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Straight-talker ready to take risks

Financial Times: Straight-talker ready to take risks

“It was a move so daring that five years later Mr Desmarest was seen – until last week when he ruled it out – as one of the only men capable of considering a bid for Royal/Dutch Shell, Total’s far bigger, yet distressed, rival.”

By Carola Hoyos in London

Published: September 15 2004

Thierry Desmarest, chair-man and chief executive of French oil group Total, occupies an enviable position among his peers. His company is not only returning vast amounts of cash to shareholders, but is also closing in on its bigger rivals by growing production at double the industry rate.

This has afforded the cerebral 49-year-old the ability to speak more frankly than most other oil executives about controversial issues facing an industry beset by activists and politicians.

In the first of a three-part FT series with leaders of some of the world’s biggest oil companies, Mr Desmarest criticises the lack of coherent energy policy in the US, the largest energy consumer.

“It is a concern for everyone to see things are not moving,” he says, referring to the failure of last year’s energy bill and the dearth of policy decisions by President George W Bush and Congress.

Despite the war in Iraq and the lifting of sanctions against oil-rich Libya, Mr Desmarest insists that, in terms of supply, governments of consuming countries have not substantially interfered. But he says: “On the consuming side, they have big decisions to make.”

What Mr Desmarest says, and does, is often more gutsy than his peers.

In 1998, just three years after taking Total’s helm, he orchestrated what would become one of the first of the industry’s mega-mergers, taking over Belgium’s PetroFina. Shortly thereafter he launched the largest takeover bid in European history for Elf, France’s former state oil company. It was a move so daring that five years later Mr Desmarest was seen – until last week when he ruled it out – as one of the only men capable of considering a bid for Royal/Dutch Shell, Total’s far bigger, yet distressed, rival.

But his willingness to take risks does not end in the boardroom.

Total’s exploration and production success lies in part with Mr Desmarest’s willingness to face down angry politicians and activists. In 1998 Total became the first western company since 1979 to produce oil from Iran despite US sanctions; meanwhile, the company negotiated, but never signed deals with Saddam Hussein, president of Iraq, which was then under UN sanctions; and in Burma, Total has yet to follow its competitors into being pressured to sell its assets.

Much of Total’s freedom comes from having rid itself of almost all of its US interests, but not its shareholders, for whom Total remains one of France’s most attractive companies.

While US and some European politicians push to reduce their dependence on Middle East oil and the Organisation of Petroleum Exporting Countries, Mr Desmarest this week will call on the cartel’s members to open their doors to international investment.

He will argue that exploration alone will not solve the current capacity crunch – a statement especially pertinent coming from the executive with one of the best recent exploration records in the industry. “The rate of utilisation of capacity is extremely high, some 98 per cent. It is concern over the lack of margin which has led to the increase in the oil price,” he says.

But he does not belong to the doomsayers, who believe world oil reserves are close to running out. He does not expect European benchmark Brent oil prices to remain more than $30 a barrel for much longer and anticipates oil production to hit its peak more than 20 years from now. “We will find new ideas, not for ever, but we have seen in the past that we were able, with innovation, to postpone the decline in oil production.”

For Mr Desmarest, much of that innovation lies in heavier crude oils, which until recently were too expensive to extract.

“To the world crude production level, the contribution of extra heavy oil could be substantial,” he says, adding that Venezuela’s supplies are as big as those of Saudi Arabia, and Canada’s are even larger.

His position is in direct contrast to Lord John Browne, chief executive of BP, the world’s second-largest oil company and another visionary of the industry. Lord Browne, who struck one of the boldest and possibly long-sighted deals of the past two years when he partnered BP with TNK, Russia’s third-largest energy group, argues that such ventures lack the profitability to be attractive on a large scale.

“I am surprised by John Browne’s position as he is usually very open to all kinds of opportunities,” Mr Desmarest says.

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