Shell Signs Preliminary Iran Oil Deal Despite Trump Doubts -- 3rd Update

By Benoit Faucon and Sarah Kent 

LONDON -- Royal Dutch Shell PLC on Wednesday said it had signed an agreement with Iran's state oil company to explore future projects, signaling that giant energy companies are unlikely to be deterred by President-elect Donald Trump's pledge to undo the Iran nuclear deal.

Shell is the largest company to wade back into Iran since the U.S. and other world powers lifted sanctions in January in exchange for Tehran putting strict limits on its nuclear program. The British-Dutch firm follows France's Total SA, which last month signed a $4.8 billion deal to develop a large natural-gas field in Iran and now is negotiating an oil deal.

Wednesday's agreement could help open a new chapter in the turbulent history of Iran's oil sector, which has been marked by waves of nationalizations and successive sanctions. Shell halted most of its activities in Iran in 2010.

Shell, Total and other companies looking to bet again on Iran face potential risks from an incoming Trump administration. Mr. Trump has called the Iran nuclear pact a "disaster" and "the worst deal ever negotiated." He has vowed to renegotiate it or pull out altogether.

The president-elect has aggressively confronted corporate decision makers, singling out companies that plan to move jobs to Mexico and on Tuesday calling out Boeing Co. for apparent cost overruns in building a new Air Force One jet.

That hasn't fazed Western companies even outside the energy industry, which also have stepped up efforts to return to Iran since Mr. Trump's election.

Last month, French aircraft manufacturer Airbus Group SE got the Obama administration to back the export of more than 100 jetliners to Iran. On Friday, Faurecia SA, an affiliate of French automotive giant Groupe PSA, signed two joint ventures to make car parts with Iranian companies.

American companies remain largely prohibited from doing business in Iran because the U.S. government still bans most transactions in dollars with the country. Separate U.S. sanctions on Iran over terrorism, human rights and weapons have impeded investment. In addition, foreign oil companies are concerned with the terms Iran wants to impose on joint projects.

Iran has complained that the remaining U.S. restrictions have made European companies too cautious about returning and have stunted the flow of foreign investment expected from the nuclear deal. Until the Shell and Total deals, few big energy companies had made any commitments in Iran.

Iranian President Hassan Rouhani has intensified a push to sign deals with high-profile companies since Mr. Trump's victory to bolster his own chances in presidential election in May next year, said Roozbeh Aliabadi, managing partner at Global Growth Advisors, who advises foreign companies investing in Iran.

"They are desperately looking for success stories," Mr. Aliabadi said. The Rouhani "administration is pushing for big names to be vocal about their interest for Iran without demanding an immediate commitment to invest."

The scope of Shell's deal remains unclear. A Shell spokesman said the firm and the National Iranian Oil Co. signed a memorandum of understanding to "further explore areas of potential cooperation." The agreement is nonbinding and doesn't come with an investment commitment, unlike Total's deal.

Earlier on Wednesday, the Iranian oil ministry said it and Shell were examining agreements to develop two large oil fields that could give a big boost to the country's output. Shell didn't confirm those talks.

Shell has said it would proceed with caution as it mulls re-entering Iran.

Saying that Iran has "fantastic resources," Shell CEO Ben van Beurden told The Wall Street Journal last month that the company would "only want to take significant investment risk if we see reasonable stability of [Iran's] legal status and -- equally important -- we will only engage in projects that do make economic sense."

Both Total and Shell have substantial American operations. That means they must be mindful of U.S. policies. But their recent moves suggest the companies believe they can build ties with Iran and handle any fallout with the incoming Trump administration.

Speaking to reporters last week, Arnaud Breuillac, Total's head of exploration and production, said he was "not particularly" worried about a Trump administration impeding his company's Iran plans. The comments came after Mr. Breuillac met Iran's oil minister Bijan Zanganeh in Vienna.

Shell's announcement comes a week after the Organization of the Petroleum Exporting Countries agreed to cut production in a move to rebalance global oil supply in line with demand. Oil prices have surged since the deal, lifting hopes of a sustained oil market rally and new investment in the beleaguered energy industry.

Iran's oil ministry said Shell was interested in developing the South Azadegan and Yadavaran oil fields and the Kish gas field. The two oil fields are among the largest oil discoveries of the past 20 years, said Homayoun Falakshahi, Middle East research analyst at energy consulting firm Wood Mackenzie.

Azadegan is the largest field in Iran. Combined, the two fields have recoverable resources of 8.2 billion barrels -- the equivalent of 15% of the proved crude reserves in the U.S.

Shell will have stiff competition for those fields. State-owned China Petroleum & Chemical Corp., known as Sinopec, already operates Yadavaran and is negotiating the second phase of development there. Total is also studying South Azadegan.

Even trickier, Shell or any other company selected to develop those fields would likely have to become partners with local Iranian oil companies. A unit of the hard-line Iranian Revolutionary Guard is vying for South Azadegan, and Shell would likely run afoul of current U.S. sanctions if it partners with the corps.

"As in all cases, we will comply with all relevant laws," a Shell spokesman said.

Shell was among a handful of Western oil companies to re-enter Iran as the nation opened its oil sector to foreign companies back in the 1990s, more than a decade after the country had kicked them out following the Islamic Revolution. Moves to expand investment were ultimately stymied by tightening sanctions.

Shell's interest in Iran comes at a time when the oil giant is retrenching in other regions. The company is in the midst of a $30 billion divestment plan that could see it exit as many as 10 countries, completing a transformation into a liquefied-natural-gas and deepwater-production behemoth following its acquisition of BG Group earlier this year.

Inti Landauro contributed to this article

Write to Benoit Faucon at [e-mail] and Sarah Kent at [e-mail]

(END) Dow Jones Newswires

December 07, 2016 14:29 ET (19:29 GMT)

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