Oil Giant Total Takes to Twitter to Underscore Iran Commitment
◢ In a series of tweets published on Tuesday, Total's press office pushed back on reports that the company is rethinking its Iran strategy in light of pressure from the United States.
◢ The tweets emphasize that Total CEO Patrick Pouyanné sees no political barriers to the South Pars gas deal, and is simply waiting to see whether following Congressional action legal conditions will allow the deal to move forward.
In an unusual move, Total's press office issued a series of tweets on Tuesday in order to correct an apparent mischaracterization of the company's position on its planned USD 4.8 billion gas deal in Iran.
A piece published by CNN Money on Tuesday, and later echoed by Reuters, suggested that Total was "rethinking" its comittment to Iran in light of the company's large presence in the U.S. and President Trump's opposition to the Iran deal. The piece centered on comments made to CNN Money on the sidelines of an energy conference in Abu Dhabi, with Total CEO Patrick Pouyanné stating that "If there is a sanctions regime [on Iran], we have to look at it carefully... We work in the U.S., we have assets in the U.S., we just acquired more assets in the U.S."
But a series of tweets from Total's official press office account have since sought to dispel the idea that there has been any change in the company's policy towards Iran. The tweets explain how the comments made by Pouyanné are consistent with those made in several interviews since Trump's de-certification of the JCPOA Iran Deal.
Total's response clarifies that the company remains committed to its project in Iran's South Pars gas field and draws attention to an earlier interview in which Pouyanné stated he does not see a political barrier to conducting business in Iran. That Total is continuing to push ahead on its Iranian project demonstrates considerable resolve, especially given the company's extensive operations in both the United States and Saudi Arabia, two countries whose governments largely oppose Iran's economic opening. Indeed, the company has recently moved to more directly manage political risks by opening an office in Washington.
Pouyanné's comments to CNN Money do however raise the possibility that the United States will reimpose secondary sanctions, which would penalize non-U.S. entities for conducting business with Iran. Such a "snapback" scenario would compel nearly all European multinational firms, including Total, to pull back from the market. Total, like many other companies, is simply waiting to see what legal approach Congress is likely to take. Pouyanné told CNN, "We are working on the project. We launched the tenders, we should award contracts by January... I hope by that time, Congress will have an answer for the president and the president will have to renew, or not [renew], the certification."
Encouragingly, it remains unlikely that Congress will opt for snapback, which would constitute withdrawal from the JCPOA. Total's landmark deal still seems poised to open a new era of energy investment in Iran.
Photo Credit: IRNA
Long-Awaited Total Deal Signals Rising Investor Confidence in Iran
◢ On Monday, Total will sign a long-awaited USD 5 billion deal to develop Iran's South Pars gas field, becoming the first international oil company to commit to a post-sanctions investment.
◢ The Total deal indicates rising confidence that political and banking challenges can be addressed, and the contract signing will likely buoy investor confidence across sectors.
On Monday, Total will sign a long-awaited contract to develop Iran’s South Pars gas field in cooperation with China National Petroleum Company and Iranian firm Petropars. Total has been involved in developing the South Pars project since 1997 when it was the first international oil company to be awarded a contract following the Islamic Revolution. The landmark deal, which sees Total committed to a 20 year development roadmap, is valued nearly USD 5 billion. Total's share is 50.1%.
The announcement of the contract signing ceremony follows eight months of deliberations since the heads of terms was signed in November 2016. In the intervening period, Total has had to navigate a changing political environment, stubborn banking challenges, and wavering investor confidence. The move to conclude the contract signals positive developments in each of these three areas.
Total CEO Patrick Pouyanné, who has shown some bravado by speaking publicly about this deal as it progressed, had stated in February that progressing to a contract was contingent on the U.S. continuing its implementation of secondary sanctions relief as part of the Joint Comprehensive Plan of Action (JCPOA). With the increasingly hostile rhetoric of the Trump administration, continued sanctions relief had remained in doubt. But the administration has since confirmed Iran's compliance with the JCPOA and issued the relevant sanctions relief waivers in mid-May. Just a few days later, Iranian president Hassan Rouhani won a landslide reelection, solidifying his mandate to pursue international engagement and investment.
Total will also feel secure in the fact that European government leaders have been very vocal in their support for Iran and the nuclear deal. Federica Mogherini, Theresa May, Angela Merkel, and a host of European ambassadors have strongly advocated that the US stay the course with the nuclear deal both at the White House and on Capitol Hill. Looking together at these factors, Total must feel confident that the political environment remains conducive to the company's long-term investment in Iran.
At a more practical level, Pouyanné had acknowledged in April that Iran’s as-of-yet unsolved banking challenges were an impediment Total’s investment. The hesitance of international banks to provide financing or facilitate the recurring transactions necessary for day-to-day business in the country required Total to make a special effort to find its own solution. Pouyanné disclosed that Total was testing a new banking mechanism to get money in and out of Iran in a compliant way. This likely means that a medium-sized bank, probably French, has carved out a channel for Total to transfer funds to Iran without involving U.S. persons or U.S. dollars, thereby avoiding a so-called “U.S. nexus.”
While major European banks remain hesitant to do this kind of creative banking for Iran transactions, boards of directors are showing an increasing willingness to make exceptions on behalf of their largest clients and at the behest of national governments. Total's move suggests that the banking channel they created works, and this fact may help other large firms in their negotiations to receive banking facilities for Iran business.
Finally, Total’s contract signing will no-doubt boost confidence across sectors among both international and domestic investors. While Boeing and Airbus have notably concluded major contracts prior to the Total deal, the agreements for the sale of aircraft represent large-scale trade. The Total deal, which involves direct ownership and operation of physical, immovable assets in Iran, is true foreign direct investment with all of the attendant risk. That Total is proceeding is even more impressive considering the company will not start seeing revenues until 2021, when it has committed to bringing the first new gas to Iran's large domestic market.
Additionally, proceeding to a full contract reflects that Total was satisfied with the terms of Iran's new standard oil and gas contract, known as the IPC contract. While Total’s clear desire to be the first-mover in Iran’s energy sector has meant that they have been somewhat more willing to overlook the known deficiencies in the IPC model, fear of missing out may see peer companies like Shell, Eni, and OMV decide to press forward with their own investment plans within the existing IPC framework.
For Iran, the true value of the Total deal lies outside the oil and gas sector, which only accounts for about one-fifth of the country's economy. Rather, it is the investor confidence furnished by the Total deal, which will spur activity in other areas like infrastructure, transport, pharmaceuticals, and FMCG, that will really move the needle. Investors in these sectors will no-doubt welcome the deal as the sign of a rising tide.
Photo Credit: Wikicommons
