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Iran plans to sign a preliminary $6 billion deal with France’s Total SA on Tuesday to help develop an offshore gas field, an agreement that would mark the first Western energy investment there since international sanctions were lifted this year.

Under the deal, Total, China National Petroleum Corp. and Iran’s state-owned Petropars would develop part of a giant gas field in the Persian Gulf known as South Pars, a press official at Iran’s oil ministry said.

It wasn’t clear how much of the $6 billion investment would come from Total, or how the deal would be structured for Total to steer clear of U.S. restrictions still in effect.

The agreement with the French oil giant could be a harbinger for the return of more Western companies to Iran’s vast energy industry and represents a step forward for the Islamic Republic’s goals of ramping up production of oil and gas over the next several years.

European oil companies have been slow to return to Iran since the Persian Gulf country secured an end to sanctions on its energy industry by agreeing to curbs on its national nuclear program in January. American sanctions related to terrorism and weapons remain in effect on Iran. They forbid U.S. banks from dealing directly with Iran, and prevent all business deals with the Iranian Revolutionary Guard Corps, which is deeply involved in the country’s oil and gas sector.

The deal is a draft that still must be completed over the next six months, the Iranian oil-ministry official said, but it gives Total and CNPC a head start over competitors. Total and CNPC both signed deals years ago to develop the South Pars project before sanctions forced them to pull out in 2009 and 2012, respectively.

Representatives for CNPC and Petropars didn’t respond to requests to comment. Total said representatives weren’t available to comment on Monday. A U.S. State Department spokesman didn’t return a request for comment.

“This agreement will be encouraging” for other companies to do business with Iran, particularly those with little activity in the U.S., said Mehdi Varzi, a consultant who advises companies on Middle Eastern investments.

Total was long one of the most active Western oil companies in Iran, and its executives have said they were eager to return to a country with the fourth-largest reserves of oil in the world. Total kept an office open in Iran throughout sanctions from 2010 until earlier this year and was the first European oil company to buy Iranian oil and ship it to Europe after the restrictions were lifted.

But actually setting up shop in Iran and drilling has been a riskier proposition. Total Chief Executive Patrick Pouyanné has said he was in no rush to return to Iran until terms of working there were better understood.

The deal with Total is part of a push by Iranian President Hassan Rouhani to showcase the success of the nuclear agreement ahead of the May 2017 presidential election in Iran, said Roozbeh Aliabadi, an Iranian consultant whose firm, Global Growth Advisors, helps companies enter the Iranian market.

The U.S. government, under pressure from Tehran to show the lifting of sanctions is benefiting the Iranian economy, loosened restrictions on trading in U.S. dollars with Iran. But the U.S. still bans direct banking relations with Iran and investment by U.S. oil companies in the country.

Total and CNPC have been leaders among oil companies in finding ways to do business in countries under U.S. sanctions. Both companies were instrumental in developing a $27 billion natural-gas field in Russia with a company, OAO Novatek, hit by sanctions, a deal largely financed by Chinese banks.

Other Western companies have also made headway in Iran. Last month, BP PLC bought its first oil shipment from Iran while Royal Dutch Shell PLC has signed a preliminary deal to help develop a petrochemical plant there.

But the flood of oil-industry development that Iran has wanted since nuclear sanctions were lifted in January has yet to materialize.

The country has said it needs $30 billion of foreign investment to reach its oil-industry goals. Among those aims is ramping up its production of crude oil to six million barrels a day over the next decade, a target that, if reached, would make it the world’s fourth-largest producer behind only Russia, Saudi Arabia and the U.S.

Currently, Iran produces about 3.7 million barrels of crude a day and is trying to reach four million barrels or more this year.

The deal with Total will help Iran build out its natural-gas production. The South Pars field, which is shared by Iran and Qatar, contains 14,000 billion cubic meters of gas—8% of the world’s known reserves.

The agreement marks the first time a Western oil company has been contracted under the new terms for foreign firms working in Iran. Those contracts still haven’t been released, but Iranian officials have said they foresee allowing oil companies to make more money and work for longer than previous deals.

The new terms have been a source of political conflict between Mr. Rouhani’s administration, which is seeking to open up the country to foreign investment, and religious hard-liners who oppose more Western involvement in the country’s affairs.

Iran has, by some estimates, the world’s largest natural-gas reserves, but its production capacity and infrastructure to export the fuel are limited. Iranian officials have said they want to become a major exporter of natural gas to Europe.

Mr. Varzi said Mr. Rouhani’s administration was wise to make natural gas the focus of Iran’s first contract with a Western company. “It’s less politically controversial than oil,” he said.

By Benoit Faucon

Source: Wall Streeet Journal