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Iran is back: Total signs $2 billion gas deal

Foreign oil firms are returning to Iran for the first time since sanctions were eased early this year.

France’s Total signed an agreement in principle on Tuesday to help Iran develop its giant South Pars gas field, together with Chinese state oil company CNPC.

“Following Total’s successful development of phases 2 and 3 of South Pars in the 2000s, the group is back to Iran to develop and produce another phase of this giant gas field,” said Total CEO Patrick Pouyann√© in a statement.

Total will operate the South Pars project with a stake of 50.1%. CNPC will own 30% and Iran’s Petropars 19.9%.

The first phase will consist of 30 wells and two platforms connected to existing onshore treatment facilities by two pipelines at a cost of about $2 billion.

Total’s commitment represents the first Western investment in Iran’s oil and gas industry since international sanctions were eased at the start of this year. The company said its investment was “in strict compliance with national and international laws.”

(L-R) Ali Kardor, Managing Director of the National Iranian Oil Company (NIOC), Stephane Michel, Total's head of Middle East exploration and production, Hamid Akbari, Managing Director of Petropars Group and Jean Ping Zhou, China National Petroleum Corporation (CNPC), sign an offshore gas field agreement in Tehran, on November 8, 2016. Iran signed a deal with France's Total to develop a major offshore gas field, its first big contract with a Western energy firm since sanctions were loosened in January.  / AFP / ATTA KENARE        (Photo credit should read ATTA KENARE/AFP/Getty Images)

(L-R) Ali Kardor, Managing Director of the National Iranian Oil Company (NIOC), Stephane Michel, Total’s head of Middle East exploration and production, Hamid Akbari, Managing Director of Petropars Group and Jean Ping Zhou, China National Petroleum Corporation (CNPC), sign an offshore gas field agreement in Tehran, on November 8, 2016.
Iran signed a deal with France’s Total to develop a major offshore gas field, its first big contract with a Western energy firm since sanctions were loosened in January.
/ AFP / ATTA KENARE (Photo credit should read ATTA KENARE/AFP/Getty Images)

The lifting of sanctions in January has allowed Iran to pump up its oil output. So far this year, it has increased oil production by about 900,000 barrels per day to 3.7 million.

Its immediate aim is to produce four million barrels per day and it has clear potential to become a much bigger player. The country sits on 9% of the world’s proven oil reserves and claims nearly a fifth of the planet’s natural gas.

The new South Pars project will have production capacity of 1.8 billion cubic feet per day, or 370,000 barrels of oil equivalent. The produced gas will be fed into Iran’s gas network.

Years of sanctions left Iran short of the cash it needs to develop its potential. It’s hoping to raise $185 billion dollars in investment in the energy sector alone within five years.

But efforts to lure foreign partners had stuttered since the sanctions were lifted.

The U.S. still has restrictions in place that block most American companies from investing in Iran. And Western companies have been reluctant to jump in given doubts over the financing of U.S. dollar-based transactions.

A number of banks outside the U.S. were fined billions of dollars by the U.S. government for breaching guidelines on doing business with Iran before the sanctions were lifted.

Unlike American oil majors, Total is not restricted from signing contracts with Iran, where its operations date back to 1990.