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Call for Opec to let in oil majors to boost output

Financial Times: Call for Opec to let in oil majors to boost output

“Total, together with Royal Dutch/Shell, the Anglo/Dutch energy group, last year became the first western oil companies to sign a natural gas investment deal with Saudi Arabia.”

By Carola Hoyos in London

Posted September 13 2004

Oil companies cannot discover enough new oil to ease today’s production-capacity shortage, Thierry Desmarest, chairman and chief executive officer of Total, has said.

The chief of the French oil company told the Financial Times that members of the Organisation of the Petroleum Exporting Countries must open their doors to international oil companies to ensure that supply meets growing demand in the coming years.

Much of Opec has been closed to foreign investment since the 1970s.

When the oil cartel meets this week in Vienna it is expected to leave unchanged both production, at 27.5m barrels a day, and output quotas, of 26m b/d, which suggests that it does not recognise a chronic shortage in supply, despite high oil prices.

“It is important to have the opportunity to invest more in Opec countries, maybe through joint ventures with national oil companies,” Mr Desmarest said.

“If you want to increase production capacity, it is key. We create opportunities through exploration, but exploration takes a lot of time.” Amid soaring demand, Mr Desmarest and other oil company executives will meet Opec members this week to discuss capacity constraint. The oil cartel fears a looming slowdown in oil demand and is likely to blame recent high prices on speculators and security fears, rather than market fundamentals.

Some of the cartel’s members think that within the next six months Opec could even cut production.

Mr Desmarest’s comments carry special weight because Total, the world’s fourth-largest listed energy group, has bucked the industry trend of poor exploration and production and has increased output by 4-5 per cent in each of the past few years.

Exploration projects can take five to 10 years to yield results, while countries such as Saudi Arabia and Kuwait have accessible fields that could be more quickly developed with the help of international oil companies.

Outside Opec, companies have struggled to find large reserves. New discoveries have fallen by 40 per cent since 2000, the date of the last significant discovery, the Kashagan field in Kazakhstan.

Few wells are being drilled inside Opec, despite record nominal prices. Investment data is a secret but a recent report by the organisation showed that the number of wells drilled in 2003 fell 6.5 per cent from the previous year.

“When you look at the last 10-15 years. Opec countries have offered more investment opportunities when the oil price is low and they have difficulty to balance their budget,” Mr Desmarest said.

In the past, high oil prices have been followed by increased drilling outside Opec and a drop in demand as consuming countries’ economies have faltered.

He said: “Today it is more difficult for Opec countries to explain [to their citizens] that it is important to bring in international oil companies when national oil companies bring in enough money to balance the budget.”

Total, together with Royal Dutch/Shell, the Anglo/Dutch energy group, last year became the first western oil companies to sign a natural gas investment deal with Saudi Arabia.

But Mr Desmarest, who is keen for more investment opportunities in Saudi Arabia, said: “When you look at the size of the country in terms of the industry, it is a very limited opening.”

Additional reporting by Kevin Morrison and Javier Blas.

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