Doris Leblond
OGJ Correspondent
PARIS, Feb. 13 -- Total SA is maintaining its overall investment program at the same $18 billion level as in 2008 despite the unfavorable economic and financial environment, even if oil prices remain below $40/bbl for some time, Chief Executive Christophe de Margerie told the press at a Feb. 12 conference on its 2008 results.
He said 75% of the outlays, or $14 billion, would be allotted for upstream, with exploration kept at practically the same $1.7 billion level as in 2008. This figure takes into account expected lower equipment costs and the company's maintaining discovery costs at around $2-3/boe. The group is also committed to reducing its development costs.
De Margerie said his integrated group in fourth quarter 2008 experienced a 16% decline of $3.8 billion leaving the group with a full-year record $20 billion of adjusted net income—a 22% increase over 2007. He pointed to the risk to sustainable long-term oil production capacity if what he called the "black scenario" were to be revived, "with oil prices rising before the economic upturn materializes."
"We are investing for 2014-20," he said, "strengthening our model for growth" and maintaining recruitment at a high level.
The group, in the short term, adapted to a difficult environment through cost reductions on projects, company-wide productivity plans, optimizing positions in Canadian heavy oil, and adapting refining and petrochemicals in Europe.
Pursuing the growth model meant maintaining the safety and environment priority as well as seizing new opportunities for strategic partnerships such as the partnership with Gazprom to develop a gas field in Bolivia.
Long-term growth also involved preparing a new wave of major projects for development in deep offshore areas (CLOV, Egina; LNG Ichthys, Shtokman, Nigeria, and Kashagan Phase 2.
While production fell last year by 2% to 2.34 million boed, last year's exploration campaigns added 2.5 billion boe to potential reserves, with a reserve replacement rate of 112%, excluding acquisitions and divestments and a proved reserve life maintained at 12 years.
Concerning the LNG market, De Margerie noted that the short-term market was fully supplied and believes that the US market is the "probable outlet for excess LNG supply," despite US development of shale gas and other unconventional gas.
For the long-term, he saw the LNG potential concentrated in Nigeria, Australia, and Iran, where Total is still studying the Pars LNG project with discussions "progressing slowly" with Iranian authorities. He said China National Petroleum Corp. would be part of the project.
In Indonesia, Exploration Vice-Pres. Yves-Louis Darricarrere told OGJ that Total and partner Inpex would soon sign a renewed contract for the Mahakam gas field LNG sales to a group of Japanese buyers. He was asking Indonesia's energy authorities to provide longer visibility for the 2011-17 Mahakam license, i.e., its extension to 2020 because investments would be needed to further develop the field.
Darricarrere also said he wished to renew an historic and long cooperation with Iraq. Iraq was the birthplace of Total in 1927, he recalled. He said Total's 50-50 joint venture with Chevron is taking part in the second bidding round involving 35 companies. He showed little enthusiasm for service contracts, doubting their efficiency.
Downstream
De Margerie described the short term downstream refining market environment as difficult, with demand falling and new refinery capacities coming on stream as well as continuing gasoline-diesel oil imbalance in the Atlantic. The fall in US gasoline demand would impact Europe's gasoline exports, and there is a great need to reduce refinery capacity to balance product supply with consumer demand.
However, he pointed out that Total had a large number of outlets for its gasoline worldwide so was less vulnerable to the imbalance than other refiners in Europe. He also indicated that Total would shut down no refineries this year but was adapting its refining in mature areas. Three European refineries—Antwerp, Leuna, and Vlissingen—out of the group's 11 in Europe, provided one quarter of Total's capacity.
The group is investing $1.3 billion in 2009 to improve its refining tool: a coker at Port Arthur as well as modernization and hydrodesulfurization at the Lindsey and Leuna refineries.
De Margerie was more bullish about the longer term as many refinery projects were being postponed or abandoned, so that capacity cuts in developed countries should lead to a better supply-demand balance.
Even though Total's petrochemicals are suffering less from the economic crisis than its large counterparts, indicated De Margerie, the group is also engaged in adapting its petrochemicals to the markets in mature areas. The styrene business is being concentrated in Europe, and in France the Carling cracker would be shut down in 2009, replaced with a world-scale cracker in Gonfreville, offering an additional 210,000 tonnes/year capacity.
In Algeria and Qatar, Total is developing projects based on ethane. The president of Total Chemicals, François Cornelis, explained to OGJ that the group intends to diversify petrochemicals feedstock away from naphtha and gas and is bringing on stream a methane-to-olefins demonstration plant at Feluy in Belgium. This is Total's second largest current research project after the Lacq CO2 capture and storage pilot plant.
