If you thought that operating one of the world’s top supermajors in the Gulf was simply a licence to print money, then think again. From sabotage in Yemen to politics in Iraq, the challenges that have built up on Arnaud Breuillac’s desk in Paris are eclipsed only by the opportunities that exist in this part of the world for those companies that are prepared to think innovatively and adapt to the quick-changing world of global demand.
As president of French giant Total’s Middle Eastern operations, Breuillac sits right at the core of what is arguably one of the biggest and most diversified operations ever launched by an international firm into the Gulf. In Abu Dhabi, for example, Total is working hand in hand with local national oil company (NOC) Adnoc on both onshore and offshore operations, as well as owning stakes in local gas, fertiliser and solar interests.
Perhaps Total’s primary focus right now is the Abu Dhabi onshore concession, which is up for renewal in January 2014. Testament to that deal’s importance was the bumper set of executives the French firm sent to ADIPEC last week, including charismatic chairman and CEO Christophe de Margerie. And while you get the feeling that Breuillac does not have ‘favourites’, his association with the UAE capital is a long one; some 30 years ago, the Total executive first cut his teeth on overseas projects at the Abu Al Bukhoosh offshore field.
“Energy demand is growing in Abu Dhabi — with the level of activity and the diversification of the economy, so this is where we want to be a partner of choice,” Breuillac says. “We will not only bring the technology, which we know we can propose to Abu Dhabi, but we can also develop some of the technology because it doesn’t exist today.
“We also need to take a wide view of the needs of Abu Dhabi with regard to its future energy needs,” he adds. “There’s probably a need to look at carbon sequestration and carbon dioxide emissions. Even if we are not the only firm that can propose this sort of mix of technology and strategic input, we have invested a lot in human resources locally.”
Breuillac is firm in his belief that Total can continue to be the best partner for Abu Dhabi, especially given the 75 years the firm has spent operating in the UAE capital. He cites the importance of the onshore concession, describing it as “the treasury of Abu Dhabi”, and also extols the virtues of the French firm’s academy, which has provided vocational training for young Emiratis, many of whom have gone on to work for Adnoc itself. Furthermore, the executive also points out that Total’s long experience in coping with more difficult extraction — he cites the firm’s long-held sour gas extraction expertise as an example — will come in handy as Abu Dhabi moves towards developing its more tricky fields. The lucrative nature of the onshore concession deal is such that it has already been subject to intense media speculation.
Other interested parties include BP and ExxonMobil, although the former was excluded from an initial list of bidders released last month following a reported inter-governmental rift between the UAE and the UK. But a quick visit to Abu Dhabi by British prime minister David Cameron in early November appears to have resolved that issue, with Adnoc director general Abdulla Nasser Al Suwaidi telling reporters last week that “everybody has a chance”.
“The only thing we know is that the concession will end in January 2014 — for the rest there is a lot of information flying around,” Breuillac says. “The reality is that we know Adnoc is working hard on the subject. They are well prepared, the process of consultation is ongoing and I’m sure they will make the right decision on the timeframe, because they have to. This is quite important — the ADCO operation is a key operation for Abu Dhabi’s future and it’s important for all parties involved to know what’s coming next. The countdown is on.”
Needless to say, Abu Dhabi is not the sole focus for Total in the region. In Iraq, production from the Halfaya field is coming onstream, while in Oman, Total’s contributions to liquefied natural gas (LNG) production are considerable. In the former, Total tied up with China National Petroleum Corporation (CNPC) and Malayia’s Petronas to further develop one of Iraq’s existing fields. Right now, Breuillac says Halfaya has an average production level of 90,000 barrels a day — well above the capacity that was expected by this time. However, while Total did not participate in the fourth round of licensing (for exploration, as opposed to already-discovered deposits — due to the type of contract that was on offer from the Iraqi government.
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“We know that the oil minister is now looking at maybe improving the terms and considering a fifth round,” says Breuillac. “Whether there is potential today to do much more exploration is yet to be seen, but we remain very open-minded on this subject.”
The fly in the ointment, when it comes to Iraq, is Total’s participation in three blocks in Kurdistan — a decision the firm made last year. While Breuillac describes the terms of that deal as “not very generous… with a high government take”, the move appears to have caused friction with the central Iraqi government, which has effectively indicated in August that Total either operate in Halfaya or Kurdistan, but not both.
Breuillac won’t comment on that issue, instead underlining Total’s commitment to developing Halfaya over three more phases. But the fact that the Iraqi government last week gave an ultimatum to Russian giant Gazprom Neft to exit Kurdistan or lose its concession in the southern Badra oilfield is a sign that the issue hasn’t been laid to rest. With ExxonMobil deciding to ditch its interest in West Qurna 1 in favour of oilfields run by the Erbil-led government, it seems that there is still some confusion about how Total’s Iraqi plans will pan out.
