PARIS?French oil company Total SA said it will avoid U.S. sanctions on Iran by using its own euro-denominated cash to finance the first Western energy deal in the Islamic Republic since international restrictions over its nuclear program were lifted this year.

"This confirms we have a capacity to work with the Iranian government and that there is reciprocal trust," Total's Chief Executive Patrick Pouyanné said Tuesday.

Total agreed to develop the 11th phase of the giant offshore gas South Pars field for thenext 20 years. The French company will take a 50.1% stake in the venture that will develop and operate the project.

China National Petroleum Corp. will take a 30% stake and the Iranian state-owned oil company will take the rest.

The project's first phase?the drilling of as many as 30 wells in the Persian Gulf?will require a $2 billion investment. A second phase, expected when the wells are producing, will require an additional $2 billion investment, Mr. Pouyanne said.

An Iranian official had said Monday the project would require $6 billion investment. Mr. Pouyanne said the investment would be $4 billion only.

The agreement with Total could be the first of a long series. Many Western companies are eyeing Iran's vast reserves as the Islamic Republic seeks to ramp up production of oil and gas over the next few years.

European oil companies have been slow to return to Iran, which has the world's fourth-largest reserves of crude, because of American sanctions that remain in effect. While European Union sanctions were lifted in January after Iran agreed to curbs on its nuclear program, American sanctions related to terrorism and weapons remain in place.

They forbid U.S. banks from dealing directly with Iran, and prevent all business deals with the Iran's Revolutionary Guards Corps, which is deeply involved in the country's oil and gas sector.

Mr. Pouyanne said Total will avoid the remaining sanctions still applied on Iran by the U.S. by using its own cash to finance its share of the investment. The Iranian government will pay Total in gas condensates, which the company can then sell on the international markets, bypassing the Iranian financial system.

Mr. Pouyanne said he appointed a full-time official that will make sure all the steps in the development respect international sanctions.

The project is expected to start producing natural gas in 2020. Total's shareof the project would represent about 60,000 barrels of oil equivalent a day.

Write to Inti Landauro at inti.landauro@wsj.com

(END) Dow Jones Newswires

November 08, 2016 07:35 ET (12:35 GMT)

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