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Shell Seems Near Pact to Spend About $1 Billion on Iranian Fields

The Wall Street Journal
October 8, 1999

GENEVA -- Royal Dutch/Shell Group, one of the world's largest privately held oil companies, appears to be close to agreeing to invest about $1 billion (935.2 million euros) to develop two oil fields in Iran, which is still subject to U.S. sanctions.

A Shell spokeswoman in London said Thursday that the company was in detailed discussions in Iran to develop the Soroush and Nowruz oil fields. "We are hopeful of an agreement soon," she said.

Shell declined to specify the investment and returns being negotiated. But the Middle East Economic Survey, which has closely tracked the bids for Iranian fields, has previously reported that Shell put in multiple bids for each of the projects -- with varying investment and work scenarios -- and a separate bid for implementing the two projects together. The capital costs in the bids range from a low of $816 million to a high of $1.10 billion. The cost to Iran will be higher under the so-called buyback deals, which specify a rate of return for a company's investment over a period of time. Under such deals, Iran repays in oil and gas produced from the fields.

So far, France's Total SA and Elf Aquitaine SA, Italy's ENI SpA, Russia's RAO Gazprom, and Malaysia's state-owned Petroliam Nasional Bhd have defied U.S. sanctions against investing in Iran's oil industry. None of these companies has significant U.S. assets that may have been imperiled by their decision to do business with Iran. But Shell has a huge presence in the U.S. through its Shell Oil unit, which accounts for more than a fifth of the group's assets. Oil experts figure Shell must reckon on a U.S. waiver, as for other European companies, if it signs up for the Iranian projects.

"That will be the last nail in the coffin" for the U.S. sanctions against Iran, said Cyrus Tahmassebi, president of Maryland-based Energy Trends Inc. "U.S. companies will be screaming why them and not us," he added.

Mr. Tahmassebi said the march of international companies in Iran shows the attractiveness of Iran as an oil region and the growing ineffectiveness of U.S. sanctions against that country. "There are too many holes, too many exceptions," he said.

Both the Soroush and Nowruz fields were damaged in Iran's war with Iraq in the 1980s. Besides Shell, bidders for projects to restore the fields to produce around 100,000 barrels each have included Spain's Repsol SA, Britain's Enterprise Oil PLC and Italy's Edison SpA.

The two projects are relatively small in international-oil-industry terms. But Iran holds out the prospect for some huge projects. Recently, the country announced it had discovered an oil field that contained some 26 billion barrels of oil, a supergiant by any standards. Iranian officials said U.S. companies would be welcome to bid for this, as for other projects, whenever the field was open for development -- the U.S. government permitting, of course.

The lure of such large, lucrative contracts has kept international oil companies interested in smaller projects for the moment. Shell, for instance, has submitted other proposals, including one to pipe gas from Iran's giant South Pars field to the Indian subcontinent. Investment needed: some $800 million.

Meanwhile, Shell is already working on a previously agreed project to explore for oil in the Iranian part of the Caspian Sea. The project avoided running afoul of U.S. sanctions by requiring an investment of just under $20 million, the trigger point for the U.S. law.


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