Rosy business potential, stable regulation and an investor-friendly environment have prompted the French oil and gas company Total SA to aggressively expand its presence in Asia Pacific, where the company has budgeted US$7.5 billion for upstream petroleum activities between 2015 and 2017.
Arnaud Breuillac, president of Total Exploration & Production (E&P), said most of the capital expenditure had been allocated to two liquefied natural gas (LNG) projects in Australia and another in Papua New Guinea, to tap growing demand for gas in the region.
Total E&P operates in 10 countries in Asia Pacific with Indonesia being its first and largest market so far. Others include Thailand, Myanmar, Brunei, Australia, China, and Papua New Guinea, while it is also exploring in Malaysia and the Philippines.
Altogether, Asia Pacific accounts for 11% of the company's production, making it the third-largest revenue contributor after Africa and Europe. Globally, Total is the fourth largest integrated oil company in terms of production after ExxonMobil, Shell and Chevron but ranks second in terms of E&P net results, he said.
"Absolutely, the potential is here in Southeast Asia where we have been exploring," Mr Breuillac told Asia Focus during a recent visit to Bangkok. "The potential is not as high as in the Middle East or Africa but it's still significant as there is a huge demand for gas in the region."
Everybody thought Total should be out of Myanmar but finally we stayed. If Total left, other companies would have gone. We see positive developments there (since the election) which is good for us to continue our business while maintaining our own standard and our own way of working. ... There are some countries where we won’t go because we are not able to operate according to our standard” — ARNAUD BREUILLAC, President, Total E&P
Photo: Pawat Laopa isarntaksin
For capital-intensive industries such as petroleum exploration and production, stability is critical in choosing an investment destination for a long-term project, he said.
Last year Total invested $3 billion in Asia, and this year and next the figure will be about $2.5 billion each. E&P accounts for less than half of the total investment by Total this year, down from 50% last year and 80% in 2014 before oil prices started to plunge. The group expects to cut organic capital expenditure by 15% from 2015 to $19 billion this year, marking a transition to a sustainable investment level of around $17-19 billion from 2017 onward.
"For oil companies, it is important to have stability because we invest a lot of money and the return comes slowly, so you need stability while oil prices are not stable, unfortunately," said Mr Breuillac, who is also a member of the Total executive committee.
"In the countries we are operating in, the scheme is favourable for E&P companies. Regulatory [issues] for E&P vary from one country to another but we can say that Asia in general is business-friendly."
At present, Total E&P has two big projects in Australia. First is the Gladstone LNG (GLNG) project at Curtis Island near Brisbane. It began operations with the first train last year and another unit of the two-train facility will come onstream later this year. The company is also carrying out the Ichthys project near Darwin in the Northern Territory. Through a partnership with Japan's Inpex, which is also Total's partner in Indonesia, the project is set to start producing LNG at the end of next year with Inpex as the operator.
Once the projects are completed, Australia will be the biggest market in Asia Pacific for Total E&P, passing Indonesia where the company made its regional debut in 1968. Currently, it has 3,000 direct employees in Indonesia.
Total is also preparing to launch an LNG project in Papua New Guinea. "We are finishing appraisals and then we can design the size of the project this year. We want to launch the project possibly a year after, or around 2017-18," said Mr Breuillac, who became Total E&P president in January 2014.
As well, Total is expanding in Myanmar through a partnership with Australia-based Woodside and Myanmar Petroleum Resources Limited (MPRL) in the offshore A6 Block. The French company is also involved in exploration and production of the Yadana gas field in Myanmar through a partnership with Bangkok-based PTT Exploration and Production Plc (PTTEP), the Myanmar national oil company MOGE and Chevron, supplying gas to both the local and Thai markets.
"We are going to do one more well in the A6 Block before the end of this year and hopefully, the discoveries will be big enough that we can start development," he said.
Total has been in Myanmar, despite pressure on many companies to withdraw when the country was under military rule, since the early 1990s alongside two other major E&P operators -- PTTEP and the Malaysian national oil company Petronas.
"Everybody thought Total should be out of Myanmar but finally we stayed," said Mr Breulliac, who has worked for the French company for more than 30 years. "If Total left, other companies would have gone."
"We see positive developments there (since the election last November) which is good for us to continue our business while maintaining our own standard and our own way of working. If we cannot operate according to our standard, we won't stay. There are some countries where we won't go because we are not able to operate according to our standard."
Mr Breuillac said Total would also continue to invest more in Thailand where it holds 33% of the Bongkot gas field in the Gulf of Thailand and where PTTEP is the operator. The company has been operating in Thailand since 1990 and, according to its website, also has a 28% interest in Eastern Power and Eastern Power and Electric Company (EPEC) which operates the 350-megawatt Bang Bo power plan southeast of Bangkok.
In the first quarter of 2016, Total posted a net income of $1.6 billion, beating analysts' consensus forecast of $1.2 billion, but down sharply from $2.6 billion earned in the same period last year as the Brent crude price was down 37% year-on-year to an average of $34 per barrel.
Mr Breulliac said Total's integrated operations were a major reason for the better-than-expected financial results.
"The company is very resistant to the [unfavourable] environment because we are an integrated company so when the oil price comes down, E&P is not doing so well but the downstream business is doing better for now," he said, adding that Total had also been cutting costs and selling assets to stay resilient during the period of low oil prices.
In 2015, the company reduced costs by $1.5 billion from the year before through a recruitment freeze, capital expenditure and travel expense reductions, and increased operational efficiency. He said the necessary actions would be pursued to reduce costs and maintain a solid balance sheet this year.
Five major start-up projects are planned for the upstream business this year to lift production by about 4% from 2015 following an increase of 9% the year before. Its five-year plan projects production increases averaging 5% per year between 2014 and 2019.
The group as a whole operates in 130 countries and employs 100,000 people, of whom 18,000 are employed in the E&P business. Apart from upstream activities, Total's two other businesses are refining and chemicals and marketing of value-added petroleum products and services. Five years ago, it began to invest in renewable energy, acquiring the US solar systems maker SunPower, and it is about to launch a solar project in Japan.
Last week Total made another big move in the renewable field by announcing a plan to acquire the France-based battery manufacturer Saft Groupe for 950 million euros ($1.1 billion). Saft is supplying the solar power storage technology for Nice Grid, a "smart solar district" demonstration project now under way in southern France.