Total CEO: Deep Offshore Drilling Essential Despite BP Spill

1st Jul 2010 21:20

By Geraldine Amiel Of DOW JONES NEWSWIRES PARIS (Dow Jones)--Drilling in deepwater oil fields remains essential in spite of the moratorium in the U.S. Gulf of Mexico following the BP PLC (BP, BP.LN) oil spill, said Total SA (TOT, FP.FR) Chief Executive Christophe de Margerie. Global demand for transportation fuels leaves no choice but to drill in such deepwater oil fields, he said. Exploration continues in other deep-sea fields around the world, such as the North Sea, off the west coast of Africa and offshore Brazil. "This remains a job that not only is normal but is necessary," he said in an interview with Dow Jones Newswires at his Paris office. "If we stopped producing in the North Sea, prices would soar." De Margerie's comments follow the April 20 explosion of a BP platform, which killed 11 workers and unleashed hundreds of thousands of barrels of oil into the Gulf, a gusher that is still flowing. Other oil executives including Chevron Corp. (CVX) CEO John Watson have similarly cautioned against imposing bans on drilling in waters over 200 meters deep. From his office atop of a building in La Defense, a business district west of Paris, de Margerie said he expects the BP spill to usher in more stringent safety measures globally, and that could mean higher oil prices as related costs are passed along to consumers. "Our policy is clearly towards zero risk," he said. "All this means extra attention, potential additional costs...and this might mean a slight delay before new projects are announced," he said. "This can only have a negative impact over oil prices" and push them higher. An oil price increase would be a turnaround from recent trends. After an increase at the start of the year, oil prices have remained relatively stable during the first half, due to the sovereign debt crisis, falling demand from developed countries and stricter environmental standards. De Margerie, 58 years old, has spent all his professional life at Total. Starting in the company's finance department in 1974 after studying business, he became head of Total's exploration and production division in 2002, and was named CEO in 2007. He runs one of the stars of the French economy. The company reported first-quarter profit of EUR2.61 billion ($3.2 billion) on revenue of EUR37.6 billion. But de Margerie sees rough seas ahead. In addition to the prospects of higher oil-exploration costs, Total faces difficulties turning around its oil-refining operations. First quarter refinery throughput dropped 11% on plant shutdowns designed to reduce operating losses. Last October, a Total official said its oil-refining division was losing around EUR100 million a month at the time. Total announced in February that it would cut its refining capacity by 500,000 barrels of crude a day, or 20%, by 2011, bringing it back to 2007 levels. The company is in the last stages of converting a Dunkirk refinery into a storage unit and has offered to sell its U.K.-based Lindsey plant. Such moves are controversial in France, and Dunkirk employees initiated a nation-wide strike, hoping to prevent the restructuring. Total pledged to the French government not to close any of its five remaining refineries in the country. "We never said we would do nothing further," in terms of capacities restructuring, de Margerie said. "We only committed neither to sell nor to close." A further blow to Total's profits could come from the euro's current weakening against the U.S. dollar. Total and other European producers buy their oil in dollars, but sell in euro at the gas pump. The exchange rate effect could hit European gas consumption--though this hasn't yet happened. "But it's clear that if the barrel [price] gets higher along with a weaker euro, there would surely be an impact," de Margerie said. He said the price of oil could easily bounce back to $90 a barrel by year end, as the BP well disaster was reducing investments in finding new fields. The spill in the Gulf "will probably trigger an additional delay in investment," he said. "There will be a very clear impact on production capacity." De Margerie said that pooling safety knowledge among those in the energy industry could be a key to improving safety standards without the costs becoming excessive. In the case of BP, he said, Total has offered to help stop the spill. "Many industry colleagues have offered support and we have accepted gratefully," a BP spokesman said. "Have we reached the limits [in safety measures]?" de Margerie asked. "No we haven't, we will never, we'll always look for something new. But I think that this should be done by working together. And instead of shouting at BP, we'd better sit and discuss over what to do in common." BP is spending billions of dollars to stop the spill and restore investors' trust, and has already announced plans to sell $10 billion in assets this year to raise money. De Margerie said Total would move cautiously as those properties come onto the market. "I won't be the first to take advantage of someone else's downfall," he said. Still, he added, "We'll have a look as we always look at potential opportunities all the time." -By Geraldine Amiel, Dow Jones Newswires; 33 1 4017 17167; [email protected] (James Herron contributed to this article.) (END) Dow Jones Newswires July 01, 2010 16:20 ET (20:20 GMT)