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The Wall Street Journal: Total SA’s Next ‘King of Crude’

Wall Street Journal

(France’s Christophe de Margerie
says he goes where the oil is.)

French Under Fire
For Iran, Iraq Deals;
Oil Spill Riles Sailors
By DAVID GAUTHIER-VILLARS
February 3, 2007; Page B1

Paris

In 1995, the giant French oil company Total SA ignored U.S. calls to boycott Iran, and instead drilled there — planting the French flag in one of the world’s largest pools of oil and natural gas. The man in charge of the project: Christophe de Margerie.

Today, the 55-year-old executive, known as “Big Moustache” for his bushy handlebar, is set to take the helm of Total, the world’s fourth-largest oil company by market value.
 
Mr. de Margerie is scheduled to take over Total on Feb. 14 with several controversies still looming large. He expresses a continuing desire to do energy deals with Iran, even as concern about its nuclear ambitions grows. A French judge is investigating whether Total paid bribes to obtain past Iranian oil deals. And Mr. de Margerie is himself under investigation as part of a French probe into the Iraq oil-for-food scandal — the ill-starred United Nations program designed to let Iraq under Saddam Hussein raise money to feed its people.

Both investigations are under way, and no charges have been issued. Total and Mr. de Margerie have denied any wrongdoing.

In an interview, Mr. de Margerie acknowledged that the oil business carries risks beyond engineering challenges, including political ones. Rival companies “were less in a hurry to seek exotic fields — but that’s where big oil is,” he said. “We’ve been bolder.”

To drive his point home, Mr. de Margerie said he is pursuing talks with Iran for an offshore natural-gas field, a notion that past critics of his dealings with the country find troubling.

“Mr. de Margerie led the effort to water down” sanctions against Iran, says former U.S. Sen. Alfonse D’Amato, who pushed for penalties on foreign oil companies investing there. Today “Iran is moving closer to nuclear capability.”

All of this is far removed from his roots in the champagne business; his family is a part owner of Taittinger bubbly. “He could have become king of brut,” says his cousin, Pierre-Emmanuel Taittinger, chief executive officer of the champagne house. “But he’s opted to become king of crude.”

Mr. de Margerie’s task is in many ways tougher than that of his peers at other oil titans including Exxon Mobil Corp., BP PLC and Royal Dutch Shell PLC. Those three all have substantial oil in their home territories of the U.S. and Europe’s North Sea.

Little Oil in France

France has little oil of its own. So Total has placed its bets around the globe, hoping that the political, financial and technical risks associated with its hefty investments won’t materialize everywhere at the same time. As a result, Total must rely on a mix of engineering skill and diplomatic flair to drill everywhere from Northern Europe and the Middle East to Africa, Canada and Venezuela.

In hard-to-access regions of Africa and the Middle East, Total produces more oil and in more countries than its British and U.S. rivals. In 2005, Total extracted about 400,000 barrels a day of oil from Middle Eastern countries, on a par with Shell, but about twice as much as BP. About 15% of Total’s proven and probable reserves lay in the Middle East, 44% in Africa.

Its far-flung activities leave Total particularly vulnerable to a trend plaguing all the Western oil titans: “resource nationalism.” Increasingly, oil-rich countries are keeping easy-to-tap fields for themselves or charging foreigners higher fees operating on their turf.

For Total and other nonstate oil companies, there is no more easy oil. Venezuela wants a bigger slice from Total’s profit in the country. Russia, which just extracted a 50% share in a major project in Sakhalin from a Shell-led venture, has threatened to withdraw Total’s license on a small field in Siberia on the grounds that the firm overlooked environmental regulations.

Mr. de Margerie is taking the reins at Total under a plan announced last year, under which current CEO Thierry Desmarest will step down from his post and stay on as chairman. Total has repeatedly denied speculation that Mr. de Margerie’s legal troubles might prompt it to reconsider the succession plan. Last year the executive was kept in French police custody for 48 hours as part of the French probe into the oil-for-food scandal.

Mr. de Margerie joined Total’s finance department in 1974 after studying business. He worked for the oil-trading arm from 1990 to 1995. In January 2002, he became head of the group’s core exploration and production division, a position once occupied by Mr. Desmarest and regarded as a necessary step to the CEO post.

Despite coming from a prominent family and having strong business and political ties, the blue-blooded executive isn’t a widely known figure in France. “He doesn’t have an aristocratic life style,” said Jean-Pierre Jouyet, France’s financial-inspection chief who is married to one of Mr. de Margerie’s relatives. “He likes to play parlor games with his children and enjoys watching ‘Star Academy,’ ” a televised competition for young singers.

Likes Gossip, to a Point

Mr. de Margerie says he enjoys reading gossip magazines, but “wouldn’t want to see my face in them.”

When Mr. de Margerie headed Total’s Middle Eastern operations in the mid-1990s, he sparred with Mr. D’Amato. “Total’s continuation of the Sirri [oil project in Iran] is very distressing and is an insult to the memory of those killed in the recent terrorist attacks in Israel,” Mr. D’Amato said in a letter to Mr. de Margerie published by the Middle East Economic Survey in April 1996.

“We cannot accept the connection you made between recent terrorist attacks in Israel and the Sirri service contract,” he responded in a letter to Mr. D’Amato, asserting that Total abided by French, European and international laws and indicating that it didn’t feel bound by the U.S.’s sanctions against Iran. “We have never condoned terrorism and never will.”

Avoiding Politics?

More than a decade later, Mr. de Margerie describes Total’s strategy as going where the oil is, steering clear of political affairs. “We invest in projects that last 30 to 40 years, and can’t pack our suitcases each time there is a change in government and leave,” he says.

But the executive insists that Total knows how to draw the line. In the 1990s, for example, Mr. de Margerie often traveled to Baghdad as Total was negotiating rights to develop a giant oil field in Iraq. Contract terms were agreed, but Mr. de Margerie ended up not sealing the deal because of United Nations sanctions against Iraq.

Still, Mr. de Margerie made friends in the region. “If I were part of decision-making powers in Baghdad, I would strongly recommend that Iraq work with Total,” said Fadhil Chalabi, a former deputy oil minister in Iraq who manages the London-based Centre for Global Energy Studies.

At home, Mr. de Margerie faces big legal battles. Total is a defendant in a pollution trial involving a tanker oil spill off the Brittany coast in 1999. Although Total has paid for a large part of the damages, the company’s initial attempt to deny responsibility pushed it in a prolonged public-relations quagmire. In 2003, Total was forced to ditch a sponsorship plan: France’s sailing league didn’t want to stick what it regarded as an unpopular logo on its boats.

Meantime a French investigative judge, Philippe Courroye, is examining whether Total paid commissions to intermediaries to get preferred access to Iraqi oil-export quotas. A review in 2005 of the U.N.’s oil-for-food program in Iraq, conducted by a panel headed by former Federal Reserve Chairman Paul Volcker, found that mismanagement and criminality allowed the Saddam Hussein regime to wring $10.2 billion out of the system through a combination of smuggling and illicit kickbacks.

Mr. de Margerie was questioned by the French judge late last year. In the recent interview, Mr. de Margerie said that he paid no intermediaries and broke no laws. He said, rather, that he had simply hired a Lebanese lawyer as an independent adviser on the workings of Iraq’s legal system.

That is “standard practice,” he said. “You don’t go alone in countries you don’t know well.”

Write to David Gauthier-Villars at [email protected]

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