MODERN MANAGEMENT STYLE BRINGS NEW LOOK TO TOTAL

Roger Vielvoye
International Editor

The sedate business style of Total Cie. Francaise des Petroles, conducted from its headquarters in the elegant Auteuil area of Paris, once earned the company the title of the Old Lady of Auteuil.

After years of gracious living, often in the shadow of her brasher rival, Ste. Nationale Elf Aquitaine, the old lady is being pensioned off. In her place Total's new president, Serge Tchuruk, is grooming a younger model for the 1990S.

He is selling the headquarters building, a symbol of the old regime, and has introduced a simplified corporate structure and a more aggressive style of operation with the aim of boosting profits and preparing for more uncertain market conditions in the coming decade.

Tchuruk said the move is more than the sale of a valuable asset. The closure of Auteuil will sever the links with the previous style of management.

Tchuruk took over the Total presidency 10 months ago. The appointment was made by the French government, whose 35% interest in the company brings with it the right to appoint the top man.

Tchuruk's record as a forceful manager indicated that changes at Total were likely.

He began his career with Mobil Corp., most of it in the downstream side of the business, ending up as head of the company's Benelux network with its Rotterdam refinery operation. From Mobil, he moved into the French chemical industry and earned a reputation for breathing life into ailing companies.

A REVAMPED TOTAL

The first changes at Total came quickly.

Tchuruk scrapped the complex bureaucratic corporate structure in favor of six divisions, each with clear responsibilities and improved communications with a drastically slimmed down central organization. Division heads sit on an executive committee with Tchuruk.

Exploration and production remained relatively untouched by the management revolution.

Refining and marketing, however, saw the powerful Total France network integrated into the rest of the European operation, which became part of Total Refining Marketing, the division that includes downstream operations in the U.S. and Africa.

The company's sizable gas operations, trading activities, and marine operations were combined into a single division with the Middle East, the company's largest single source of crude.

The three other divisions cover chemicals, mining, and finance.

The changes inevitably are leading to payroll cuts. White collar workers are bearing the brunt of layoffs, unlike previous staff cuts that hit the blue collar sectors hardest.

The move from Auteuil to two other sites in Paris will see a decline in the size of the central organization. But cuts also will hit other parts of the group.

A NEW STYLE

Tchuruk's changes are more than just a move of headquarters and a revamp of the company.

The new aggressive style of management is unlike anything seen in Total. Younger managers are being given their head, a new style of communication throughout the company is emerging, and various units are no longer content to play a subsidiary role in joint ventures.

Total is committed to becoming a leader in new ventures and playing a more active role in existing operations.

The speed of the changes has sent shockwaves throughout the company.

Yves-Rene Nanot, managing director of Total refining and marketing, said rapid, complete change of style has come as a considerable shock.

Nationalization of Total's equity oil in Algeria and the Middle East in the 1970s was as big a shock to the organization in terms of profits, cash flow, and the size of the company. But loss of equity oil was imposed by factors outside Total's control. The sweeping reorganization that started last year came from within the company

Many people are enjoying the new atmosphere in the company. Young, aggressive employees are excited at what is happening, Nanot said, even if not everyone finds it easy to come to terms with the new Total. There will be some who cannot adapt to the new regime.

Nanot said employees in downstream operations are encouraged to take more responsibility, think more as a global unit, and consider the repercussions of any actions on a worldwide basis.

As the company is now organized, ideas can spread around the system and people can develop initiative.

"That was not part of the culture of the group as organized," Nanot said. "People were used to a hierarchy in which if the boss said something it must be correct."

Nanot said it will take time to complete the change to the point that the new style of operation is second nature to everyone.

"You can get 80% of the change in the first year, but the other 20% takes longer," he said.

Looking to the future, Nanot said the downstream business wants to gain a foothold in the Far East, where it has a crude oil and gas sales position.

The company is bidding to be operator of a proposed 35 million ton/year refinery in Viet Nam in competition with the Royal Dutch/Shell Group and a group of Japanese companies.

INCREASED PROFITS

In the short term, Tchuruk sees a need to boost profits.

