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Financial Times: Investors able to shrug off Total troubles

By Carola Hoyos
Published: April 9 2007 03:00 | Last updated: April 9 2007 03:00

To date, Total executives and investors have largely shrugged off the investigations into whether the French energy group used bribery to try to secure deals in Iran, Iraq and Cameroon.

Christophe de Margerie, the company’s chief executive, has twice been summoned since October to be grilled by French police. Now US authorities want to interview him too, though people close to the company say he has yet to receive that request.

However, analysts and executives remain sanguine; in part because the investigations have been going on for some time. The Securities and Exchange Commission, the US regulatory agency, has been probing Total since 2004.

They argue that politics and US foreign diplomacy are to blame.

In France – where Total’s image is at a nadir because of high oil prices and the trial regarding the Erika oil tanker that sank off France’s Atlantic coast in December 1999 – the outgoing finance minister was recently forced to deny that he was lobbying to take Mr de Margerie’s place if that were to become necessary.

US officials have admitted they are trying to persuade international oil companies to quit Iran as part of Washington’s effort to isolate Tehran over its nuclear weapons programme.

Total would have a lot to lose if it had to quit Iran, which sits on the world’s largest natural gas field and holds its second-largest oil reserves.

Total has established a strong relationship with Tehran, having helped to develop Iran’s South Pars liquefied natural gas project, as well as its Sirri, Balal and Dorood oilfields.

So far Total’s executives, including Thierry Desmarest, its current chairman and until February its chief executive, have said Total will stop doing business with Iran only if French or international law forced it to.

Insiders believe US authorities do not have jurisdiction over Total.

Indeed, the company has cut its exposure to the US dramatically, selling its assets there during the past years so as to avoid such a confrontation.

Mr de Margerie in a recent interview denied any wrongdoing.

He said: “I believe the only chance in the world especially [in] our position, with our responsibility is with communication, contact, trying to persuade people.”

Such boldness has helped Total’s corporate picture appear far rosier than its political one.

Morgan Stanley, the investment bank, said in a recent note: “There has been accepted wisdom that Total should trade at a discount to the other supermajors. The more Total continues to deliver, and the more BP and Shell fail to do so, the less compelling the logic becomes.

“We see no reason for the discount in the future.”

Its analysts noted Total’s ability to increase production (the company is not as exposed to declining old fields as its competitors) and its strong cash returns.

They also applauded Total’s ability to minimise escalating industry costs.

Another analyst noted Total was growing 2-3 times as fast as its competitors and it also had better return on capital-employed than all its peers with the exception of ExxonMobil, the industry leader.

That, together with the fact many investors may have already factored in the dangers of being a French company pushing into Washington’s no-go areas, such as Burma and Iraq, may be why Total’s stocks have not suffered greatly in the past few months as the investigations have rolled on.

But this relatively halcyon state of affairs would be unlikely to persist if the investigations were to uncover something and to force Mr de Margerie to resign.

The man with the big moustache who brokered many of Total’s big deals in the Middle East and Africa is seen as hugely capable.

With several other top men, including Mr Desmarest, also possibly implicated, it is unclear who could lead the company as effectively.

Copyright The Financial Times Limited 2007


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