In Saudi Arabia, Total has teamed up with Saudi Aramco to build what will be one of the world’s most complex refineries — the $10bn Jubail heavy crude plant. That project will start up during the course of 2013, and Breuillac hints that further deals in the kingdom could be on the cards when it is fully commissioned.
“We discovered a lot of the capabilities of Saudi Aramco, and I think it really prepares the way for new partnerships,” he says. “In which form, and where — all of this is quite open for now, but there is a definite appetite, certainly on Total’s side, and I feel on both sides, to do more together in the future.”
Meanwhile, the French firm is also a key stakeholder in Yemen LNG, a project which represents the largest ever foreign investment — worth $5bn — into that country’s economy.
However, Total’s Yemeni operations have been beset by seven attacks on the Marib-Balhaf LNG pipeline, the last of which occurred at the end of October. Breuillac points out that the security situation is “not acceptable” and warns that “we could not continue with such a high frequency of sabotage”. Experience has taught the firm to repair the damage quickly and efficiently, and it is also investing in more checkpoints and reinforced surveillance, as well as reducing the number of its staff in the capital, Sana’a.
“We have a sort of paradox in Yemen, because you could see in 2011 that the country had more difficulties then than in 2012,” Breuillac says. “In 2012, the GCC plan was implemented, a president was elected, there is a government of national unity today, and therefore you would have expected this year to be better. But there have been far more attempts on the pipeline in 2012.
“We believe the situation can improve, and we are very hopeful and supportive about the ongoing process. Of course, this is of primary importance because it will affect the revenues of the state, so there is a high level of awareness and mobilisation from that respect.”
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And in Qatar, the firm has embedded itself via joint ventures with Qatar Petroleum (QP) and Qatargas, in addition to partnerships with local petrochemicals outfits and the Ras Laffan refinery. In addition, it is also looking closely at the future development of the Al Khaleej oilfield, as well as waiting to find out whether Qatar will reconsider the moratorium on the development of the giant North Field beyond 2014.
As Breuillac spends his time travelling back and forth from Paris to far-flung parts of the Arabian Peninsula, he is also having to contend with major shifts in the regional energy mix, as well as the recent push from Gulf NOCs to expand outside their comfort zones. Qatar’s QP is an example of the latter; in 2008, Total sold the Gulf NOC a stake in a Mauritanian exploration project, while it is also working with Abu Dhabi’s Mubadala on an offshore field in Malaysia.
Supermajors and NOCs have historically had close ties, but it is only within the last decade or so that the two biggest groups of players in the global energy industry have looked at overseas projects together.
“For us, it’s good to take our long-term partners on international ventures so they can see a bit more of the difficulties we are facing — these could be technological or regulatory challenges, from the point of view of host countries,” Breuillac says. “It’s extremely profitable on both sides — in the energy industry we are always seeking partners on exploration ventures. We cannot finance exploration risk on financial markets — it has to be done through our own equity and we’ve always tried to share it. It’s very, very unusual that a company would take 100 percent risk on an exploration venture.”
Of course, this is where the deep pockets of NOCs come in handy, but Breuillac insists that the aspiration to become more involved internationally came from the state-run firms themselves. As to further deals with Gulf NOCs, the executive says that there are many discussions, and not just on the exploration front. But perhaps an even more seismic shift will emerge in the next decade or so. Last week, the International Energy Agency (IEA) predicted that the US could outstrip Saudi Arabia to become the world’s top oil producing nation by 2017. And Total’s analysis indicates that the planet’s energy firms will need to find around 40 million barrels of new oil product a day (that’s four times the size of Saudi Arabia’s current output) just to keep pace with economic growth.
“Even with all the new developments, these will just compensate for the decline in existing fields,” says Breuillac. “This is a good measure of why we think oil production will sort of be plateauing by around 2020 or 2025. On the converse, we more potential for development in gas — such as the quite unexpected by quite spectacular shale gas developments in the US.”
In fact, Breuillac describes gas as “the swing energy”, with LNG’s flexibility being a key attribute. In addition, he also points out that the fact that the world’s energy deposits seem to be a bit more geographically widespread than before — with US shale gas and oil, deepsea deposits off South America, gas in Australia and exploration under way in Africa — ensures that the Middle East’s position as a hub for the industry will not necessarily decline.
“The fact that it is widespread means that potentially the risk associated [with the oil price] will be less, and maybe means the use of oil will continue for longer,” he says. “If there’s a higher dependency on oil from one region of the world, that creates tension.
“If we add up conventional and non-conventional resources, we see more than 100 years at current production levels for oil, and more than 130 for gas. That is actually very good: the economy needs energy, and at the moment it seems plentiful. And if we have a more sustainable view of oil and gas, that has to be good news for the Middle East.”
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