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Business

Total CEO eyes cutting costs, continuing Yamal LNG project

PARIS -- Patrick Pouyanne, CEO of major French oil company Total, said in an interview with The Nikkei that his company is discussing with Japanese financial institutions how to raise funds for its Yamal liquefied natural gas project in northwestern Russia. Total is having difficulty securing funding for the project. In view of the low crude oil prices, Total aims to cut costs by $3 billion over the next three years and strictly curb investment, Pouyanne said. Renewable energy will grow to 10% of Total's overall business within 15-20 years, he added.

Q: How do you reinforce the cooperation with Japanese partners like Inpex in Australia and Indonesia, Myanmar, etc? Do you have any concrete plans for cooperation?

A: We are developing a major LNG project with Inpex, the Ichthys project in Australia. In January, we were the first major company to sign a renewed concession in Abu Dhabi -- the Abu Dhabi Company for Onshore Petroleum Operations concession, which will run for 40 years. We are also teaming up with Mitsui & Co. in Italy on the Tempa Rossa project, which is currently under development. There are many others. The purpose of my visit to Japan is to strengthen these bonds with our Japanese partners.

Patrick Pouyanne, CEO of Total

Q: What is Total's business strategy in Asia and Oceania?

A: Asia is a big and growing market, especially for gas. Our presence in Asia has been defined by the gas business, historically and still today. We have historical growth positions in the gas business in Asia, for example in Indonesia, with Inpex, and in Thailand and Papua New Guinea. In Australia, we have invested in the Gladstone LNG project in Queensland, to produce LNG from coal bed methane, and the first cargo is expected in the next few days. With Inpex, we are also developing the Ichthys LNG project, which strengthens our foothold in the Australian market. In the Philippines, we are looking at growing our market share in the retail stations business. In South Korea, Total has an important petrochemical platform in partnership with Hanwha.

Q: What is your perspective on oil prices?

A: At present, supply is higher than demand, although demand is strong and increasing. We should see a demand increase of about 1.7-2 million barrels per day in 2015, the second largest yearly increase in 10 years. It is clearly driven by falling oil prices, which has encouraged consumption. In 2016, there will still be a lot of new capacity coming on stream, so I don't expect a big jump in prices. In the longer run, you need to keep an eye on future investment levels. If these decline, supply might fall, and prices rebound. We're in a commodity business, and volatility is part of the game. My role is to ensure that the company is profitable whatever the price is.

Q: Will this low oil price provoke M&As?

A: It will depend on how long prices stay low. In the commodity business, when prices are low, companies react by cutting costs to preserve their cash flows, and you might think that synergies between companies are a good way to do that. But I think it's a bit premature to be talking about M&A at this stage. 

Q: Total recently announced spending cuts and asset sales. What was their purpose?

A: We have been very resilient in the context of lower oil prices. In the first half of 2015, our results decreased by 12%, while the Brent (crude oil benchmark) price fell by almost 50%. We decided to act on costs before prices started going down, and in anticipation of upcoming difficulties.

     This year, we will be able to deliver more than $1.2 billion of savings and we have increased our three-year cost reduction plan to $3 billion. We are coming out of a highly intensive investment phase -- we will invest $23-24 billion this year; next year it will be around $20 billion to $21 billion. We are lowering our capital expenditures, but they are still at a substantial level. At the same time, we are increasing production -- an 11% increase in the first half of 2015, and more than 9% for the whole of 2015. This additional production growth delivers additional revenues.

     We have four words to describe our reaction to this low price environment: Safety (our top priority), Delivery (delivering our projects to turn them into actual production), Costs (the money we spend), and Cash (at the end of the day, cash is what fuels a company).

Q: The proportion of gas is increasing and surpasses oil. What does this mean for Total's strategy and business environment?

A: Ten years ago, we were producing about 70% oil and 30% gas; today it's 50-50%. It's our duty to participate in the evolution of the energy mix, to be able to deliver cleaner and better energy. LNG is also a very important area of development. Today, Total is No. 2 in the LNG business and we want to continue to grow in that business.

Q: Will gas's proportion increase?

A: Yes, because the gas market is growing by 1.5% yearly and the oil market is growing only by 0.5%. Our share of gas will grow accordingly. We strongly advocate gas, the cleanest of fossil fuels, in the energy mix, and we call for carbon pricing. Gas needs to be supported.

Q: How do you address climate change?

A: First of all, Total has decided to exit the coal business. This is consistent with what we believe -- gas is a cleaner energy than coal, so we promote gas and exit coal. We are also active in the renewable energy market, in particular the solar business, but also in bio-fuels like in the south of France, at La Mede refinery. We are the majority shareholder of SunPower, one of the largest solar companies in the world. And we recently announced that we will invest around $500 million per year in renewables from now on.

     Renewables have a small share of the energy mix, but it's a fast growing segment. It could reach 15-20%. In 15-20 years, we could have 10% of our business in renewables!

Q: Can you explain the concept of carbon pricing?

A: CO2 is a pollutant. If you don't give a price to CO2, coal remains cheaper than gas, although coal pollutes more. Carbon pricing is a way to add this factor to the equation. It's a way to help investors make decisions that are better for the environment.

Q: What is your stance on shale gas?

A: We have made large shale gas discoveries in Argentina, and in Europe we are looking carefully at the U.K., where we have exploration licenses. We have explored in Denmark, where we did find gas, but not enough to make it economical. The same thing happened in Poland. That's a good lesson, especially in France -- before entering a debate, you might as well explore to know what you're talking about! In China and Australia, we are at the early stages of exploration. But the most promising country, apart from the U.S. and Canada, is definitely Argentina.

Q: What is your strategy in Russia?

A: We are a shareholder of Novatek, of which we hold 18.9%, and we are a partner in the development of Yamal LNG, aimed at bringing energy to Asia and Europe. The sanctions have made the financing of this project more difficult, because we are not allowed to use dollars. But nothing is easy in this business, and when times are difficult you need to stand by your partners. Loyalty in difficult times is a very important value for Total.

     We are working with various banks, including Japanese banks, with the help of credit agencies, including Japan Bank for International Cooperation, to raise the funds. We will have the funds available in the coming months.

Interviewed by Nikkei staff writer Yasuo Takeuchi

Patrick Pouyanne

Patrick Pouyanne is a graduate of Ecole Polytechnique, one of the French "grandes ecoles." He began working for France's industry ministry in 1989, entered Total in 1997, and worked in Angola and Qatar. He was appointed chief of the company's refinery and chemicals division in 2012 and became CEO in October 2014.

Total

Total is one of the world's major oil companies and is the largest company in terms of sales in France. It was founded in 1924 as the Compagnie Francaise Des Petroles at the behest of French Prime Minister Raymond Poincare. The company was renamed Total in 1991. Headquartered in Paris, the company employs more than 100,000 workers and has operations in more than 130 countries. It explores for and refines oil and natural gas and operates service stations. The company saw net profit of $4.2 billion on sales of $236 billion in 2014.

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