Adipec 2015: Total CEO expects slow recovery in Iranian oil following sanctions

The French oil company Total’s chief executive is expecting only slow progress in rehabilitating Iran’s oil sector after a prolonged period of sanctions.

Speaking on the sidelines of this year’s Adipec oil conference in Abu Dhabi, Patrick Pouyanné said that there has been a lot of excitement generated this year by the prospect that sanctions related to Iran’s nuclear programme will be lifted next year, allowing access by international oil companies to Iran’s vast oil and gas resources.

That has been building ahead of the expected release of new contract terms by Iran’s oil and gas ministry in a few weeks.

But Mr Pouyanné said he thought expectations that deals would quickly follow and lead to a rapid rise in Iran’s production — an outlook that top Iranian officials themselves have encouraged — are overdone.

“If you remember the question of Iraq, everyone was excited about Iraq but at the end of the day the contracts which were offered to the international oil companies were not really interesting,” he said, noting that the original targets for production growth have been severely curtailed because of a lack of investment potential, as well as the security situation there.

Indeed, in the latest round of negotiations, Iraq has asked international oil companies developing fields to cut production targets because of its shortage of funds to invest under the contract terms, as well as the low oil prices.

The contracts due to be unveiled by Iran in a few weeks “probably will just explain the framework of the contract, but I would be surprised if you see any figures,” ie any concrete terms of revenue or production- sharing or levels of investment.

Until sanctions, Total had been active in developing Iran’s South Pars gasfield, which holds about half of the country’s gas reserves, which by some estimates are the largest in the world.

Mr Pouyanné has held meetings with Iran’s oil minister this year and France backed Total’s eagerness to reestablish its position there this summer when the foreign minister Laurent Fabius was the first western official of that level to visit Iran.

Still, Mr Pouyanné pointed out yesterday that the previous structure of Iran’s contracts (so-called buy-back contracts) had failed because they were too short at seven years to encourage enough investment and did not align Iran’s and the companies’ objectives to enhance production.

So he expects a very slow process of negotiation this time around.

“We are speaking about projects of several hundreds of millions of dollars,” he said. “Did you ever see any deal being done in six months in this industry? I don’t think so … You’ll see a few hundreds of millions of barrels extra on the market initially from Iran but then it will take some time.”

Bijan Zangeneh, Iran’s oil minister, has repeatedly claimed that Iran will be able to ramp up its production by 1 million barrels per day from levels this year of about 2.8 million bpd once sanctions are lifted.

Industry estimates have ranged widely at between an extra 300,000 bpd to 600,000 bpd in the first 18 months or so after sanctions are formally lifted.

Mr Pouyanné’s opinion is that Iran is likely to be able to increase only by about the lower end of that range.

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Anthony McAuley

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