraw from the JCPOA [the Joint Comprehensive Plan of Action also known as the nuclear deal] and to reinstate the US sanctions that were in force before the JCPOA’s implementation [in January 2016], subject to certain wind down periods.

“As a consequence and as already explained before, Total will not be in a position to continue the SP11 [South Pars Phase 11] project and will have to unwind all related operations before 4 November 2018 unless Total is granted a specific project waiver by the US authorities with the support of the French and European authorities. This project waiver should include protection of the Company from any secondary sanction as per US legislation.”

Total added that it has always been clear that it cannot afford to be exposed to any secondary sanctioning “which 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 10 billion dollars of capital employed)”.

In the current circumstances, Total said it would not take any further commitment related to the SP11 project and, in accordance with its contractual commitments vis à vis the Iranian authorities, was engaging with the French and US authorities to examine the possibility of a project waiver.

Total added that its actual spending to date with respect to the SP11 contract was “less than €40m in Group share”.

“Furthermore,” added the press release, “considering the various growth opportunities which have been captured by Total in recent months, Total confirms that a withdrawal from SP11 would not impact its production growth target of 5% CAGR between 2016 and 2022”.

Total also noted that together with Chinese project partner CNPC it had executed the contract related to SP11 in full compliance with UN resolutions and applicable US, EU and French legislation.

“SP11 is a gas development project dedicated to the supply of domestic gas to the domestic Iranian market and for which Total has voluntarily implemented an IRGC [Islamic Revolutionary Guard Corps]-free policy for all contractors participating in the project, thereby contributing to the international policy to restrain the field of influence of the IRGC.”

Total became the first energy major to return to Iran since the implementation of the nuclear deal when in July last year it signed a deal that would see it invest an initial $1bn in developing Phase 11 of South Pars, a giant 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.

In a 9 May press release posted on the website of Pars Oil and Gas Co – the general contractor for Iranian South Pars gas field developments – company managing director Mohammad Meshkin Fam said: “According to the contract mechanisms it is envisaged that if Total cannot operate in Phase 11 for any reason then its stake will be transferred to the Chinese company CNPC and if the Chinese partner withdraws from the contract for any reason then the Iranian company Petropars will continue to develop this phase.”

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

Total CEO Patrick Pouyanne last November told the CNN that the company would have to review its planned Iran investments if Donald Trump pulled Washington out of the Iran nuclear deal.

After the signing of the Phase 11 deal, Pouyanne 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.”

Despite the US exiting the nuclear deal, the EU, Russia and China have pledged to work with Iran to try and salvage the JCPOA.

Brussels is exploring ways by which European companies continuing to trade with or invest in Iran might be shielded from US sanctions.

The Iranian government has agreed to discuss the EU’s proposals but has warned that it needs guarantees that make staying in the JCPOA without US participation attractive.

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: The South Pars Special Energy Economic Zone, Iran (source: FLPA/REX/Shutterstock)

By Will Conroy