Total to forfeit Iran gas project capex until project is completed

The scheme's new course of direction, including the new asset lead remains unclear

Total's attempts to secure waivers from the White House failed, forcing it to walk away from its $5bn venture in Iran. Reuters

Iran will be not be in a position to refund French oil major Total for its investment in South Pars, the world’s largest gas field, until the project becomes operational, according to the country’s oil minister.

Total, "was not expected to pay a fine" to Iran, after it pulled out of its $4.8 billion venture to develop phase 11 of the gas field last month following imposition of US sanctions against Tehran, Bijan Zanganeh said in comments reported by the Icana, the state-backed parliamentary news agency.

The French oil major’s joint investment with China National Petroleum Corporation and the local Petropars in 2016, following the lifting of nuclear-related sanctions against Tehran was seen as a big win for the beleaguered Iranian energy sector. Iran has the world’s second-biggest gas reserves after Russia. However, an ageing infrastructure combined with lack of access to latest technology in gas processing under sanctions has stunted the growth of the industry.

Iran had banked on the re-entry of firms such as Total to boost gas production to become self-sufficient - the country is forced to import from neighbouring Azerbaijan and Turkmenistan during winters - as well as become an exporter of liquefied natural gas in the near future.

Total has spent $55 million in administration costs, design as well as launching tenders on the project, which it would be unlikely to recover any time soon, according to estimates by energy consultancy Wood Mackenzie.

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Speaking to The National earlier, Homayoun Falakshahi, senior upstream analyst at the Edinburgh-headquartered consulting firm had said any dues owed to Total would have to come from revenues generated from the scheme.

However, should CNPC, its partner on the project takeover as lead, the two firms may reach a settlement on partial or total recovery of cost.

Another analyst, who spoke on condition on anonymity said the terms of the project going forward as well as that of Total’s exit remained uncertain.

However, while the French oil major is excused from penalties in Iran, it will be unable to recover its capital expenditure for the foreseeable future, and not until project is fully operational, he added.

Total, which has significant gas expertise, was expected to bring its technical capabilities to develop the project alongside its partners, who would now find it challenging to develop the scheme on their own.

The development of phase 11 was divided into two stages, with the first involving a simpler process for pumping gas but the second required more complicated technology, for which Total’s involvement was integral.