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Lucia A Keegan  10/23/2006 10:34:37 AM  From  DB/Inbox:  Lucia A Keegan

Cable 
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UNCLAS    SENSITIVE     PARIS 06921

SIPDIS
cxparis:
    ACTION: ECON
    INFO:   SCIO POL ORA AMB AGR LABO ECNO UNESCO ECSO SCI
            DCM ESCI ENGO TRDO FCS

DISSEMINATION: ECONOUT /1
CHARGE: PROG

APPROVED: ECON:TWHITE
DRAFTED: ECON:HSULLIVAN
CLEARED: ECON:SDWYER/EB/ESC:PSIMONS

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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