TOTAL DISCUSSES PROSPECTIVE IRANIAN INVESTMENT

UNCLAS SECTION 01 OF 02 PARIS 006921 SIPDIS SENSITIVE E.O. 1295A: N/A TAGS: ETTC EINV EPET FIR IR SUBJECT: TOTAL DISCUSSES PROSPECTIVE IRANIAN INVESTMENT ¶1. (SBU) Summary. On October 16, EB DAS for Energy, Sanctions, and Commodities Paul Simons met with Total International Relations Senior Vice President Hubert Loiseleur des Longchamps on Total's prospective investments in Iran. Simons explained that Congress had recently passed the Iran Freedom Support Act (IFSA). The State Department had committed to informing Congress of our efforts to discourage continued investment in Iran and of our progress in discussions with companies with investments in Iran. des Longchamps said that Total had no imminent plans to announce any new Iranian investments. He did not know what firm would take over Japanese firm Inpex's stake after the Iranian Government cut Inpex's stake from 75 to 10 percent of the project, but noted that this project was not a current priority for Total. End summary. ¶2. (U) On October 16, Deputy Assistant Secretary for Energy, Sanctions, and Commodities Paul Simons met with Total International Relations Senior Vice President Hubert Loiseleur des Longchamps to disucss Total's prospective investments in Iran and other issues. Total International Relations Vice President Yves Le Bail, State Energy and Natural Resources Division Chief Peter Haymond, and Econoff accompanied. ¶3. (SBU) Simons explained that Congress had recently passed an extension of the Iran and Libya Sanctions Act (ILSA),renamed the Iran Freedom Support Act (IFSA). In the process of consulting with Congress, the State Department had committed to informing Congress of our efforts to discourage continued investment in Iran and of our progress in discussions with companies with investments in Iran. Total had been a particular focus of Congressional concern; given the focus of the international community on Iran's unacceptable behavior, we would be particularly concerned about any forward movement by Total on pending business in Iran. The Government of Iran (GOI),by its own actions, has raised the political risk of conducting business in Iran without compensating firms for that increased risk. Simons noted that investment in Iran has consequently slowed. -------------- Total -- Congressional Debate Affects Us -------------- ¶4. (SBU) According to des Longchamps, of all the major oil companies, Total's business was the most geographically dispersed, lacking a base in the Gulf of Mexico or the North Sea. Total's job 
was to produce oil wherever it exists, considering the technical, geological, and political risks of doing so. Total has a risk committee that considers all relevant information, which drives Total's decision making process. Total followed the Congressional debate leading up to the passage of IFSA and factored this information into its model. The legislation, he admitted, has a direct impact on Total's business. ¶5. (SBU) Oil and gas markets were global, however, and prices were determined by marginal production, "the last drop of oil produced." He believed that actions that the GOI and Government of Russia were taking today would create a gas shortage several years from now since they were discouraging investment. Little spare capacity existed, and the global market benefited from Iranian oil and gas production in the form of lower prices. -------------- Total Has Not Decided on Iranian Investments -------------- ¶6. (SBU) des Longchamps said that the Azadegan Project was not a near-term priority and that Total had not been involved in any recent negotiations with respect to Azadegan. He was unaware that any international firm was able to replace Japanese petroleum firm Inpex's potential investment in the Azadegan oil field. (Note: Inpex, Japan's top oil explorer, had a 75 percent share in the Azadegan oil field in an agreement reached with the GOI in February ¶2004. Azadegan has estimated crude reserves of 26 billion barrels. On September 26, the GOI decreased the Japanese share to ten percent. End note.) des Longchamps said that the GOI cut the Japanese share because Inpex had failed to reach agreement with the Iranians by a GOI-imposed September 25 deadline. The Government of Japan, with a 29.35 equity stake in Inpex, was increasingly unenthusiastic about the project, des Longchamps added. (Note: Oil industry press reports cited Iranian pressure on Inpex to start work on the project immediately, while Inpex was hesitating because of the possibility of UN sanctions over Tehran's uranium enrichment and reprocessing activities as well as a large number of mines that needed to be cleared as a result of the Iran-Iraq war. End note.) ¶7. (SBU) Simons noted that, within the GOI, a debate existed about the share that foreign oil companies should have in future projects. Some advocated that Iranian firms should have more control. Simons said that he was impressed by Total's June 2006 presentation to the International Energy Agency (IEA) on its global natural gas strategy in which Iran played only a minor role in the company's strategic planning. He noted that most other global LNG forecasts tended to downplay Iran's contribution because of the marketplace's lack of confidence in Iran's likelihood to create the political and economic incentives for LNG investment. ¶8. (SBU) des Longchamps replied that Total had already completed all the Iranian natural gas projects that it had undertaken in the past, transferring control over to Iranian firms upon completion. Total was considering investing in the Pars Liquefied Natural Gas (LNG) Projects, but had not yet decided whether to proceed. He acknowledged that the Iranians had been unsuccessful in attracting foreign investment into any other LNG project. -------------- Total's Long-Term Approach -------------- ¶9. (SBU) Total has a long-term approach to markets in which it invests, even if the climate changes substantially, des Longchamps said. For example, while Total sold its interest in conventional oil firms, it has retained its ownership and operation of one of the four extra heavy Orinozo Basin projects. It is continuing negotiations with state-run Petroleos de Venezuela S.A. (PdVSA) regarding arrangements for increasing the value of the PdVSA's stake in Total's ventures from 37 to 51 percent. ¶10. (SBU) des Longchamps lamented the declining equity opportunities for the major integrated oil firms. National oil companies were underfunded, and they lacked sufficient managerial and technical expertise. The integrated oil firms are exploring more in deep water and fields that require more advanced technological solutions. ¶11. (SBU) des Longchamps said that major integrated oil firms can be a positive force for change in the countries in which they invest. For example, Angola's Ministry of Finance now publishes its oil production statistics. This level of transparency was unthinkable even two years ago. The change was undoubtedly due to the presence of Total, BP, ExxonMobil, and Chevron in Angola, which pushed for this change. If such companies withdraw from a market, firms from China, India, and other countries are more than willing to fill the vacuum. Such firms have little regard for Western geopolitical interests or transparency. It is better for Western firms to remain in these markets, des Longchamps concluded. ¶12. (U) DAS Simons cleared this cable. STAPLETON