GDF Suez's 2008 profits up 13% over 2007

Doris Leblond
OGJ Correspondent

PARIS, Mar. 10 -- Oil and gas prices and LNG arbitration opportunities, together with added value from asset sales, have largely contributed to 2008 GDF Suez's net profits, up 13% over 2007 to €6.5 billion.

The added value from asset sales, namely the 57% from Belgium's Distrigaz, also helped "exceed the targets" the group had set for the year despite a slumping economic environment in the fourth quarter and a number of negative factors. These include the €700 million discrepancy between the cost of its gas distribution in France and the tariffs set by the government, indicated Chairman and CEO Gerard Mestrallet at the group's first annual results since its merger at the Mar. 5 press conference.

Undeterred by the current economic environment, Mestrallet is confident that its long term "balanced industrial model" based on "three world-leading skills: LNG and gas supply; independent power production, of which 54% is gas-based; and energy services and efficiency," will be able to deliver operating income hovering at €17-18 billion by 2011 ("assuming an improved economic climate") compared with €8.8 billion in 2008.

Last year's operating income for global gas and LNG increased 97.7% over 2007 to €2,352 billion, and investments increased to €2.289 billion from €826,000 including both maintenance and development.

However the fall in oil prices will impact the global gas & LNG division by €1.5 billion this year, cautioned Mestrallet. Gas sales will also have consequences on distribution, which, he said, will just balance out. Nonetheless the investment program will underpin long-term growth. In addition, none of the group's hydrocarbon productions are unprofitable under current low oil prices, insisted Vice-Chairman and CEO Jean-Francois Cirelli.

Hydrocarbon production last year increased from 42.4 million bbl of oil equivalent (MMboe) in 2007 to 51.5 MMboe, of which 74% was gas and 26% oil. Of the production, 20% came from Norway, 20% from the UK, 22% from Germany, and 38% from the Netherlands.

Reserves
Proved reserves at yearend 2008 amounted to 704 MMboe of which 70% was gas and 30% oil. They are 49% in Norway, 21% in Germany, 17% in the Netherlands, and 11% in the UK

Last year, GDF Suez spent €174 million to drill 27 wells, of which 12 were successful and 3 undergoing commercial evaluation. The group has no plans to take advantage of the current slump to acquire further reserves or productions by taking over a troubled company.

GDF Suez mainly operates concession contracts; only about 2% of production and reserves are production-sharing contracts.

In addition to its own production, the group is the leading gas buyer in Europe with a diversified portfolio of long-term suppliers. The largest is Norway, which supplied 23% of the total 87 billion cu m , followed by the Netherlands 15%, Russia 14%, Middle East-Asia 12%, Algeria 11%, Trinidad and Tobago 8%, Egypt 6%, UK 4%, Libya 2%, and others 5%.

LNG
Despite "some tensions" on the LNG market because the US will need less gas as it develops its own unconventional supplies, Mestrallet is confident that LNG has a bright future; it is the best way to ensure supply security. LNG must be at the center of GDF Suez's mid and long-term strategy, he said.

The group has a leading position on the LNG value chain, with directly owned positions in liquefaction: the Idku train, Snohvit, and Atlantic LNG. It also has existing positions in regasification terminals: Everett, Fos Tonkin, Montoir-de-Bretagne, Zeebrugen, and Dahej in India. It also has terminals under construction, such as Fos Cavaou, Neptune (off Boston), GLN Mellijones, and Kochi in India. Projects currently being developed are in Singapore, Triton, and Rabaska in Quebec.

In addition, GDF Suez owns 5 methane carriers and exploits 15 others already in service and 5 being built, including 2 regasification vessels

All told, Mestrallet is confident that his well-diversified group has enough assets in the short-term to overcome the current crisis and can rely on good long-term prospects.

Concerning relations with Gazprom, Cirelli confirmed that Gazprom Vice-Pres. Alexander Medvedev was in Paris last week to discuss GDF Suez's possible participation in the Nord Stream gas line linking Russia to Germany. Cirelli said the group was interested in taking a minority stake in the venture providing the economic conditions were satisfactory.