TotalFinaElf upstream reorganization will boost production

The merger of TotalFina and Elf has given a tremendous boost to the new group's upstream division, which plans to increase production nearly 40% by 2005. Synergies from the merger are now estimated to be 690 million euros/year from 2003 onwards. Jean-Luc Vermeulen, head of the exploration and production division of TotalFinaElf SA, told a panel of journalists last week that the firm's momentum will be sustained through a strategy that combines growth and profitability.


PARIS�The merger of TotalFina and Elf has given a tremendous boost to the new group's upstream division, which plans to increase production nearly 40% by 2005. Synergies from the merger are now estimated to be 690 million euros/year from 2003 onwards. Jean-Luc Vermeulen, head of the exploration and production division of TotalFinaElf SA, told a panel of journalists here last week that the firm's momentum will be sustained through a strategy that combines growth and profitability.

TotalFinaElf's upstream reorganization is nearly complete. The new organization consists of five managers from Elf and five from TotalFina, all of whom report to a steering committee made up of members of upstream management.

The integration process is on track, with a staff of 1,300 organized in 400 working groups�250 in France and 150 abroad. Sixty percent of the merger-related tasks have already been completed, and the new E&P organization should be fully in place this fall.

By 2005, the company plans to increase production by nearly 40% to 2.8 million boe/d; maintain current 13-year reserve life; reduce technical costs from $7.40/boe in 1999, pro forma, to less than $6.50/boe in 2003; and improve the profitability of invested capital to achieve, by 2003, a 17.5% return based on $17/bbl Brent crude and a 15% return based on $15/bbl Brent.

Global balance
TotalFinaElf's global upstream asset portfolio spans 44 countries. Vermeulen pointed to a "well-balanced" asset base in the major oil basins�Asia and Americas, 24%; Africa, 29%; Europe, 26%; and the Middle East, 21%. Four countries in which the firm has more than 1 billion boe reserves account for 50% of total reserves, while three countries in the 0.5-1 billion boe range account for 20% of total reserves.

While the North Sea is a mature area, the group will extract as many barrels of oil as possible from it, says Vermeulen. He predicts Africa will post the strongest production growth for the firm, through properties in the Gulf of Guinea, Libya, and Algeria. To already developed reserves in the Middle East will be added fields in Iran and, with luck, Saudi Arabia and Kuwait, says Vermeulen. In Southeast Asia, the group is the fourth largest gas producer�mainly in Indonesia�and plans to develop more resources for emerging markets now under evaluation. And in South America, Bolivia is proving very promising, as is Brazil's deep offshore area, he noted.

Before yearend 2000, a number of fields currently under development by TotalFinaElf will be started up: Elgin-Franklin in the North Sea, Girassol in Angola's deep offshore, South Pars in Iran, and the Sincor extraheavy oil project in Venezuela. TotalFinaElf is operator of 2 million boe/d of production and will be operator of most of these production increase.

This, said Vermeulen, gives the group greater control over operations, closer relations with host countries, and enhanced access to new opportunities. It also means taking advantage of the cutting-edge technologies developed separately by Total and Elf and now combined: Elf's deep offshore and acid gas expertise and Total's heavy oil and polyphasic transport know-how.

Production growth should be especially strong for gas, possibly as high as 15%/year. By 2005, the merged group should account for 8% of world LNG sales, ahead of ExxonMobil Corp. and creeping up on Royal Dutch/Shell Group's dominant position. Oil now accounts for two thirds of TotalFinaElf's production and gas for the remainder.

Exploration will be pursued to the tune of about $700 million/year in expenditures in the world's "hot spots," with 47% of this budget devoted to the deep offshore, mainly in Brazil and the Gulf of Mexico but also in Egypt and elsewhere. In more conventional areas, great hopes are being nurtured in Kazakhstan on the Kashagan permit, where the group has a 14.3% stake in a field that it says could equal the Tengiz supergiant.

TotalFinaElf also says its range of E&P contracts gives it an edge to bolster resistance to lower hydrocarbon prices. It has buy-back and service contracts in Iran and Syria and fixed-margin contracts in the Middle East, Nigeria, and Cameroon. In the Southern Cone of South America, as well as Southeast Asia, the gas market is not linked to oil price fluctuations, Vermeulen noted.

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