Total’s Chairman and CEO Patrick Pouyanné spoke to Pipeline Magazine exclusively in the build up to ADIPEC about the French oil giant’s meaningful strategy going forward that will help Total navigate the short term challenges while also preparing for the future
Do you think the oil price has now rebounded for good from its lows of early this year?
Since prices ﬁ rst started to fall in 2014, I have resisted making any predictions on the direction they would take. Our job at Total is not to speculate on the prices, it is to anticipate and adapt, to control whatever factors we can, and to stay proﬁ table whatever the ups and downs of the oil price. We need to stay focused on what we can control. This being said, there are some factors that we identify as having a possible inﬂ uence on prices going forward, as they will allow the market to gradually come back into balance. The one ﬁ gure I think is telling is that the industry has slashed capital spending from about 700 billion dollars in 2014 to 400 billion in 2016. This means that projects are not being sanctioned, and this in turn will mean less output down the line, while demand is set to remain strong. In the meantime, producing ﬁ elds decline at a natural rate of 5 per cent yearly. You do the maths: we might experience a production shortfall in the coming years. But remember that volatility is here to stay; it is inherent to the oil business – just as to any commodity business.
But Total’s output is still growing?
Yes, because this growth is the result of all the projects sanctioned before 2014 and that we have put and will put into production from 2015 to 2019. This is also the result of intense capital expenditure between 2013 and 2016. Last year, we achieved an output growth of 9 per cent in the upstream, the best performance among our peers. This was achieved thanks to nine start-ups. And in 2016, we will achieve more than 4 per cent of production growth thanks to ﬁ ve additional start-ups. And we still have nine large projects to put on stream in the next two years, among them some giant ones like Yamal LNG in Russia, Ichthys in Australia, Egina, Moho Nord in Africa. We expect to achieve a yearly growth rate of 5 per cent from 2014 to 2020. So in the medium term, we will have the output to generate the necessary cash ﬂ ows. And, with this strong level of output lined-up, we can afford to be very stringent on project discipline: this is how we have been able to bring down the cost of projects such as Kaombo or Zinia 2, in Angola. We are in no hurry to sanction projects, our priority is to sanction them only at the right cost and when we can be sure they are proﬁ table. And at the same time, now that the costs have really come down, the right strategy is to sanction new projects, to prepare our future growth beyond 2020.
How do you make sure projects are still proﬁ table in the current environment ?
There are factors we can control. Firstly, we carry out a thorough review of our portfolio, apply a cost-based merit curve approach, and focus on cost-competitive oil and gas projects, targeting a lower breakeven. This is why it was so crucial for Total to secure a 10 per cent share in the ADCO concession, one of the top level assets in our portfolio, or a 30 per cent in the Al Shaheen operations in Qatar, because these middle-eastern assets are highly competitive in terms of cost. And they resist better than others to price volatility. Secondly, we can still improve our operational skills. For instance, on the assets we operate, our production efﬁ ciency will be up by 4 per cent between 2014 and 2017. We are saving money on logistics, maintenance, drilling operations - thanks to a drastic reduction in non-productive time - and on structure costs, etc. The result is that we are still driving down our operating costs, maintaining our number one spot amongst the majors in this regard. Operating costs went down from 10 dollars per barrel in 2014 to 6 dollars in 2016 - and we are aiming for 5 dollars in 2018.
You mentioned Al Shaheen. How important was it to obtain a 30 per cent interest in this giant ﬁeld? How much extra production could this potentially lead to?
It was a historic day for Total (and by the way, we will start work in this concession on July, 14th, 2017, the National Day of France...), and a new milestone in our longstanding relationship with Qatar. It was an important win for us in the context of our strong presence in the Middle-East, and it is a great privilege to have a 30 per cent stake in the new operating company that will continue to develop Al-Shaheen. In my view, it was a buildup on the 10 per cent stake that we obtained in ADCO, in January 2015 for 40 years. The ADCO concession renewal was an absolutely crucial landmark, it gave us the opportunity to demonstrate our excellence and our strong commitment to Abu Dhabi and to the region. As you know, our commitment to Abu Dhabi is also materialized by the offshore ADMA concession, and we are deﬁ nitely willing to write the next chapters of this longstanding relationship with ADNOC.
Speaking about ADMA, what do you make of the consolidation with ZADCO?
I can only applaud to this initiative by H.E. Dr Sultan Al Jaber, new CEO of ADNOC because it fits with our own strategy to look for more efficiencies in our operations. Total is fully supportive of this initiative. We are convinced that this consolidation process will help to raise the operational performance and lower cost through synergies and efficiencies, to the benefit of all shareholders. It is fully in line with Total’s objectives to continue to lower costs across its assets base. This model is in place in Qatar for instance, where it has proved very effective, with Qatargas managing four different joint ventures, with different shareholders.
Looking to the end of the year - what major start-ups remain for Total?
I’m pleased, in one way, to say there are no remaining start-ups for 2016 because we have delivered the five planned projects for this year, of which three are operated by Total. At the beginning of the year, we started Laggan-Tormore - a 90,000 barrels of oil equivalent per day (boe/d) subsea-to-shore gas development in the UK. This was followed by Vega Pleyade in Argentina, which has a capacity of 70,000 boe/d. These two offshore developments were both complex projects, in challenging environments. In the summer, we started Incahuasi in Bolivia - a 50,000 boe/d deep onshore project, with a gas field that is 6,000 meters deep and has given us the opportunity to be an operator in Bolivia for the first time. If you add to that the restart of Angola LNG, and very recently the restart of Kashagan, we have achieved our targets. In addition to these start-ups, we were also able to access new resources, such as the Barnett shale play in the US, and of course Al-Shaheen in Qatar.