Total traditionally earned a 5-6% return on capital. The new target is 10%-possibly 12%.

Doubling the rate of return without the help of big crude oil price jumps will take time. But the immediate target of a 10% rate of return should be in reach by 1992, when the full effect of cost cutting and the new organizational structure will have worked through the system.

Along with the new structures will come rationalization of small, unprofitable operations. And as with other large oil companies, there will be a greater concentration on core lines of business.

Pierre Vaillaud, Total senior executive vice-president, said the small but profitable gold mining operation is on the market. However, the mining division is likely to remain largely intact due to extensive uranium operations that are a major supplier to Electricite de France, operator of the world's largest nuclear power generating network.

Total controls about 3% of world uranium production and trade with operations in the U.S., Canada, and France.

Total's coal mining operation, which represents about 4% of the volume of coal traded each year on international markets, is not considered part of its core business.

POLICY CHANGES

Tchuruk believes Total cannot remain completely autonomous. In the future it will have to contract out of some areas or be even more open to alliances with other companies. At this stage Tchuruk is not disclosing how this new thinking will affect the longer term shape of operations.

Changes also will become more apparent in manpower policies. Less bureaucracy will go hand in hand with delegation of responsibility to staff and the provision of greater opportunities to harness staff talents.

More opportunities for non-French personnel also will become apparent. Tchuruk says he is looking forward to the day when two members of the executive committee are nationalities other than French.

To ensure that anyone with potential moves up through the system Tchuruk is creating a small cadre of high fliers who will move around outside the hierarchical pyramid.

In many ways there are similarities between Total and the much larger British Petroleum Co. plc organization, which also is in the throes of a managerial revolution. Both started life in the Middle East living off trading of large crude oil surpluses. Both had government shareholders and developed a rather ponderous, civil service style bureaucracy.

BP has lost its government stake and has moved to banish civil service attitudes. Under Tchuruk the same process is taking place in Total, although there is no sign the French government has immediate plans to sell its interest in the company.

OIL AND GAS RESERVES

Total's reserves still reflect the fact that the company was raised on investment in the Middle East.

It has access to 3.2 billion bbl of crude in the Persian Gulf, mainly in Abu Dhabi, Dubai, and Oman, compared with 454 million bbl of proved developed and undeveloped reserves in other parts of the world.

Tchuruk said the Middle East will remain one of the important centers for Total, ensuring the company's place as one of the top two or three trading organizations worldwide.

As a company "known and respected in the Middle East," Total will be willing to assist in the opening of new reserves in the region, he said.

However, the biggest increase is expected in Total's substantial gas interests, with emphasis on Pacific Rim markets. The company has 5.5 tcf of proved reserves but so far only a little more than half of those reserves are subject to development plans, Vaillaud said.

Total is a major supplier to the fast growing Bontang LNG export chain in Indonesia. It is a partner in the Abu Dhabi LNG operation, which also is poised for a major expansion. Both plants supply LNG to Japan.

Alain Brion, managing director of the trading and Middle East division, said there was a reason to place trading, gas, marine operations, and the Middle East into a single organization.

Trading was based on Middle East oil supplies, most of which were sold in Far East markets where Total has no downstream connections. The marine operation is also heavily involved in routes from the Persian Gulf to the Far East.

Total's gas reserves were heavily oriented toward the Middle East and Indonesia, and main markets also were around the Pacific Rim.

The key to establishing LNG operations is marketing the gas, said Brion. The company's traders were very active in Far East markets that were most likely to be destinations for new LNG deliveries. Traders can promote the use of gas as well as supply crude oil.

Brion said Total is reviewing its marine transportation strategy. Most of the fleet was built in the 1970s, but because tankers have been well maintained 15-16 year old vessels have another 10 years of life in them.

"We have to decide whether we want to order new vessels or go into the secondhand market," Brion said. "This is something that will happen in 1991."

Everyone in the trading and Middle East division has been touched by change, Brion added. In this area the new structure was up and working within 2 months.

The division has about 600 people. Brion said most of them are in their 40s, replacing people aged 60 and over.

