Total commitment to the UAE oil industry

Arnaud Breulliac, Total’s president of exploration and production, does not foresee an end to the hunt for major hydrocarbon discoveries but admits the company’s approach is changing.

“Big exploration days are not over, but we needed to readjust our targets and we’re doing this review as we speak,” he says.

France’s major oil company and a partner in Abu Dhabi Company for Onshore Petroleum Operations (Adco), the company operating Abu Dhabi’s largest onshore fields, continues to view the Middle East as a key area. Here, Mr Breulliac talks about the region’s oil and gas sector and his company’s role in it.

What are your thoughts on being a part of the Adco concession? How do you feel about your new Asian partners including Korea’s GS Energy and Japan’s Inpex?

The fact that we were chosen as the first partner, for us it’s a very good achievement. We have clearly factored into this deal the quality of the partnership. This is a country where we have just entered as a historic partner – which has been respected – and we’re opening a new page of 40 years. On such a long period of time, you have to value the deal in terms of the amount of barrels you are going to produce and the type of projects that you will have to realise. It requires a lot of capex [capital expenditure], so you have to invest a lot of money. Of course it’s a concession already producing 1.6 million barrels a day, so [we are] entering into existing assets which are producing. These are high-quality assets, very few fields of this quality in the world. Adnoc has high ambition of recovery factor which [matches our technology]. We think it’s normal for Japan’s Inpex to join Adco because of supply demand. We see the Koreans have joined and I am sure their contributions are very valuable, trustful and reliable. We know that there are discussions [with the Chinese]. Adnoc has said that they’re in no hurry to award the rest, and I’m sure they will choose the next partners very wisely.

What is the outlook for unconventionals, such as shale, in the region?

Unconventionals are a very important advance. It’s clear that unconventionals are new resources that have relatively high costs. The technical costs of unconventionals are much higher than conventional. The technical costs to produce oil from the largest fields in the Middle East is a few dollars. Offshore developments produce in the range of US$10 to $20 per barrel and deepwater oil is around $20 to $30 per barrel. Unconventional production usually runs above $50 and for a lot of the unconventionals, it’s slated to be more be more like $80 per barrel. We are in the very beginning of this [shale] exploration. We have a good idea of the potential of unconventional resources in North America and to a lesser degree, some indication in South America. However, in the Middle East, there’s still a lot of conventional oil and gas to produce.

While there may be plenty of reserves in the Middle East, what about unconventionals in places such as Egypt which has gone from gas exporter to importer?

Unlike the Middle East, that has large conventionals that still need to be explored, Egypt is different. It is importing gas and that’s expensive. The breakeven is different because its alternative is to import gas, and that is a different economic situation. Potentially, it could make sense for Egypt to explore unconventionals, but it doesn’t make sense for Abu Dhabi or in Saudi Arabia.

Is Total preparing to enter Iran if sanctions are lifted?

What is clear to us is that Iran is an important country in terms of oil and gas and long-term deals will be needed to fuel the energy balance in the world. As far as Total is concerned, we have two conditions [to go into Iran]. The first is that sanctions have to be lifted. It’s only when the sanctions are lifted that we will do anything. The second is we will need good contracts, and we’re still waiting to see what will be the details of the proposed contracts. We have no doubt Iran will be able to propose attractive fields, but whether the contractual terms will be attractive is another question.

What else is the company focused on for the year?

Costs in the current environment is of the essence. We had already embarked in a cost reduction strategy before oil prices began to slide. We were concerned already in 2013 that our costs were increasing, which was an industry trend, 7 to 8 per cent year on year. While the oil price was stable and above $100 a barrel, our costs were still increasing so our margins were being squeezed. We came with a plan in line with this year’s budget to reduce operating costs 15 to 17 per cent, and this was all during an environment of $100 a barrel. The fact that the price came down helped us a bit. It was all a leverage effect. We were prepared. We were in anticipation that if there were to be a downturn we would reduce our breakeven costs in operations. For a number of years, our focus was more on volume rather than value and if you combine the fact that there was a lot of pressure to have ever safer operations, even less environmental impact, more local content … we wanted to produce more so we were not looking at the cost implications of all of these constraints. What we’ve done in addition since the price came down was reduce our investment budget focusing on those projects which were marginal, such as brownfield projects [already developed]. These projects could have a business case for $100 a barrel but not at $50 so we shaved 10 per cent of our investment capital expenditure. We have a very clear roadmap. Our ambition is to reduce our breakeven by $40 per barrel so we will be just as profitable at $70 as we were at $100.

Many companies are looking to cut capex, or exploration and production, and add more value to operations – is Total looking to do the same and, if so, how?

We’ve reduced our exploration budget by 30 per cent. It was $2.8 billion last year and we’ve reduced it to $1.9bn for this year. We considered we were not spending our money well enough and needed to reorganise. We recruited a new senior vice president of exploration [Mike Sangster] at the end of last year, and he is currently reviewing the portfolio and setting new priorities.

What are your new priorities?

We had embarked three years ago on a high-risk/high-reward strategy for exploration. While that strategy is still varied, we were disappointed by the results in the first two years. So we decided that we needed to step back and review the portfolio and see where we should focus in the next three years. Now we are going to drill smaller objects with a higher permeability for success.

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LeAnne Graves

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