You have made cost savings a priority. Have you hit your cost saving target? Do you expect to make more savings in the coming years?
Not only have we hit the target, but we are exceeding it and raising the bar all the time. Total was the first company to move, as early as 2014 when the barrel was still high, as we had identified that the industrywide spiralling costs were not sustainable. The first goal we set ourselves was 800 million dollars of opex savings yearly, since when we have saved 1,5 billion dollars during 2015 and are set to save more than 2,7 billion in 2016. This allows us to now raise our target of opex savings to 4 billion from 2018. This is a strong commitment to our shareholders. We will also save money by adjusting our capital spending to a sustainable level of 15 to 17 billion dollars from next year.
With such stringent savings target, are you not worried that you might lose the support from your staff?
On the contrary. The reason it is working is because these cost saving initiatives come from our employees themselves, everywhere in the world. If you limit yourself to a top-down approach, you are bound to fail. What I see as a very positive development is that the best ideas come from our colleagues in the field, in every one of the 130 countries we operate in, and that a savings opportunity is now widely accepted as a positive thing. Savings are now considered as a success within Total and not as a burden! Mindsets have changed within the whole Group. This is also due to the fact that we did not have any lay-off plans for our employees: we reduced our recruitments but we are keeping all Total employees, and motivating them to execute the costs saving program. I believe everyone in the company feels involved in this essential process. Let me stress that in the upstream, these initiatives are not limited to our operated assets: we also advocate cost savings on non-operated projects. Take Dolphin for instance, where we’ve helped identify and implement more than 150 cost-saving initiatives. Take ADNOC, and GASCO, to whom we’ve sent secondees who are specifically in charge of cost-savings. Everyone is involved, which is a condition for maximum efficiency.
Isn’t the market also playing a part in bringing down costs?
Indeed. Discipline is paramount, but it is not the only factor. We are also seeing an important cost deflation, industry-wide, which we are able to benefit from. For instance, rig rates have come down by 50 per cent, subsea services by more than 30 per cent, maintenance operations by almost 30 per cent. But we estimate that in our opex reduction from $10/b to $6 per barrel, two thirds are linked to structural changes that will be sustainable and one third to market deflation. This clean-up of our industry costs was necessary and this effort must be prolonged, as it comes after years of excessive inflation.
Gas seems to be an important part of your mix, and a definite priority going forward. How do you intend to push Total’s gas segment?
We are definitely boosting our gas portfolio, and more particularly LNG. Ten years ago, the ratio was about two thirds oil and one third gas in our global portfolio. In 2015, it was 50/50. And given that gas is a market with a growing demand, the fastest-growing fossil segment, the share of gas in our portfolio is set to increase. Gas will play an important part in helping us achieve a mix with a lower carbon-intensity, as it is the less emissive of fossils fuels – twice as less emissive as coal in electric generation. We have great upstream projects lined-up, such as Ichthys in Australia, and Yamal in Russia, both due to start-up in 2017, as well as a development in Papua New Guinea, further down the line. In the MiddleEast, as you know, we are a founding partner of Dolphin Energy, the Gulf’s largest gas infrastructure, and a trans-border initiative, that helps us deliver fully reliable gas supplies to our customers in the Emirates.
Your strategy seems to be moving downstream in gas, as well?
Yes, we want to develop an integrated gas strategy, as we have developed an integrated oil strategy. Because we need to be proactive to support the gas demand in many countries if we want to be able to monetise our gas reserves. We want to be an integrated player in gas, and this means understanding
the midstream business, the marketing dynamics, and the needs of the end-user. This, for instance, is why we are looking to invest in some midstream infrastructure, where appropriate, or why we have bought Lampiris, a Belgian distributor of gas and renewable power. Total has a long standing customer-focused culture, which we have developed through our marketing and services operations; we want to take advantage of it as we develop in the gas business.
What is the logic of teaming up gas and renewables?
We have set a new division named “Gas Renewables & Power” because from a customer point of view, gas and renewables converge to power. The end-user needs power, whatever the feedstock is. When we think about what the world energy mix could be, in line with a 2°C objective as set by the COP 21 agreement, gas, renewable and energy storage might well be the right combination… without forgetting oil, together with CCUS in order to meet transportations requirements, and petrochemicals. We already are in the solar business with SunPower and in Abu Dhabi through the Shams solar power plant, a ground-breaking collaboration with Masdar. Energy storage is also key for the future of renewables, to make them competitive, which is why we purchased Saft, a top notch battery maker.
Are you looking at further asset sales?
We had announced a $10 billion asset sales programme from 2015 to 2017. With the announced sale of our specialty chemicals unit Atotech, we are in line with the targets as we have already sold almost 80 per cent of the divestment program. But at the same time as selling some assets, we also bought some. The idea is to align our asset base with our ambition in oil, gas and renewables. We are ready to spend money for assets that are meaningful - be it ADCO, Saft, or Lampiris. A meaningful strategy requires portfolio management, with both disposals and acquisitions.
The theme of this year’s ADIPEC is ‘Strategies for the new energy landscape’. How is Total aiming to prepare itself for the new energy landscape?
Let’s be clear, our core business is and will remain oil and gas, and we will carry this oil and gas DNA through the changing energy landscape. But preparing for the future means anticipating the changes, instead of scrambling to adapt when it’s too late. Total is agile enough to tackle the short term challenges while preparing also for the future. This means developing our integrated gas business, that will help us achieve the goals set out by the 2°C roadmap. Energy is Total’s past, present, and future. We will remain an energy major; our goal is for Total to become the responsible energy major: by which I mean a reliable, affordable and clean energy.