TOTAL: Prospective Bidder in the Lebanese First Licening Round

Among the companies pre-qualified for the Lebanese First Licensing Round is the French Oil Major TOTAL.

Lebanese Gas News will introduce the companies with high probability to bid on the offshore blocks in Lebanon.

During the oil price decline of the last two years, the one integrated major oil and gas company that has stood out as the most resilient and best-performing has been Total SA.

Company’s History

The company was founded in France in 1924, but the name Total was adopted only in 1991, when it became a public company, with the French state holding only 1% of its shares. In 1999, it took over Belgium’s Petrofina and in 2000 it merged with Elf Acquitaine to form the company we know today.

Total is the world’s fourth-ranked major oil and gas company, with activities in three major segments, covering the entire oil and gas chain:

    Upstream exploration and production
    Refining and petrochemicals and power generation
    Marketing and services

Total is also a global leader in solar energy and a world-class natural gas operator. It also has top class expertise in two highly-specialized areas, deep offshore and LNG. Gas, deep offshore and LNG are areas of expertise that position Total well in its exploration and production offshore Cyprus.

Total employs 96,000 people and has operations in 130 countries, with over 16,000 service stations, and a current market capitalization of US$127 billion.

Total’s performance

During the last two years Total has been very successful in reducing its operating costs by $4.2 billion and its capital spending by 50%. The company plans further $4billion savings and Capex reductions during the next three years.

These have contributed to Total’s resilient performance in comparison to its peers. Even though its revenue dropped by 30% since 2014 to $165billion in 2015, due to the low oil price, it managed to deliver a profit of $10.5 billion, only 18% less  than in 2014.

Total has a solid production-growth profile. Its reserve replacement ratio is about 107%, with 11.6 billion barrels of oil-equivalent (boe) proved reserves in 2015. And this after increasing its production by 10% since 2014 – by the end of 2016 it was producing 2.45 million boe/day.

Total has also been investing in renewables. Last year, it was the winner of the 2016 Award for Leadership in New Energy. The award recognizes a company at the forefront of the energy transition from traditional fossil-fuels to lower-carbon energy systems. Total has emerged as a leader among oil majors in adapting its business model to the climate challenge.

The company is on-track for new projects to add 350,000 b/day in 2017. The addition of several highly profitable production sources, such as the ADCO concession contract in Abu Dhabi and production from Kashagan in Kazakhstan, and new interests in Uganda and Brazil, are helping Total keep upstream earnings up, while its refining and marketing are producing improving results.

Total’s strategy and outlook

Total’s CEO Patrick Pouyanné presented the company’s Strategy and Outlook to 2020 in September 2016.

In the short term, in an environment where oil and gas prices have fallen significantly and remain volatile, Total is focused on being “excellent at everything it can control”:
    Increasing operational cost savings to $4 billion by 2018
    Delivering growth from 2017 onwards with Capex at $15-$17 billion/year, from $23 billion in 2015, due to further Capex and cost reductions
    Growing production by an average rate of 5% per year from 2014 through to 2020

Results for 2015 and 2016 demonstrate the strength of Total’s integrated business model and the progress it is making to reduce its break-even costs and deliver growth projects.

Total’s main objective is to be the most profitable European integrated major oil and gas company. Its ability to reduce costs should pay dividends as oil prices recover.

In 2017, the company expects to cover operational and Capex costs, including resource renewal, and dividend pay-out at an oil price of $55/b. Thereafter, it is budgeting to achieve a return of 10% on equity and improve profitability at $60/b.

Total has been selected with ENI during Cyprus 3rd licensing round for the award of Block 6. Since 2014 it operates Cyprus Block 10, won in the second Licensing round.

IHS, in a recent article, described Total’s exploration well in Cyprus Block 10 as “one of the most critical wells to be drilled globally in 2017 for the E&P industry”, going on to say “the Zohr gas discovery in Egypt was a play-opener for the region – it has caused companies to rethink the region’s gas potential and take a closer look at the geology”.

This is an additional reason which is pushing TOTAL to participate in the Lebanese Licensing Round as there are high hopes from recent big gas finds in East Med, but market access in a low gas price environment is a challenge and will be crucial. This is where Total’s LNG and FLNG expertise may come in handy. So, not only may Total’s participation in the First Licensing round be important for Lebanon, but also its FLNG expertise may open up new avenues and export markets for the Lebanese gas.