Total in Fresh Talks with Venezuela on Expanding Ops

DAVOS, Switzerland (THE WALL STREET JOURNAL via Dow Jones Newswires), Jan. 30, 2009

Total SA Chairman Thierry Desmarest said Friday the French oil giant is in fresh talks with the Venezuela government about expanding its operations in the South American nation.

"We are just at the beginning" of discussions, the chairman of the French oil giant said in an interview on the sidelines of the World Economic Forum here. "If Venezuela wants to offer opportunities on reasonable terms, of course we will look to those possibilities," he said, declining to provide further details.

Like several other Western oil companies, Total was burned two years ago in Venezuela after President Hugo Chavez nationalized much of the country's petroleum sector. In February last year, Venezuela said it would give Total $834 million in compensation for agreeing to take a minority stake in a new state-controlled company, PetroCedeño.

That company took control of the operations of Sincor, in which Total had held a 47% interest.

Sincor was one of four foreign-operated heavy oil ventures the Venezuelan government nationalized in 2007. The government's move largely backfired as foreign investment has since dried up and the country struggled to halt declining production.

Mr. Desmarest, who has been Total chairman since 1995, said he believes the current low oil price environment could help expand cooperation between international oil companies and state-run firms, which have been at loggerheads in recent years over contract terms.

"I think that the new context (of lower oil prices), efficiency in managing huge projects is a critical issue and a good combination between national oil companies and international oil companies can lead to real efficiencies," he said.

Mr. Desmarest also said Total, which reports earnings next week, should maintain capital expenditure this year at levels on par with 2008, when the company pumped roughly $20 billion into its drilling and refining operations. "Our intention is to continue to have very substantial capital expenditure," he said.

"Ten years ago we had the same problem of oil prices going down and many companies cut investment. We (Total) didn't. We felt (the sharp drop in oil prices) was just transitory and it was a good decision Total made. We developed capacity in the low price environment and (oil) prices eventually recovered," he said.

Total is experiencing delays with some of its operations in Canada, where it's in the process of boosting participation in heavy oil projects.

The company is also behind schedule with a 400,000 barrels-per-day joint-refining project with Saudi Aramco, the state-run national oil company. He said Total and its partners are trying to capitalize on falling raw material costs for steel and other basic inputs.

"These delays may be a matter of months for some projects and maybe a bit more for others we hope to obtain lower costs in the next few months or from construction companies," he said.

Mr. Desmarest said he doesn't believe a mega-major between big U.S. and European oil companies is in the cards for a number of reasons, including the regulatory obstacles. He said Total would be focused on small to medium-sized companies as part of its acquisition strategy.  

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