French oil and gas major Total SA plans to increase investment in boosting oil production in 2008 as higher oil prices bring in extra revenue, CEO Christophe de Margerie said Saturday.
But investment today in raising production would take “4-5 years” to affect prices, de Margerie said in an interview on Europe 1, a French radio station. “When you have a demand that is strong like that of today and an incapacity to raise production ... I don’t see how prices could fall rapidly and strongly,” he said. High prices for crude oil, which traded at $100 a barrel on Wednesday, have brought extra revenue: “Firstly to producer countries, a little bit to the companies, but they need this money to invest,” de Margerie said.
Total’s spending on investment, which he said was just over $16 billion in 2007, “will be in strong augmentation in 2008 and probably in 2009 and 2010,” de Margerie said in the interview. As for the blocked negotiations to begin production at Kazakhstan’s Kashagan oil field, in which Total has a stake and Italian counterpart Eni SpA is the operator, de Margerie said: “We will find a solution,” adding that he plans to travel to the country on Jan. 11 for negotiations between consortium members and the Kazakh government. “It is evident that when oil prices are high as today, that creates a demand on the part of producer countries and they want to increase their margins,” he added, in reference to the Kashagan negotiations.
With its 13 billion barrels of recoverable reserves, Kashagan is one of the largest discoveries of the past 30 years. Development of the oil field has been stalled for the past six months amid a dispute between the foreign consortium and Kazakh authorities, who were demanding a bigger share of the project’s returns. Eni holds an 18.5% stake in the development consortium, the same as ExxonMobil Corp., Royal Dutch Shell PLC and Total. ConocoPhillips has 9.3%, while Japan’s Inpex Holdings Inc. (1605.TO) and Kazakhstan’s state oil and gas company KazMunaiGas each own 8.3%. Kazakhstan has sought to increase KazMunaiGas’ share in Kashagan and an “adequate” compensation as ways to resolve the dispute over rising costs and repeated production delays at the field.
In France, de Margerie said in the Europe 1 interview that Total will continue to live up to its commitment, reiterated at a Nov. 10 meeting with Finance Minister Christine Lagarde, “not to pass on price rises on the oil market too quickly” to consumers. “I would challenge anyone to say to me, over the period of a year, that we have not respected our commitments,” he said, in response to a challenge by consumer group UFC-Que Choisir, evoked in the interview. But it is extra production, and not controls on distribution margins, that would make a real difference to the price at the gasoline pump, de Margerie said, highlighting that distribution margins in France “are among the lowest in Europe.” And, asked about Total’s interest in nuclear power, de Margerie said taking a larger stake in French nuclear engineering company Areva (CEI.FR) “is not the subject of today. Today, for us, it is to learn a new line of business.” Total currently holds 1.02% of Areva. (MarketWatch)