Iran, in Blow to U.S. Sanctions, Advances Elf-ENI Oilfield
Deal
By BHUSHAN BAHREE
Staff Reporter of THE WALL STREET JOURNAL
February 18, 1999
GENEVA -- Iran's Supreme Economic Council has approved a contract under
which France's Elf Aquitaine SA and Italy's ENI SpA would develop a large
oil and natural-gas field in the Persian Gulf, in a deal that furthers
Tehran's campaign to circumvent U.S. economic sanctions.
Terms of the contract for the offshore Dorood field, off Iran's Kharg
Island, were agreed on some time ago by Elf, ENI and Iran. But the signing
of the deal has been repeatedly put off until formal approval from the
council, which vets such agreements, and the Iranian cabinet.
An Iranian official said Wednesday that cabinet approval was a formality
now that the council, the final advisory body on the terms of such contracts,
had given the green light. The next step is for National Iranian Oil Co.,
or NIOC, to invite top Elf and ENI officials to sign the contract, valued
at more than $500 million. That may happen within weeks.
The Iranian Parliament already has given NIOC approval to conclude some
$5.5 billion in oil contracts with foreign companies in the fiscal year
ending March 2000. Both Elf and ENI declined to comment on the state of
the Dorood contract.
By oil-industry standards, the Dorood deal is relatively small in terms
of the amount of investment needed, $500 million, and in its impact on
the market; it would increase Iran's oil output capacity of close to four
million barrels a day by more than 100,000 barrels.
But the contract is another milestone in Iran's effort to revive its
oil and gas industry with Western help, despite U.S. sanctions that aim
to prevent such investment.
In Washington, a State Department official said the U.S. government
would have no reaction or comment until the deal goes through. A private-sector
analyst following the Dorood situation said he expects that the U.S. won't
apply sanctions in this instance.
Even so, he said, the U.S. isn't happy about the contract and is trying
to persuade the French government not to provide credit for it. Recently,
France's Total SA started producing oil from the Sirri fields, also in
offshore Iran, under a contract valued at some $600 million.
That contract was signed before current U.S. sanctions against Iran
came into force. But Total, Russia's Gazprom and Malaysia's Petronas are
now working on a $2 billion project to develop a part of Iran's huge South
Parsgas field that was agreed on after the U.S. sanctions law became effective.
But under European threats of retaliation, the U.S. last year chose not
to penalize Total and its partners.
In all deals with foreign companies, Iran has stuck to a so-called buyback
model for foreign-company involvement in its petroleum industry, which
has huge reserves that account for nearly 10% of the world's total, but
needs capital and new technology. Under the buyback system, foreign companies
meet all the costs of a project and, when it is complete, hand it over
to Iran's national oil company. The companies are guaranteed an agreed
rate of return on their investment and are paid back oil or gas from the
output of the field that was developed.
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