x Abu Dhabi, UAEMonday 24 July 2017

BP studies latest Iran sanctions

BP is studying the latest US and EU sanctions against Iran to determine whether they have further ramifications for the oil company.

BP leads the consortium developing Azerbaijan's largest gasfield. The consortium has ties to Iran.
BP leads the consortium developing Azerbaijan's largest gasfield. The consortium has ties to Iran.

BP is studying the latest US and EU sanctions against Iran to determine whether they have further ramifications for the oil company. A potential problem for BP, which stopped selling petrol to Iran in 2008, is its involvement in two gas ventures, off the coasts of Azerbaijan and Scotland, in which units of the National Iranian Oil Company (NIOC) are partners.

An equally tough issue for the US and its allies, as they try to squeeze Tehran over its nuclear programme, could be deciding what to do about a relationship that began before Iran's Islamic revolution in 1979. "We are absolutely trying to comply with the sanctions," said Toby Odone, a BP spokesman. "We have had very little business in Iran for 30-odd years." Almost 40 years ago, in August 1971, the Iranian Oil Company UK (IOC-UK) was formed as a BP-NIOC joint venture to explore two North Sea oil and gas blocks.

At the time, Iran was an ally of the US and the UK. Their governments had earlier helped to engineer the coup that reinstalled Mohammad Reza Shah Pahlavi as Iran's ruler. The shah was ousted by the 1979 revolution. Since a 1999 reorganisation of NIOC, IOC-UK has been a unit of the Swiss-based Naftiran Intertrade Company, which in turn is a NIOC subsidiary. Naftiran handles crude oil swaps for NIOC, an arrangement under which Caspian states send oil to northern Iran in return for Iranian crude exported through the Gulf.

In the latest round of sanctions that it introduced last month, Washington listed both IOC-UK and Naftiran as entities that "persons should not do business with". The sanctions are aimed not only at US corporations and private citizens but also at foreign companies, which risk being banned from the US market if they fail to comply. The EU sanctions imposed last week are understood to contain similar measures.

BP is no longer a shareholder in IOC-UK. Instead, the companies are equal partners in developing and producing gas from the North Sea's Rhum field, which was discovered in 1977. The gasfield was not developed until 2005 because of technical challenges. It now produces about 300 million cubic feet per day (cfd) and supplies about 1 per cent of UK gas demand. IOC-UK has assumed full responsibility for developing Hood, another gasfield discovered on the second North Sea exploration block that NIOC previously shared with BP. First production is expected by 2013.

In the Caspian Sea, BP leads the consortium developing Azerbaijan's biggest gasfield, Shah Deniz, which supplies the Trans-Caucasus pipeline to the Turkish Mediterranean port of Ceyhan. BP holds a 25.5 per cent interest in the project, which produces almost 800 million cfd of gas. Naftiran has 10 per cent. But when the Shah Deniz concession was granted in 1996, the state-controlled Iranian company was not on the horizon. Instead, the privately owned Oil Industries' Engineering and Construction (OIEC) was the Iranian member of the group.

Baku brought OIEC into the consortium as compensation for previously excluding Iranian interests from the concession to develop Azerbaijan's biggest oil discovery. In 2001, however, OIEC lacked sufficient funds to cover its investment commitments and sold its Shah Deniz stake to the state-controlled Naftiran. As a result, BP is "sleeping with the enemy", the US-based Time magazine has recently alleged.

"BP remains one of the most active major western oil companies engaged in joint-venture energy projects with the Iranian ministry of petroleum outside of Iran," the magazine said in an article published in June. "If Washington doesn't close this loophole, Iran could soon be a partner in energy projects off our own shores," it quoted Mark Dubowitz, the executive director of the Foundation for Defence of Democracies, as saying. The foundation is a conservative US think tank focused on Iran's energy interests.

BP is not the only European company in joint ventures with partners linked to Tehran. The Shah Deniz consortium, for instance, includes Norway's Statoil and Russia's Lukoil. Last month, Spain's Gas Natural Fenosa denied reports it was in talks with NIOC about building a liquefied natural gas import terminal in Croatia. The fuss over the BP joint ventures has emerged as the company remains under intense scrutiny in the US because of its huge Gulf of Mexico oil spill.

BP also faces renewed US allegations that it lobbied for the release from prison of the Libyan Abdulbaset al Megrahi, the Lockerbie bomber, while negotiating a US$900 million (Dh3.3 billion) oil and gas exploration contract with Libya's government. The company is to start drilling its first well under that contract within weeks, in deep water off the Libyan coast. British and Scottish officials, as well as BP, have said the company was not involved in the Scottish government's decision to release al Megrahi on compassionate grounds from the life sentence he was serving in Scotland.

With regard to the spill, BP has promised to pay for the clean-up and compensate individuals and companies for spill-related damage. It plans to raise funds for that by selling up to $30bn of assets by the end of next year. Mr Odone declined to say whether BP's Rhum and Shah Deniz stakes might be included in the sale. After Tony Hayward, the outgoing chief executive, visited Baku last month, Azeri officials said BP would remain a partner in Shah Deniz.

BP has sold more than $7.2bn of assets in recent weeks, including exploration and production properties in the southern US, western Canada and Egypt and its network of petrol stations in France, Belgium and the Netherlands. Germany's Wirtschaftswoche magazine reported yesterday that BP was seeking to sell its German petrol station chain Aral for ?2bn (Dh9.54bn). tcarlisle@thenational.ae