The U.S. government said Monday it may punish a Calgary-based company and a French firm for violating a U.S. law limiting energy investments in Iran.

A consortium made up of Canada's Bow Valley Energy and Elf Petroleum Iran signed a $300 million US deal last weekend to develop an oil field off Iran's coast in the Persian Gulf.

State Department spokesman James Rubin said the United States was "deeply disappointed" and concerned about the development.

He said the U.S. government will assess the deal under a U.S. law that seeks to punish foreign companies that invest more than $20 million US a year in the oil sectors of Iran or Libya-- countries the U.S. accuses to be sponsors of terrorism.

If "sanctionable" activity is found, the U.S. could impose sanctions on the companies, including preventing American banks from dealing with the companies and withholding some licences and other business.

Elf Petroleum Iran is a subsidiary of Paris-based Elf Aquitaine, one of Europe's biggest oil companies.

The cost of the project is expected to be $300 million US. When it is completed in 2001 it will produce about 40,000 barrels a day.

Under the six-year contract, Bow Valley and Elf Aquitaine are to be reimbursed and paid in crude oil.

The Balal oil field is located about 100 kilometres southwest of Lavan Island in the Persian Gulf. The reserves are estimated at 100 million barrels of good quality oil.