SHANA - A Different Story about the Signed Gas Contract and an Interview with Totals CEO
I was sitting in front of Totals CEO Patrick Pouyann on 2nd floor of Iranian Oil Ministrys Hotel, where Iranian Oil Minister Bijan Namdar Zanganeh was providing reporters with some information about legal issues related to the signed agreement on expansion of South Pars Phase 11 with the French company, Total. According to administrations ratification, a 7-member work group was formed to investigate the contract to check if it matches Iranian governments approvals or not. The group included four Iranian ex-ministers and three prominent members. The 7-member team unanimously admitted that the contracts text and its 14 appendices are not in contrast with administrations ratifications in legal and general conditions and neither do they mismatch the structure of Irans oil contracts, Zanganeh said. He named each of the seven members of the group work and I had a short time to put the main obsessions of the Iranian nation in form of questions and ask them from Totals CEO. I was standing in a meeting room waiting for Mr. Pouyann to finish his meeting with Chinas CNPC officials and answer three questions posed by a French news agency, as well. There was not a long time remained before his departure to visit Iranian President Hassan Rouhani. Sitting on a red sofa in the lobby, I started to ask my questions:
Q: Mr. Pouyann some Iranians express worry about the confidentiality of technical information of South Pars Phase 11. The phase is located on Irans joint border with Qatar and your company has a long history of working on Qatari side of South Pars project. Those concerned want to know what guarantee total will provide to make them sure that it will keep technical information of phase 11 safe.
A: All information about Qatar will be kept safe in that country and the same will be done with Irans data. But let us say that the case is an opportunity. Total knows both reservoirs and that can be helpful and efficient.
How come did Total decide to resume its activities in Iran?
I had visited Mr. Pouyann several times before, when he came to Vienna to visit Zanganeh. He was a tall man who kept Iran-Total relations warm from the time he replaced Christophe de Margerie. Total was the only major western oil company which did not close its office in Tehran during Irans sanctions era, although the office was downsized. When the financial embargo was posed on Iran, the French company sent the time Iranian Oil Minister Rostam Qasemi a large bouquet of flowers. Total signed its first agreement on development of South Pars on October 17, 1998, when the time US President Bill Clinton signed sanctions suggested by former Sen. Al D'Amato on Iran and all the gateways to Irans oil sector were shut to foreign investments. Russias Gazprom and Malaysias PETRONAS were also included to break the time political pressure. Now, after 19 years, Totals CEO is sitting in front of me after endorsing the companys first agreement with Iran following the removal of Irans nuclear sanctions.
Q: Total has been pioneer of constructing phase 2 and 3 of South Pars and also expansion of phase 11. How do you make such risks?
A: Iran possesses rich oil and gas resources. It is the second gas producer and the third oil producer in the world. It is natural for us to want to work in Iran. In addition, we know South Pars region well. We have implemented projects of phase 2 and 3 and because of our knowledge about them we preferred to work on phase 11, as well.:
Total commenced its initial talks on development of phase 11 in the mid-1980s but left the negotiation table due to the sudden and unpredicted rise in oil prices and some disagreements with Iranian oil ministry over some numerical figures. Those days, Total was to build Pars LNG but negotiations did not bear fruit and sanctions arrived.
Pouyann: Iranians are good tradesmen
My interview with Totals CEO was going on when Zanganeh announced the name of the 7 members of the said work group: Iranian ex-Oil Minister Gholam Hossein Nozari, ex- Economy Minister Davood Danesh Jafari, ex-Industry Minister who is the current Deputy in Management and Planning Organization Gholamreza Shafeie, Head of Center for International Legal Affairs (CILA) Mohsen Mohebbi, one of the managers of Audit Organization Of Iran, and a deputy form the Supreme National Security Council (SNSC). During the held news conference, Zanganeh did not announce that a member of Irans Expediency Discernment Council Ali Agha-Mohammadi has attended the signing ceremony of the phase 11 contract for some minutes, whose presence is of importance due to his position in the council.
Pouyanns companions informed him that it was the time for him to leave to visit President Rouhani, but before he stood up I asked my question and also wanted him to stand beside Iranian traditional signs and symbols for some photos. He accepted and did so. Then he left the Hotel.
Q: Mr. Pouyann you have been in talks with Iranians for a long time and Total has worked with Iranians before this. How do you evaluate Iranian as your partners?
A: We have implemented some projects in Iran. Iranians are good businessmen. It took 18 months for us to finalize this agreement but compared to theusual process of Iranian negotiations which takes a long time, the duration was ok for us. I should add that Iranians have good experiments in South Pars and they know the field well. Their negotiators defend Irans interests properly, he said.
