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There’s A Reason Why Total Is So Eager To Return To Iran – And It’s A Good One

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“If the terms are attractive, yes,” was how the late Total CEO Christophe de Margerieresponded to a question in February 2013 about the supermajor’s interest in returning to Iran after sanctions. On Thursday, his successor Patrick Pouyanne met with Iranian President Hassan Rouhani and signed a MOU with Iran’s National Oil Company (NIOC) and a framework agreement for purchasing Iranian oil for French and European refineries. Following the MOU, NIOC will provide the technical data on some gas and oil projects, so that Total can assess potential developments in Iran.

This Is Not A Surprise

It comes as no surprise that Total is one of the first Western oil and gas companies to reinvest in Iran. Immediately after the initial draft agreement between Iran and Western powers in November 2013, Total was among the first supermajors to express interest in returning to Iran’s energy sector.

enter image description hereTotal CEO Patrick Pouyanne

From that time to now, and particularly after the signing of the final agreement between Iran and Western powers last July, mostly European majors began to more openly express eagerness to reinvest in the Islamic Republic’s oil sector. And Total was at the vanguard.

Total & Iran’s 30 Year Relationship

Beginning in the early 1990s, Total became a significant investor in the Iranian energy sector. Iranian Oil Minister Bijan Zanganeh, during his previous tenure in this position during the 1990s, secured Total’s initial investment. Zanganeh said at the time that Iran’s share of the world’s largest gas field- South Pars- remained a significant attraction for European oil and gas companies.

enter image description hereSource: offshoreenergytoday.com

Total remained in Iran’s onshore arena despite the imposition of US sanctions in 1997. However, EU sanctions imposed in 2010, followed by stricter 2012 sanctions against the country for its nuclear ambitions (these were the sanctions lifted earlier this month), caused the company to cease shipments of oil products and halt participation in Iran’s O&G sector.

Total Runs Into SEC

Total’s relations with Iran ran afoul of the Foreign Corrupt Practices Act (FCPA) in 2013 after Total was charged by the US Security Exchange Commission (SEC) of bribing and Iranian official to gain access to oil and gas fields in 1995.

enter image description hereIran’s oil minister then & now: Bijan Zanganeh

The US Department of Justice said that Total attempted to obtain a concession from the National Iranian Oil Company to develop the Sirri A and E oil and gas fields in 1995. At the time, the late de Margerie was head of Total’s Middle East operations, and signed a consultancy contract with an Iranian official.

An Iranian official in the negotiations designated an intermediary to be a Total consultant. The DOJ found that Total paid the consultant $16 million in bribes under the fabricated consulting agreement over the next two-and-a-half years.

Total retained another consultant in 1997 designated by the same official and paid approximately $44 million under the agreement. In exchange, Total secured the rights to develop a portion of the South Pars field.

Total eventually agreed to pay $398 million in penalties and disgorgement for the bribes, and paid a criminal penalty to the DOJ of $245.2 million.

Further, in its settlement with the SEC, Total disgorged $153 million of profits, the second-largest disgorgement in FCPA history. The case itself was the fourth-largest FCPA case ever.

French legal authorities worked in concert with the US DOJ and SEC, as the company’s actions ran afoul of French law as well.

The French prosecutors said they worked in coordination with the US authorities, which investigated the case because Total shares are traded on the NYSE. The Justice Department and the SEC said Total cooperated with their probes.

Pouyanne Is Largely Following In de Margerie’s Footsteps

In order to understand Total’s eagerness to reenter Iran, two phrases encapsulating Pouyanne’s strategy (and de Margerie’s before him) are important to state: “Go where the oil is” and “high-risk, high-reward.”

Total plays chess, not checkers. Pouyanne was trained by de Margerie to see the global O&G chessboard with an eagle’s view- a keen appreciation of the big picture and the ability to see several steps ahead in the game.

enter image description hereThe late Christophe de Margerie

Total is headquartered in resource poor France. Further, the opportunity for France to engage in unconventional exploration has been officially forbidden by the French High Court. Both of these factors deprive Total of a secure domestic drilling platform to which other major competitors have access. For instance, CVX, XOM and COP can access US shale, while RDS and BP can reinvigorate North Sea production.

This context continues to spur Total’s strategy of “going where the oil is,” which frequently means assuming participatory roles in joint ventures with other companies in key fields throughout the world, and assuming primary roles in locations that other oil companies consider too risk-prone.

In accordance with these realities, Total has made significant deals over the years with Iran and Russia, Libya, Iraq, Venezuela, Myanmar, and has heavily invested in Nigeria and Kazakhstan.

Granted, each of the key majors holds stakes in one or two of these risky areas, but none of them have interests in all of them across the board as Total does. This was a direct result of de Margerie’s two-pronged, “go where the oil is” and “high-risk, high-reward” strategy.

The World’s Fourth-Largest Supermajor

Thus in considering the above-mentioned Iranian bribery case, De Margerie’s opposition to sanctions, and willingness to work with nations and leaders others dub “rogue” or “corrupt”, the aforementioned context must be taken into account.

In summary, Total is headquartered in a country with next to no reserves and with a government that has expressly forbidden exploration for possible unconventional resources. Total, for the good of its shareholders, continues to try to enhance its gravitas as the world’s fourth-largest supermajor in light of these realities- and largely because of them.

By Jeff Reed on oilpro.com

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