Total, Shell Keep Line Open with Tehran Despite US Claim - Sources

LONDON (Dow Jones Newswires), Oct. 8, 2010

Total and Shell discreetly contacted Iranian authorities last week, seeking to reassure the Islamic Republic after telling the U.S. they have no plans for further investments for now, people familiar with the matter said in recent days.

Total and Shell contacted Iran as the U.S. announced commitments by the companies "to terminate their investments and avoid any new activity in Iran's energy sector." The disclosure was made by the State Department in a Sept. 30 press release, which also said Statoil and Eni had made similar commitments.

Though the two companies are not breaching any sanctions in communicating with Iran, the contacts suggest they have not renounced their long-term ambitions in Iran, which hosts the world's second-largest natural gas resources and stands as the fourth-largest global oil exporter.

Immediately after the U.S. announcement, a Total manager contacted the Iranian authorities to reassure them the French oil major had no intention to discontinue its business ties with the Islamic Republic, a person familiar with the matter told Dow Jones.

The Total manager told the Iranian authorities it "will take into account French national interests," instead of U.S. interests, the person familiar with the matter said, paraphrasing the conversation with the company manager.

While U.S. sanctions have long barred oil investment in Iran, European countries like France have traditionally opposed sanctions. That enabled Total, Shell, Eni and Statoil to develop Iranian oil and gas fields and produce petroleum in Iran. This changed when the European Union this summer announced sanctions barring European companies to invest in the country's hydrocarbons sector.

A person familiar with the contacts said that just before the U.S. disclosed Shell had renounced to new investments in Iran, a Shell representative also contacted Iran's authorities to reassure them the company intended to maintain its business ties.

The U.S. Department of State didn't return repeated requests for comment.

An official at Iran's oil ministry said he wasn't aware of the contacts.

Iran remains home to huge natural resources that are increasingly inaccessible to U.S. and European oil giants as Western governments seek to punish Iran's nuclear ambitions with new sanctions. According to BP's latest statistical report, Iran's proven oil reserves hit 137.6 billion barrels of oil and 29.61 trillion cubic meters of gas in 2009.

"Iran has been one of the few countries in the Middle-East open to foreign investment" in oil and gas projects, when neighbors Saudi Arabia and Kuwait are mostly closed, said Samuel Ciszuk, a London-based senior analyst at IHS Energy.

Foreign companies "need to keep (Iran) open as an option" for when sanctions are lifted, he said. "Nobody wants to slam the door completely" on Iran's oil and gas sector.

One Shell official said the Iranian government is "a stakeholder" in the oil and gas sector. As a result, an international oil company will "have to go and meet with them" regardless of the political context, this person said.

Total and Shell still do some direct business with Iran, regularly buying crude oil from the Middle Eastern country. But the Anglo-Dutch oil company has come under pressure for the trades, which are not prohibited under European sanctions.

The U.S. imposed new energy and financial measures on Iran in June, targeting gasoline imports in particular. The West suspects the program has military aims but Iran says its religious principles prohibits the development of nuclear weapons.

Iran has reacted by increasing its refining capacity, signing oil and gas projects with domestic companies and pursuing talks with Asian and Russian companies.

A spokespeople for Total and Shell declined to directly comment on the companies' recent contacts with the Iranian authorities.

A Total spokeswoman said that "following questions asked to us by the State Department, Total has confirmed it complies with all laws applicable at the international, European and national levels, which, within the framework of sanctions recently imposed by the European Union, can only limit to a minimum our activities in a country where we were already hardly present."

While insisting the company would comply with sanctions, Total has been vocal in criticizing them and pleading for a long-term engagement with Iran.

In July, its Chief Executive Christophe de Margerie criticized the U.S. embargo on petrol products was an "error" that would harm ordinary people.

And in December, the CEO insisted Total must continue to talk to Iran because energy investments are long-term and politics change. "If you just say, 'OK, there is a problem today, so I will never look at it anymore,' then you never do anything," he said.

Shell hasn't commented on sanctions beyond saying it would comply with them but has stressed the importance of Iran's resources to global energy security.

"Given the size and global importance of Iranian hydrocarbon resources, Shell finds it hard to see a future in which production of these resources would not, at some point, play an important role in the global energy supply and demand balance," Shell said in its 2009 annual report to the U.S. Securities and Exchange Commission.

Despite this analysis, Shell abandoned negotiations over the development of phases 13 and 14 of the giant South Pars gas field this summer, after Iran gave $21 billion in contracts to domestic companies to develop the two projects.

But a person familiar with the negotiations said that, just before the domestic contracts were signed, Shell asked for a new reprieve of a few months to make an investment.

It sought a meeting with Iranian oil minister Masoud Mirkazemi, who refused, the person said.

Copyright (c) 2010 Dow Jones & Company, Inc.


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