Exclusive cover interview: The French juggernaut
Total's E&P chief, Arnaud Breuillac, tells O&GME what the landmark win means for the French energy giant, and opens up about plans for re-entering Iran.
Total has won a 30% stake in a historic new 25-year contract to operate Qatar’s Al-Shaheen, one of the largest offshore oilfields in the world. This is Total’s second major upstream development deal in the GCC in as many years. How do you feel about this achievement?
It was an historic day and a new milestone in our longstanding relationship with Qatar. In early May, we celebrated our 80 year presence in Qatar, and less than two months later, we came back to sign the agreement for a 30% stake in the new operating company that will continue to operate and develop Al-Shaheen. We are honoured to have been entrusted by Qatar Petroleum (QP) to join them on this major asset. With a production of 300,000 barrels per day, Al-Shaheen is the largest oil field in Qatar and one of the largest in the world. As it is comparatively low-cost in a period where we are reviewing and assessing our assets on a merit curb basis, it is also the type of asset that we want to have in our portfolio.
What factors do you think enabled Total to beat the stiff competition from its global peers?
Qatar Petroleum was looking for a partner with world-class technical abilities, and I think we provide just that. In the end, we know that it was the technical and commercial quality of our offer that allowed us to come out on top. We devoted a lot of preparation and energy to this bid, with more than 150 people involved, from a variety of departments: our team in Qatar, our teams from business development, our teams from project and operations, HSE and legal in the HQ. This across-the-board collaboration paid off, and I’d like to say that this was truly a great effort.
Now that QP has announced Total as its partner for Al-Shaheen, could you outline how Total plans to develop this vast oilfield?
The challenges lie ahead of us, and now we have a lot of work to do to be ready on 14 July, 2017, when the North Oil Company takes over as operator. Our first objective is to maintain a safe production of 300,000 bpd for 25 years. Then, in collaboration with QP, we will study whether the production can be increased to a higher level without putting the ultimate oil recovery for the field in jeopardy.
What of existing operator Maersk Oil’s employees working on Al-Shaheen; would Total offer jobs to them along with QP?
Saad al Kaabi, the CEO of QP, has made it very clear: on the very day that he signed the deal with Total, he also signed a letter to every employee guaranteeing them a job in the new venture. It is both a question of social duty and a sound economic decision: this field has been in production for almost 25 years and the operating teams have immensely valuable knowledge and experience that we will need for the next 25 years. We will rely on the teams with know-how, while also sending about 100 secondees to the new operating company.
What other activities are Total involved with in Qatar?
We have been in Qatar for 80 uninterrupted years, and we are present all over the oil and gas value chain: exploration and production, refining and petrochemicals, and the marketing of lubricants. As well as operating Al Khalij offshore fields, we own significant interests in the most prominent energy joint ventures in Qatar, including Qatargas 1 & 2, Dolphin Energy, Ras Laffan Refinery, Qapco and Qatofin. And I can tell you that Total’s integrated model is a key strength in Qatar, just as in the rest of the world.
Can you elaborate on the Dolphin Gas project and the part that Total has played in executing this tri-nation gas pipeline project? How is it helping the UAE and Oman meet gas requirements?
Dolphin Energy, the Gulf’s first and largest gas infrastructure, linking several countries in the GCC, is a unique example of regional integration, and of the benefits of economic co-operation and partnerships. It supplies the UAE and Oman with natural gas produced in Qatar, in the North Field. It is processed at Ras Laffan and then exported to the UAE through a 360km subsea pipeline. Total is proud to be part of this trans-border initiative, to have been a founding partner, involved since its inception, and to be able to deliver fully reliable gas supplies to our customers. We are hoping to see even more gas flowing through the pipe.
Total is exploring energy opportunities in Iran. What are the company’s expectations in the post-sanctions period?
Total has a long history in Iran, where we started operations in 1954. Then, in the mid-90s, we signed four buyback contracts under which we agreed to finance and develop several fields for turnkey delivery to state-owned NIOC. We also worked on a certain number of new oil and gas projects before negotiations were disrupted as a result of the economic sanctions in 2010. We have nonetheless maintained our office in Tehran during these years. Energy is a long-haul industry and I believe our past commitment and the satisfactory execution of our projects are the main reasons why the Iranian authorities have expressed a desire to see Total return to their country.
Total has reportedly signed an MoU with Iran’s NIOC during Iranian President Hassan Rouhani’s visit to France earlier this year. What did this cover?
When President Rouhani visited Paris in January this year, I signed – on behalf of Total – an agreement that essentially covered two topics. First, the purchasing of crude oil from Iran, for our refineries in Europe, which is interesting when you remember that French refineries were initially designed to process sweet Iranian crude. The other topic was a memorandum of understanding giving access to technical data, in order to allow us to assess potential developments.
What are your thoughts on Total’s chances in Iran and how successfully do you believe the firm can do business in the Islamic Republic?
Iran has huge oil and gas reserves with relatively low production costs. With a population of 80 million, Iran is also a vast market that offers opportunities: for instance, strong domestic demand for gas sales. We are exploring opportunities and we need to find a mutually acceptable and profitable business framework.
At the beginning of 2015, Total renewed its concession pact with ADCO for another 40 years. Of what significance was this deal, and how will you help ADNOC to meet its target of raising oil production?