Before penning the $4.876-billion-dollar contract on expansion of phase 11, Zanganeh thanks those youngsters, aging less than 30, who played roles in finalizing the contract and after having the agreement signed he took them to visit President Rouhani. The Iranian minister, however, did not treat the review committee, which was formed three years ago to prepare the structure of oil contracts, in the same way.
What happened after Iran-Iraq war?
When the war finished, Iran could only rebuild half of its losses and the country faced a financial crisis. The Central Bank of Iran (CBI) was not able to clear its over-due loans to international lenders. Iranian banking officials went to different countries to defer installments. Iranian oil ministry was in need of money to renovate itself. International banks were not inclined to take the risk of financing projects in Iran. Buy-back contracts were formed accordingly- those which were first introduced in the 1990s in an attempt to bridge the gap between the countrys need to attract foreign oil and gas investors, and a ban on private and foreign private ownership of natural resources under the Islamic republics constitution. The scope of Irans buyback contracts covered both field exploration and development. They were essentially risk service contracts, under which the contractor was paid back by being allocated a portion of the hydrocarbons produced as a result of providing services. The countrys oil output increase one million bpd and projects in South Pars were born, then. The other major company which entered Iran was Japans largest oil & gas Exploration & Production Company, INPEX. In early 1980s, the Japanese provided Iran with a 4.2-billion-dollar loan to receive permit for their cooperation in expansion of South Azadegan oil field. When oil prices witnessed a sharp increase, the contract was not justifiable for Japanese and they asked for repayment of their money before the set deadline. INPEX left Iran. Those days, I thought the Japanese company had quit because of US-led sanctions, but as I have recently found out, the US government had showed Japanese a green light before they signed the contract with Iran.
Attracted investments
To have a better view of the importance of the attracted $4.8 billion investment, lets go back for some years and the attract finances. The Chinese finance utilized for development of North Azadegan was indirectly supplied from Iranian resources. Under the sanctions, Iran saved its income from oil sales in a Chinese bank and relying on this saved money, the Chinese provided Iran with loans. However, they did not meet their commitments to Iran in this regard and did not finance Iranian projects as was accorded. In 1980s, Iran attracted a $1.6-billion-finance through a European bank on development of Phases 9 and 10 of South Pars. More than $14 million of Irans share in BP (till 2005-2006), 10 percent of its stake in Shah Deniz gas field, its share in refineries in India and Senegal were granted to Naftiran Trade Company (NICO), the international subsidiary of NIOC, to make it able finance some projects. These were the main attracted investments into Iranian oil sector after the Islamic Revolution in 1979. Therefore, the signed contract on phase 11 development, can attract up to $5 billion of direct investments, which is funded by the French Total and Chinese CNPC. This 20-year-contract was made with a consortium comprised of Total (50.1 percent of shares), Chinese CNPC (30 percent of shares), Irans Petropars (19.9 percent of shares) to add 56 million cubic meters of gas per day to Irans daily production capacity. During the set 20 years, 335 billion cubic meters of sour gas and 290 million barrels of condensates will be produced. Some 14 million tons of liquefied gas, 12 million tons of Ethan, and 2 million tons of sulfur are among other products of this phase. According to the predictions made by NIOC, till the last day of its exploitation, phase 11 will add $84 billion to Irans income (with oil prices at $50 per barrel).
Zamaninia: Phase 11s total price lower than Phase 12
I asked the Iranian Deputy Oil Minister for International Affairs and Trading Amir-Hossein Zamaninia for comparative statistics of the price of Phase 11 contract. "Since the sanctions have been lifted, the finished price of phase of Phase 11 has been much lower than that of the Phase 12," Zamaninia said. For example, each well in Phase 12 cost about $41.6 million while in Phase 11 each well is worth at about $31 million. "There are 30 well in Phase 11 which are located under two production platforms. Explaining on the comparative value of the production platforms in Phase 11 Zamaninia said, each platform of Phase 12 cost about $266 million while each platform of Phase 11 will be constructed by $176 million." in the first stage, Phase 11 project will be started using $2.2 billion, when the wells are dug and production platforms are set up. The second stage includes construction of a 20,000-tons- pressure platform, which will account for half of the contract value. The produced sour gas in Phase 11 will be refined in refineries of other phases.
Where do we stand?
Having in mind all the above, there is just one thing left for me to say: where do we want to reach when youth are jobless and the country is in dire need of development? The signed agreement between Iran and Total on expansion of South Pars phase 11 will play a key role in development of Iran-France ties, Head of Strategic Research Centre of Iran's Expediency Council Ali-Akbar Velayati said after his meeting with French Secretary General for Foreign Affairs Christian Masse.
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