1050 GMT February 22, 2020
Shell is the largest company to wade back into Iran since the US and other world powers lifted sanctions in January under a nuclear deal in 2015. The British-Dutch firm follows Total SA of France, which last month signed a $4.8 billion deal to develop a large gas field in Iran and is negotiating for an oil deal now, The Wall Street Journal reported.
The scope of the deal remained unclear Wednesday. A Shell spokesman said Shell and the National Iranian Oil Co. signed an understanding to “further explore areas of potential cooperation”. The agreement is nonbinding and doesn’t come with an investment commitment, unlike the recent agreement Total concluded with Tehran.
Earlier on Wednesday, the Iranian Oil Ministry had said Shell was going further, signing agreements to develop two giant oilfields that are important to the future of the country’s oil industry.
The return of Shell would be a breakthrough for Iran’s energy industry, which has been slow to attract investments from the world’s biggest oil companies since the US and other world powers lifted sanctions related to Tehran’s nuclear program. The continued existence of separate US sanctions on Iran has impeded investment.
Shell, Total and other companies also face potential risks from an incoming Trump administration. Trump has called the Iran nuclear pact a “disaster” and “the worst deal ever negotiated,” and he has vowed to renegotiate it or pull out altogether.
In the past, Shell has expressed caution about returning to Iran.
“Of course Iran has fantastic resources,” Shell CEO Ben van Beurden said in an interview last month.
He said Shell 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”.
Though Total is French and Shell is jointly based in London and the Dutch capital The Hague, both companies have substantial American operations. Their recent moves suggest the oil companies believe they can build ties with Iran and handle any fallout with the incoming administration.
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 hope 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, which are both large-scale projects important to the future of Iran’s oil industry. They 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 and the two reservoirs have combined recoverable resources of 8.2 billion barrels – the equivalent of 15% of the proved crude reserves in the US.