By Inti Landauro

PARIS--French oil company Total SA said it would 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 the next 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 deal was signed Tuesday as Iran ramps up efforts to attract foreign companies to develop oil-and-gas fields following the lifting of international sanctions over its nuclear program in January. American sanctions over terrorism and weapons remain in place, however, slowing the pace of investment in Iran this year.

The timing of the announcement surprised some analysts because it came on Election Day in the U.S. before Total or Iran knows who the next American president will be. Republican Donald Trump has vowed to re-evaluate the deal that lifted sanctions on Iran, while Democrat Hillary Clinton has supported the agreement.

"Our working assumption has been that no deals would be signed with Iran until visibility on who the new U.S. President was," UBS said in a note on Thursday.

Total has a long history in Iran and a record of doing business in places where U.S. sanctions limit the ability to raise financing in American dollars. For instance, Total is a key partner in a Russian natural-gas field with OAO Novatek, one of several Russian companies sanctioned by the U.S., in a $27 billion investment that involved delicate negotiations to secure Chinese financing.

Mr. Pouyanné 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. Pouyannè said he has appointed a full-time official who will makesure all the steps in the development respect international sanctions.

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

An Iranian official estimated the project's worth at $4.8 billion, down from an earlier estimate of $6 billion investment. Mr. Pouyanné said the investment would be $4 billion only.

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

The Iran deal comes at an important time for China's state-owned CNPC and its listed subsidiary PetroChina Co., both of which are eager to expand their overseas presences as domestic oil production and reserves fall. That has contributed to lower total sales for the company, China's biggest oil and gas company by revenue.

Additionally, China's energy giants are more eager today than ever to tap abundant natural gas reserves abroad as part of the government's push to increase access to the cleaner-burning fuel. China's pollution and climate goals call for it to substitute huge volumes of coal with natural gas in the coming years.

Brian Spegele in Beijing contributed to this article.

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

(END) Dow Jones Newswires

November 08, 2016 09:15 ET (14:15 GMT)

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