LONDON Sep 25, 2007 (Dow Jones Newswires)
Total SA (TOT) Chief Executive Christophe de Margerie said Tuesday that the Iranian Pars liquified natural gas project has reached an impasse, but he is confident other projects will give the company a growing presence in new regions.
Due to difficulties in negotiations with the National Iranian Oil Company, the Pars project is "stuck," he said.
The multi-billion-dollar project could eventually produce up to 10 million metric tons of LNG a year from the South Pars field in southern Iran.
De Margerie told an analysts' conference in London that pressure from the French government for Total not to deal with the Iranian government has had no effect on the negotiations, because there is as yet no contract to sign.
De Margerie said that even if a contract had been drafted, he would think very carefully before signing up to the project.
French Foreign Minister Bernard Kouchner said on French radio RTL last week that French companies, including Total and Gaz de France (1020848.FR), had been warned not to enter into new deals in Iran, although no ban is in place.
And Iran's Acting Oil Minister Gholam-Hossein Nozari said last week that the country would "reconsider" the Pars contract following differences over the price to be paid for its gas. De Margerie said Total's refining operations are still profitable, but to focus investment on the most profitable refining it will continue to expand capacity in regions to the east of its current operations. He cited as an example the Jubail project in Saudi Arabia, which is a joint venture with Saudi Aramco.
The higher margins from investment in refineries for upgrading heavy oil, like the $6 billion, 400,000 barrel-a-day Jubail project, will be key to maintaining refining profitability, he said. Total will also aim to produce more diesel and less gasoline, he said.
The expansion eastwards could mean selling or shutting down existing refineries, he said, without naming any specific facilities.
De Margerie warned oil companies operating in countries where 'resource nationalism' is upping the pressure to cede control of projects to national oil companies that they should "be adamant to keep the project on time and within budget, ... to avoid opening doors to renegotiations from national oil companies or from contractors."
"I think that today too many things are considered as being geopolitical, when they started from non-performance from oil companies," he said.
De Margerie didn't comment specifically on the Kashagan oil project in Kazakhstan. Project leader Eni (E) is under pressure from the Kazakh authorities, who are complaining of delays and cost overruns, to renegotiate terms.
Exploration and production remains Total's top priority, especially West Africa, and projects already underway worldwide should give the company sustainable production growth of 4% a year, he said.
Two-thirds of Totals' reserve replacement will come from exploration and a third through deals like its recent partnership with Russia's OAO Gazprom (GAZP.RS) to develop the Shtokman gas field, he said. By 2012, 70% of Total's capital will be employed upstream, he added.
De Margerie said oil prices above $60 a barrel are sustainable. "We see definitely Asian demand remaining extremely strong into the long term," he said. Total is still using a $50 a barrel as a benchmark for major projects, to allow for uncertainties, he said.
Investment for 2007 is under control at $16 billion, and Total's equity-debt ratio will remain at 25%-30%, he said.
Copyright (c) 2007 Dow Jones & Company, Inc.
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