US embassy cable - 05PARIS328

UNCLAS SECTION 01 OF 04 PARIS 000328 
 
SIPDIS 
 
SENSITIVE 
 
STATE ALSO FOR EB/ESC, EUR/ERA, AND EUR/WE 
DOE FOR ROBERT PRICE PI-32 
 
E.O. 12958: N/A 
TAGS: EPET, ETTC, ENRG, EINV, PINR, FR 
SUBJECT: FRANCE: TOUR D'HORIZON WITH TOTAL CEO 
 
Ref: 03 Paris 8019 
 
1. (SBU) SUMMARY.  Over lunch with the Ambassador January 
13, Total CEO Thierry Desmarest provided a wide-ranging 
overview of developments in the world oil and gas sectors. 
Among the highlights were his description of Total's 
activities in Iran and Libya, and his view of China's 
aggressiveness in securing worldwide energy supplies.  END 
SUMMARY. 
 
---------- 
BACKGROUND 
---------- 
 
2. (U) The Ambassador hosted Total CEO Thierry Desmarest 
January 13 for a wide-ranging discussion of global energy 
developments.  Desmarest was joined by his Executive VP for 
Exploration and Development Christophe de Margerie.  DCM, 
EconCouns and PolCouns accompanied the Ambassador. 
 
3. (U) Total is France's largest company, and the result of 
the amalgamation of the historic French Total, Belgian 
Petrofina and French state oil company Elf-Aquitaine. 
Having consolidated its name and logo in 2003, the Total 
Group claims to be the fourth largest international oil and 
gas company in the world (after ExxonMobil, BP Amoco, and 
Royal Dutch Shell, and just ahead of ChevronTexaco), 
operating in more than 130 countries with over 110,000 
employees.  Total's worldwide operations are conducted 
through three business segments:  upstream, downstream, and 
chemicals.  Now completely privatized, 60 percent of Total's 
shareholders come from the euro zone, 20 percent from North 
America and 20 percent from the UK.  Total is the 
predominant oil and gas company in Africa and is the number 
two international company in the Middle East. 
 
4. (SBU) Asked by the Ambassador about reports that Total 
may be looking to sell its chemicals business, Desmarest 
said that the company is satisfied with its petrochemical 
and specialty chemical operations, but would likely spin off 
its intermediate (industrial) chemicals business.  Liability 
issues are clearly a factor, as Desmarest noted that legal 
suits in this sector are a danger for "a deep-pocketed 
company."  (For example, Desmarest claimed that a September 
2001 explosion at their chemical fertilizer plant in 
Toulouse cost the company $1.5 billion after insurance 
compensation.) 
 
--------------- 
U.S. OPERATIONS 
--------------- 
 
5. (U) Although Total sold its 55% stake in its North 
American arm, Total Petroleum, to Ultramar Diamond Shamrock 
in 1996, the company still has a number of activities in the 
U.S. dating from its absorption of Petrofina and Elf.  These 
include a Petrofina refinery, some of Elf's chemical 
business and some deepwater Gulf of Mexico operations.  U.S. 
investors own some 20 percent of Total's equity. 
 
--------------------------------- 
WORLD OIL PRICE OUTLOOK AND CHINA 
--------------------------------- 
 
6. (SBU) Desmarest believes that we should see oil prices of 
US$30-35 per barrel (Brent) later this year, noting that 
prices have dropped considerably already from their peak of 
$52 in November.  He expects this level to be acceptable to 
OPEC and especially the Saudis, who balance their accounts 
at a price level of $25-27 per barrel.  Mild winters in 
Europe and North America should help. 
 
7. (SBU) Desmarest described the Chinese as extremely 
aggressive in securing access to global energy supplies. 
China alone accounts for 40 percent of new demand, he 
claimed, and gaining access to oil and gas is clearly a 
major priority for Beijing.  Asked where the Chinese have 
been active, Desmarest said it's sufficient to follow the 
travel itineraries of top Chinese leadership, especially in 
Africa, the Middle East and Central Asia. (See also related 
comments in reftel para 8.)  This Chinese assertiveness in 
the sector is relatively new, and in sharp contrast to 
China's previous lackadaisical activity on energy issues. 
 
----------------------- 
IRAN AND ILSA SANCTIONS 
----------------------- 
8. (SBU) We have followed closely Total's pursuit of energy 
interests in Iran.  In 1995, the year Thierry Desmarest 
became CEO, Total contracted to develop two large oil and 
gas fields in Iran, despite USG pressure not to do business 
there.  The next year, Total led a consortium, including 
Russia's Gazprom and Malaysia's Petronas, in a $2 billion 
investment in Iran's gas sector, just days after selling its 
55% stake in its North American arm, Total Petroleum, to 
Ultramar Diamond Shamrock.  December 2004 press reports said 
that Total (with partner Petronas) had signed a "framework" 
agreement with Iran for the Pars LNG project and the related 
development of Phase 11 of the South Pars gas project. 
 
9. (SBU) Asked about the December press reports, Desmarest 
confirmed that Total has signed a contract to undertake one 
year of engineering design and cost evaluation studies for 
the LNG project.  He noted that the South Pars field is 
divided between Qatar and Iran, and the Iranian government 
is concerned it may lose out as development and exploitation 
of the field on the Qatari side far outpaces Iranian 
efforts.  (Total is number two in the energy sector in 
Qatar.)  Should the South Pars engineering and cost studies 
prove positive, investments on the order of $4-5 billion 
could begin as early as 2006.  (Comment.  Desmarest has 
commented frequently that Total consults with its U.S. 
shareholders and U.S. legal counsel with an eye to ILSA 
sanctions implications of its actions.  End Comment.) 
 
