French oil major Total may have to consider options to sell its stake in a $4.8bn Iranian gas deal to its partners to avoid being slapped with US sanctions following the Donald Trump's administration withdrawal from the Iran nuclear deal, analysts said.
Total has a 50.1 per cent stake in the 20-year South Pars project, alongside China National Petroleum Corp, which holds a 30 per cent and Iran’s Petropars with a 19.9 per cent stake.
"Total would require applying for the US sanction exemption. However, approving such an exemption by the US treasury seems unlikely and Total will very likely have to pull out of the South Pars Phase 11 project and pass its share to CNPC," said Siamak Adibi, head of Middle East gas team at consultancy FGE. "However, CNPC will also likely comply with the US sanctions too and will either withdraw or play for time."
On Wednesday, Total said in a statement that it would “unwind all related operations” before the 180-day period indicated by the Trump administration for companies to stop engaging with Iranian entities, following the US exit of the Joint Comprehensive Plan of Action on May 8. Total said in the statement that it would await “a specific project waiver” from US authorities as nearly 90 per cent of its financing came from US banks, which put it at risk of future sanctions violations.
“Their stake will go to CNPC [China National Petroleum Corporation] and behind the curtains, there may be a possibility of Total having the option to come back, if the situation changes,” said an analyst who did not wish to be named.
A full exit was unlikely, he added, noting that the possibility of Mr Trump’s failure to get re-elected for a second term would incentivise the French oil company to find a way back to its current interests in developing phase eleven of South Pars, the world’s largest gas field, which Iran shares with Qatar.
Total chief executive Patrick Pouyanne had said in an interview with The National in February that should the US not sign a waiver on the company's interest in the project, they would seek to benefit from a "grandfather clause" as the scheme had been awarded two years prior to the collapse of the Iran nuclear deal.
Total’s possible exit from Iran comes as a massive blow to Iran’s slowly resurgent energy industry, which had looked to the JCPOA as a lifeline to push ahead with much needed foreign investment and expertise.
Iran is home to the world’s largest reserves of gas and is the Middle East’s third-largest oil producer. Post-EU sanctions, Iran managed to reinstate its production capacity to pre-sanctions levels and had boosted its exports to Europe and Asia.
Its agreement with Total in 2016 to develop phase 11 was crucial to Iran achieving self-sufficiency in gas as well as developing later export capabilities. Iran consumes nearly all of the gas currently produced in the country and is reliant on imports from Turkmenistan and Azerbaijan to meet shortages during its harsh winter months .
Total’s exit would leave the deal to ramp up production capacity in South Pars in jeopardy, with the Chinese partner unlikely to match pace with Iran’s ambitions to become an exporter, said the analyst.
“Knowing the Chinese behaviour in the past in Iran in the oil and gas field, they would be very slow. They would try and relaunch all the tenders that Total has done so far, which will take about a year on its own but in the end in the case that CNPC wouldn't want to do it, then perhaps the National Iranian Oil Company will sign another contract with Petropars,” he added.
The exit from Iran is unlikely to dent Total's finances, Mr Adibi said.
"There won’t be a big impact on Total as Total was quite clear in its contract with Iran at the beginning and there are clauses prepared in the contract for the sanction snap back," he said.