TOT TOTAL SE

By Benoit Faucon 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 21, 2018).

Total SA is having difficulty unloading its stake in a $5 billion natural-gas project in Iran to a Chinese partner, after stopping work on the project earlier this year due to U.S. sanctions.

Iranian Oil Minister Bijan Zanganeh confirmed Monday that the French oil giant had left the project in the South Pars natural-gas field. Total had flagged in May that it planned to do so, ahead of a Nov. 4 deadline to divest itself from its stake in the project to comply with sanctions.

The French company has concluded in recent weeks that it was unlikely to receive a U.S. exemption from sanctions, according to a Total staffer familiar with the matter.

"I think it's over," the person said. "Now, how do we exit?"

Total, according to people familiar with the matter, is holding talks to transfer its 50.1% stake to state-owned China National Petroleum Corp., which holds 30% in the development. China has said it plans not to follow U.S. sanctions on Iran.

Total doesn't expect to sell its stake to CNPC, but wants to be compensated for about $50 million it has spent on the project, according to people familiar with the matter.

Iranian contractor Petropars, which owns the remaining 19.9%, is receiving updates about the negotiations, these people said.

A Total spokeswoman declined to comment and CNPC didn't respond to a request for comment.

A spokeswoman for Iran's Oil Ministry said the project's shareholding structure hadn't changed and talks to replace Total were continuing.

Officials at CNPC and China Petroleum & Chemical Corp. have previously complained about challenges they face financing other projects in the Islamic Republic.

CNPC has been slow to reach an agreement on whether it will replace Total, according to people familiar with the discussions. At issue is the question of how the Chinese company would pay for the project now that financial channels in the United Arab Emirates and Turkey have been cut off after pressure from Washington, the people said.

The Chinese company is reluctant to take an 80% stake, which would grant it full control of the project. As the operator, CNPC could attract attention from the U.S., that person said. "CNPC doesn't seem to want the operatorship," he said.

As a matter of last resort, Iran's state-run Petropars could step in to take over Total's stake, Iranian oil officials have previously said. But a purely Iranian project would limit access to capital and technologies.

CNPC and Total had both been involved in the same project years ago but pulled out due to previous sanctions from 2010 onward.

CNPC says the Iranian government still owes the Chinese firm funds from that period, according to a person familiar with the talks. A spokeswoman for Iran's Oil Ministry didn't respond to an additional request for comment.

Total announced it had signed a preliminary deal to invest in the venture hours before Donald Trump was elected president in November 2016. Sanctions had been lifted by President Obama in January 2016.

The French company later agreed to invest $1 billion and was awarded a 50.1% stake in the development -- the biggest such commitment by a European company to invest in Iran in recent times.

But in May, the Trump administration withdrew from a nuclear agreement with Tehran and other world powers and said it would reinstate sanctions on Iran's oil. Total stopped all works in the Islamic Republic, saying it couldn't afford the risk to its North American investments and ties to the U.S. banking system.

Write to Benoit Faucon at benoit.faucon@wsj.com

(END) Dow Jones Newswires

August 21, 2018 02:47 ET (06:47 GMT)

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