Thierry Desmarest, managing director of exploration and production, said 1990 was an extremely active year. He finds it very satisfying that for the fifth year running the company increased its reserves by 10%.

In outlining growth areas, he said operations in Northwest Europe had been expanded. Total bought Unocal Corp.'s Norwegian operations. And in the U.K. North Sea Total has a number of projects that will be based on its North Alwyn infrastructure.

Its initial agreement to cooperate in enhanced recovery in the Soviet Union's Romashkino field was supplemented by a production sharing agreement at the end of last year covering exploration and production in the Timan Pechora basin. Desmarest said production from this venture will start later this year.

The agreement, he said, is different from two other types of pacts the Soviets have signed with foreign companies. It covers proved but undeveloped fields and is designed to use Total's expertise and financial resources.

DOWNSTREAM PROBLEMS

Downstream operations remain Tchuruk's biggest headache.

When he arrived last year he found a downstream sector in which refining and marketing operations in Europe, the U.S., and Africa ran with very little coordination with one another.

Total has been top heavy in refining for many years. This has weighed on the group, acting as a deadweight that created psychological problems in management terms, tending to obscure the company's long term vision of the future.

The real problem was Total France, the French market leader that lost money for years. The French business outstripped non-French operations in volume, but its losses brought down the performance of the downstream sector in which a number of other affiliates performed very well.

Within months of his arrival, Iraq invaded Kuwait, gasoline prices rocketed, and normally respected businessmen were suddenly portrayed as robber barons.

Coming from chemicals, he was amazed at how little the public understood the workings of the oil industry. He accepts that speaking out in favor of the industry is difficult, but a more solid defense of actions on pricing and supply is needed, he said.

An indication of the importance Tchuruk attaches to downstream operations lies in his decision to take overall control of the refining and marketing division for the first 6 months with Nanot as managing director.

For a long time, the French downstream business had been run independently from the rest of refining and marketing, partly because of tight regulation of the French industry that has now disappeared. Total's French refineries served local markets and sold surplus products on international markets without consultations with other European affiliates. The same applied to investment decisions.

Nanot said there were four organizations with a common name and ties to the parent company. But there was very little organizational structure that forced things to happen together at any level except technically, where some research and development resources in France were made available to the rest of the organization.

Now the entire business has been reorganized along worldwide lines of other multinationals. Downstream groups all report to a single executive in Paris.

Nanot said, "We are trying to optimize our refining on a geographic basis that is more akin to requirements of markets in Europe, Africa, and America."

Having created a single European organization, the next move will be rationalization of investments during the next 5 years. All five European refineries will be treated equally in determining where investment, currently running at 1.5 billion francs ($290 million)/year, is made.

Tchuruk said 5-10 billion francs ($970 million-1.9 billion) also could be spent on deep conversion in next few years. Not all the plants will have the same priority, so they won't all get deep conversion right away.

Nanot said some money will be earmarked for deep conversion before the end of the year. The company launched a program to look at deep conversion in the second half of last year. It studied all the processes available. The choice had been narrowed to three major processes from 10.

Total also is seeking to boost its market share in Europe. It has ambitions in eastern Europe, starting in Hungary, and is assessing the market in southern Europe. In Italy, where Total sold its network 3 years ago after 20 years of heavy losses, Nanot said, "Something may happen for us one day."

U.S. DOWNSTREAM

Nanot said U.S. downstream operations are less affected by management changes than the rest of the organization.

In the past, information generated in the U.S. often provided insights into trends that could appear later in Europe. Nanot said Total did not capitalize on this knowledge.

U.S. downstream operations were very efficient with high class stations, high volumes, and low costs, he said. Although margins in the U.S. were the lowest in the world, volumes were higher.

Total has 600 company owned stations and another 2,000 points of sale handling Total products in the U.S. It also runs four refineries.

The Total brand is used in Michigan. Total products are sold under the Vickers sign in the Midwest and Colorado and under the Road Runner brand, bought in 1988, in Texas, Arkansas, and Colorado.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.