UPDATE: Iran Says Signed Early Oil-field Deal With Russia Tatneft

Iran said Sunday it had signed a preliminary, $1 billion oil-field deal with Russia's OAO Tatneft (TATN.RS), clinching a rare agreement with a foreign company amid mounting sanctions.

Iran's Oil Ministry website Shana said state-owned Petroleum Engineering and Development Co. had signed a memorandum of understanding with Tatneft to help develop the Zagheh heavy crude field in southwest Iran.

Iran had initially called the deal a contract, but later specified it was a memorandum of understanding, not a final deal.

The deal, which other Iranian outlets said was worth $700 million, is to bring the field's production capacity to 7,000 barrels a day in a first phase and 55,000 barrels a day in the second one. The tentative agreement comes as Iran has struggled to replace Western oil majors after they pulled out due to mounting international pressure over Iran's nuclear program.

Deals with non-Western players, however, have been fraught with difficulties and its unclear if the Tatneft deal will ever be completed. Russia's OAO Gazprom (GAZP.RS) earlier this year was replaced by Iranian companies in a project after failing to finalize a deal with Tehran and, according to the Mehr news agency, China's National Petroleum Corp. is being fined for delaying works in a natural-gas project.

Progress by non-Western players in Iran has been slowed by tough contracts imposed by Tehran and the difficulty of finding financing amid international banking sanctions. The Islamic Republic was recently targeted by a string of measures against its banking sector in the U.S. and the U.K. and is facing the threat of an oil embargo in Europe.

Russia, which isn't part of the European Union, hasn't followed suit with an EU ban on Iranian oil investment. It is only bound by United Nations sanctions which are more narrowly focused on Iran's nuclear program.

-By Benoit Faucon, Dow Jones Newswires; [phone]; [e-mail]