Winning the entry into the new ADCO concession, for the next 40 years, was a major success. Especially as we have been chosen first, among a number of reputable oil majors, and entrusted with the role of technical leader. I cannot stress enough how important it has been for us to obtain 10% of a 1.6 billion bpd concession. ADCO allows us to strengthen our position in the Middle East, which is a key area for us. In the current environment, when the price of oil is low, we are focussing on the best barrels, with low technical costs. In that respect, the ADCO concession is a great asset to have in our portfolio.
Total’s subsidiary – Total Abu Al Bukhoosh – has been operated by Total since its inception. What is your take on Total ABK and how do you plan to grow this subsidiary?
As the operator of the Abu Al Bukhoosh oilfield since 1974, Total became the first foreign company to directly operate both an oil and a gas field in the UAE. What makes us most proud is that we have been able to maximise recovery, reaching a 50% rate on some of the oil reservoirs, where the industry average is more often around 35%. We were able to do that thanks to our advanced understanding of reservoir management. We are also operating the Khuff gas development on behalf of ADNOC.
What are your plans to strengthen your foothold in Abu Dhabi? Are there any new agreements that Total might be planning with ADNOC?
Our priority today is ADCO, where work is ongoing to unlock all the value of the field. The Abu Al Bukoosh and ADMA concessions will expire in 2018, however, so we are definitely willing to continue to develop those fields along with ADNOC.
Total’s involvement in Saudi Arabia has been mainly limited to the refining and petrochemicals sector. Do you intend to raise Total’s upstream profile in KSA by collaborating with Saudi Aramco?
We are following with great interest the changes that the country is going through, and the long-term vision that its leaders are deploying for the years to come, which implies transitioning to a more diverse economy. The Vision 2030 roadmap has certainly caught the attention of the world. We have a great downstream partnership with Saudi Aramco through our Satorp joint venture, and we have demonstrated that we could be partners of choice in the Middle East, as well as reliable operators. So we hope to have the opportunity to further develop our partnership with Saudi Aramco in the future.
What would you say of Total’s gas production capabilities? Does the company have plans to boost its gas portfolio or would you rather focus on the upstream oil E&P business?
We are definitely boosting our gas portfolio, and more particularly LNG. Ten years ago, the ratio was about two-thirds oil and one-third gas in our global portfolio. In 2015, it was 50/50. And given that gas is a market with a growing demand – the fastest-growing fossil fuel segment – the share of gas in our portfolio is set to increase. Gas will play an important part in helping us achieve a mix with a lower carbon intensity, as it is a less emissive fossils fuel. It is a critical part of our roadmap. From September, our gas business will be lodged in a new branch – Gas, Renewables and Power – which is designed to maximise the potential synergies between these businesses, and help us to become a more integrated actor along the gas value chain. As our recently published Integrating Climate to our Strategy report sets out, gas is instrumental to helping us achieve the ambition of becoming the responsible energy major.
What can you tell us about Total’s global financial results so far in 2016, and the various factors that are affecting this?
In 2015, Total posted the best results among the majors. While the oil price went down by 50%, our adjusted net income was down by only 18%, at $10.5bn. We showed a very strong resistance in a difficult environment. This achievement was made possible thanks to our integrated model, and the great contribution of our downstream businesses. But I have to stress that our upstream business also showed a great resilience, and was able to deliver the cashflows, thanks to a 9.4% increase in output. This year will be in the same spirit as 2015, with an even higher level of discipline: we will curb our CAPEX and allocate them wisely, be stringent on operating costs, so as to remain the lowest technical cost producer among majors, and keep our focus on delivering projects.
Is Total going to lean more towards its downstream/refining business in the future, as developing the petrochemicals side appears to be becoming more profitable for energy giants?
From the beginning, Total has been a fully integrated company. I have already stressed the benefits of being active all over the oil and gas value chain, as it has helped Total to perform well in 2015. While some integrated oil and gas companies decided in recent years to split their businesses, we have been determined to stick to this fully integrated model, which is a defining feature of Total. Going forward, expect Total to remain a big player all over the value chain, including downstream.
Much like other global energy giants, Total has announced plans to reduce capital expenditure. Does this mean Total is going to reduce its expenditure on aspects such as oilfield services, HSE, or IT and digitalisation? Is this just a measure to withstand the low oil price period or has the company entered into a new era where it has revised its global business strategy?
The whole industry has been cutting CAPEX. In 2014, the industry worldwide invested $700bn, which is now closer to $400bn. This happened in reaction to the falling oil prices, as adjusting your CAPEX level is always a move that pays off in the short term. Total has done the same: our CAPEX peaked at $28bn in 2013, and we are now targeting less than $19bn from 2016, which is a more sustainable long-term level. But reducing CAPEX does not mean changing strategy. If anything, it means focussing even more on your strategic strengths. It forces you to allocate your CAPEX in the most efficient way. The one thing that will never be compromised as a result of cost-cutting is safety, which is a cornerstone of our strategy and a value across the company.
Does Total plan to reduce its workforce globally and, if so, in which particular countries or regions would lay-offs be executed, and how would you go about doing this?
The current environment has made it essential to adapt, and we believe that we have been particularly responsive, as demonstrated by our results in the last 18 months. Cutting CAPEX, adjusting our exploration budget, reducing operating costs through a company-wide effort, and reviewing our operating methods, are all means of adapting. When it comes to the workforce, we have a different approach from most of our competitors. We consider that the investment in the development of employees is too valuable to waste. Our employees are an asset for the company and we know that we will need them for our future.