10. (SBU) Overall, Desmarest described Iran as a difficult 
partner with which to negotiate contracts, particularly due 
to serious internal divisions, but a good partner in the 
implementation of signed contracts.  Iran is too important 
an energy provider to ignore, in his view -- world number 
two in natural gas (15-20 percent of world reserves) and 
number three in oil (10 percent of reserves).  If Western 
firms do not take on the business, Desmarest argued that 
China and India would step in to do so. 
 
11. (SBU) The Ambassador reminded Desmarest of U.S. law 
regarding investment in Iran.  There are important global 
and regional issues at stake in Iran, and the West needs to 
gauge closely how Iran performs on issues such as Iraq 
stabilization, nuclear non-proliferation, and support for 
terrorism.  Desmarest commented that the Pakistan/India 
example made it much more difficult to convince Iran to give 
up its nuclear aspirations. 
 
---- 
IRAQ 
---- 
 
12. (SBU) Desmarest noted Total's historical ties to Iraq 
and its efforts even under Saddam Hussein to maintain a 
foothold in the country.  The company "was born in Iraq" 
after World War I to develop Iraqi oil supplies.  Total 
tried in the 1990s to preserve a presence in the country, 
but the Saddam regime refused to sign any contracts that 
recognized UN sanctions then in effect.  Desmarest says 
Total will be interested in international contracts expected 
to be opened in the Iraqi energy sector in 2005 or 2006. 
Desmarest had attended meetings earlier in the day with 
visiting Iraqi President Yawar.  The company maintains good 
contacts in the sector and Desmarest expressed admiration 
for how much of the energy infrastructure Iraq's engineers 
were able to maintain during the sanctions period. 
 
--------------------------------- 
RUSSIA, LIBYA AND OTHER SUPPLIERS 
--------------------------------- 
13. (SBU) RUSSIA: Desmarest said the past six months have 
been bad for the Russian energy sector.  The Yukos affair 
has raised serious questions about the climate for doing 
business and has called into question at times who is 
actually making decisions at the helm of the Russian 
economy.  Desmarest said that while Putin and the Russian 
leadership may have had valid political reasons for going 
after Khodorkovsky, they have done so in the most 
destabilizing manner possible from a business investment 
perspective.  With obvious frustration, Desmarest related 
that Total has had to go before a state monopoly commission 
in an attempt to purchase a 25 percent stake in a Russian 
gas company that holds only a five percent market share, 
despite Gazprom's 85 percent stranglehold on the sector. 
 
14. (SBU) LIBYA: Desmarest described doing business with 
Libya as "surrealistic".  The long-term potential is huge, 
but the process is "crazy".  He noted that, for the moment, 
the Libyan government is overreaching in trying to profit 
from its newfound international acceptability.  Recent 
energy sector tenders, for example, have featured secondary 
concession areas of marginal interest on very bad terms. 
One set of tenders for exploration/development attracted 130 
bids from 68 companies -- when there do not exist 68 
qualified companies worldwide to do such work, implying that 
some well-connected Libyans may be attempting to cash in on 
the current environment.  Desmarest did note that the 
Libyans have been quite sage in one area, "cleverly" holding 
aside historic U.S. concession areas during the long dark 
days of U.S.-Libyan tensions. 
 
15. (SBU) SUDAN: With its partner Marathon Oil, Total has 
recently signed a contract with the Government of Sudan for 
southern Sudan energy concessions.  The agreement was 
completed before the recent peace treaty signing in order to 
ensure its validity post-treaty, as the treaty prescribes. 
Desmarest noted that Sudanese authorities tried to use the 
interest of an Indian competitor (ONGC Ltd. India) to wrest 
better terms from Marathon/Total.  Such competition from 
both India and China is increasingly evident in 
international negotiations. 
 
16. (SBU) AZERBAIJAN AND KAZAKHSTAN:  Desmarest noted that 
Total is active in both countries.  With the exception of 
British Petroleum, most recent exploration efforts in 
Azerbaijan have been disappointing.  Kazakhstan shows more 
promising potential, but Desmarest described the Kazakhs as 
much more difficult to work with. 
 
17. (SBU) VENEZUELA:  Desmarest describes Total as the 
largest investor in Venezuelan energy (several billion 
dollars), along with Chevron Texaco.  While President Chavez 
is viewed as erratic, Desmarest says he has told Total 
executives "don't listen to my words", and the GOV has 
generally been a good investment partner, despite a recent 
unilateral change in previously-agreed energy sector 
royalties. 
 
------------------------------- 
LEARNING FROM THE SHELL DEBACLE 
------------------------------- 
 
18. (SBU) Desmarest ascribed Shell's recent problems over 
energy reserve estimates to its historical bipolar 
British/Dutch structure and the existence of too many 
"separate baronies" in its organization.  Not surprising for 
a Frenchman, Desmarest prefers central management and 
believes that Shell's regional managers often have too much 
autonomy.  While expressing admiration for the company's 
overall record, he noted that Shell is "an 80-year-old 
marriage that has yet to be consummated." 
 
--------------- 
BIOGRAPHIC NOTE 
--------------- 
 
19. (SBU) Desmarest has been CEO of Total in its various 
forms since 1995.  He is a serious, personable businessman, 
and has been a straight talker with Embassy contacts.  Age 
59, he is a graduate of the Ecole Polytechnique and of the 
Ecole des Mines, and has been employed with Total since 1981 
after a decade as a mining and energy industry technical 
expert in the French government.  He speaks excellent 
English. 
MINIMIZE CONSIDERED. 
LEACH