A Shell spokeswoman said on Monday that Shell had signed a deal on the upstream, gas production, side of its ‘Persian LNG’ project which covers phase 13 and 14 of the South Pars gas field, confirming comments from an Iranian official on Sunday.
However, Shell said it was still a year away from a final decision on whether to proceed with the multi-billion dollar project. That hinges on another agreement, to build an 8 million tonnes per annum liquefied natural gas (LNG) terminal.
“We have signed an upstream service agreement as part of our work to assess the feasibility of the project,” a spokeswoman said. “Implementation of the upstream service agreement is subject to taking a final decision to proceed with the midstream LNG project.”
The United Nations has imposed limited sanctions on Iran to stop it enriching uranium and Washington is pushing for harsher sanctions against a nuclear programme it believes is aimed at building an atom bomb — an accusation Tehran rejects.
In the past year, Washington has increased pressure on non-U.S. companies not to invest in Iran and analysts believe it will be hard for oil companies to maintain operations in both Iran and the United States, where Shell and Repsol have fields.
Shell declined to say if it was subject to pressure and said its project was proceeding broadly as envisaged when an initial deal was agreed in 2004.
However, the timetable seems to have slipped. The company also said in February 2006 that a decision was only around a year away.
BUYBACKS
The spokeswoman said the upstream side of the project would be developed under a buyback type agreement.
Under such an agreement, Shell and Repsol would build the production facilities, which would be owned and operated by an Iranian company. Shell and Repsol would be paid back their costs plus a pre-agreed profit.
In the past, western companies have found the terms on such contracts unattractive, curbing investment interest.
Jonathan Wright at Citigroup said he expected an amended type of buyback contract to make the investment more attractive.
Nonetheless, investors think Shell and Repsol could agree to low margin deals as they seek to rebuild their reserves bases after years of poor performance at finding new fields.
On Sunday, Gholamhossein Nozari, head of state-owned National Iranian Oil Company (NIOC), told Iran’s student news agency ISNA that Iran had signed an initial deal worth $10 billion with Repsol and Shell to produce liquefied natural gas (LNG) from the South Pars gas field.
