Total's Iran deal sparks row with U.S.

The U.S., which has imposed unilateral sanctions against Iran-as it has a number of other countries-for Tehran's alleged complicity in terrorist activity, is investigating whether to extend those sanctions to the French state firm. Under the 1-year-old D'Amato law, the U.S. would impose sanctions against any non-U.S. company that conducts oil and gas business deals valued at more than $20 million/year with Iran or Libya, which the U.S. accuses of sponsoring international terrorism.

An earlier law aiming economic sanctions at Iran for the same reason forbids U.S. firms from doing business with either country. It was that law that forced Conoco Inc. to pull out of a development project involving Sirri oil field off Iran, which then spurred Total to step in and take over the project.

The French government denounced the U.S. stance, and the European Union quickly chimed in, saying sanctions against Total would be "illegal and unacceptable."

Total's move was seen as an overt challenge to U.S. threats of sanctions. U.S. officials said they had discussed the imminent deal with Total and its partners prior to last week, warning of the possibility of sanctions. Similar warnings were voiced publicly this year on several occasions, when U.S. officials criticized the negotiations under way between Total and Tehran.

The deal

A group of Total 40%, Russia's state-owned Gazprom 30%, and Indonesia's state-owned Petronas 30% has signed a buyback contract with National Iranian Oil Co. (NIOC) covering Phase 2 and 3 development of giant South Pars offshore gas field.

Located in Iranian waters, in 70 m of water-close to Qatar's giant North gas field, in which Total is also involved-South Pars has reserves estiamted at 300 tcf.

NIOC is developing Phase 1, due on stream in 1999. South Pars consists of eight phases that NIOC intends to parcel out among international companies.

Total is operator and in charge of delineation, development, and simultaneous production start-up of Phases 2 and 3, each producing 1 bcfd of gas, as well as extraction of associated condensate. Total and partners will fund the project's $2 billion cost.

Two delineation wells are planned in 1998 following interpretation of existing seismic data. Production of gas and condensate is scheduled to begin in second half 2001, and development is to end 1 year later, at which time NIOC will take over as production operator.

Total plans one platform per phase, plus drilling 10 production wells and installing one pipeline per platform.

Under the terms of the buyback contract, the three partners will receive a share of gas and condensate production to cover their development outlays as well as direct compensation. At current oil prices, this payment will amount to 80,000 b/d of condensate for a period extending for 7 years after start of production. NIOC will retain the gas, much of which will be exported to Turkey.

Total signed an agreement in 1995 to develop Sirri oil field under a 70/30 partnership with Petronas. Production is expected to start up in 1998 and reach 40,000-70,000 b/d in 5 years.

Total says the South Pars agreement bolsters its position in Iran.

Total responds

Concerning the likelihood of U.S. sanctions under the D'Amato law, Thierry Desmarest, president and CEO of Total, said in an interview in the Paris daily paper Le Monde that Total "had the backing of the French government and of the European Union" in this venture.

Regarding U.S. government retaliation against Total assets in the U.S., he pointed out that the D'Amato law provides no sanctions for affiliates in the U.S. not concerned with Iran.

Total has just completed the merger of its North American downstream affiliate with Ultramar Diamond Shamrock (see Industry Briefs, p. 38) and also has chemicals interests in the U.S.

In Desmarest's view, it is "nonsense" to say Total was helping Iran finance terrorism: "Iran produces 3.6 million b/d of oil. To state that the extra production from the (South Pars) field in 4 years will help Iran finance terrorist actions, while the country draws major revenues from its current production, is nonsense."

"Iran is an essential world actor," he insisted, "it holds alone some 10% of oil reserves and 20% of gas reserves. We wish to develop (oil and gas) in that country despite a somewhat special context where American sanctions dissuade a number of companies from investing. But we believe in our enterprise freedom."

Desmarest also contends Total would not be weakened by this latest move in Iran, mentioning the debate going on in the U.S. over "the attitude to adopt towards Iran."

Speaking of Total's shareholders in the U.S., he said that relations with them are very good: "They are perfectly aware of our project, and we have not seen any reduction of their stake."

He added that he had just returned from the U.S., and investors there were more interested in the scope of the discovery on Block 14 in Angola and in Total's prospects in the Caspian Sea.

U.S. responds

The U.S. State Department said, "Our position on investment in Iran's petroleum sector is clear. Such investments make more resources available for Iran to use in supporting terrorism and pursuing missiles and nuclear weapons.

"We will fully investigate this reported deal and, based on our findings, will take whatever action is appropriate."

The Total contract apparently conflicts with a 1996 U.S. law that requires the U.S. to apply sanctions against any company, no matter where it's based, if it does more than $20 million worth of business with Iran or Libya.

Sen. Alfonse D'Amato (R-N.Y.), principal author of that law, said it was obvious Total intended to challenge the statute.

He said, "Total, Gazprom, and Petronas shouldn't be treated any differently than any other companies and therefore should be sanctioned under the fullest extent of the law."

The State Department said a team will investigate the deal and recommend action to Secretary of State Madeleine Albright.

Sir Leonard Brittan, European Commission vice-president, said, "The decision to sign a contract to develop an oil field in Iran is a commercial decision for Total alone.

"The company was legally fully entitled to make such a decision."

He said the EC opposes U.S. laws that have an extraterritorial effect. "Such legislation is contrary to international law. It is also counter-productive in political terms since it creates tension between Europe and the U.S., which makes it more difficult to work together to achieve shared political objectives in Iran. It plays into the hands of hardliners in Tehran."