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Financial Times: Total’s ‘good partner’ strategy vindicated

By Ed Crooks in London and Neil Buckley in Moscow
Published: July 12 2007 19:54 | Last updated: July 12 2007 19:54

Gazprom’s decision to choose Total as its first foreign partner in the development of the Shtokman field is a vindication of the French company’s strategy of being a “good partner” in the countries where it operates.

Total has only minimal experience in Russia, and no experience at all in the Arctic conditions that make Shtokman so challenging, yet it has been allowed to take a 25 per cent stake in exploiting the world’s second-biggest gas field: a hugely important asset.

The other two groups in the race could win all or part of the 24 per cent stake in the project that Gazprom said is still potentially available.

But it is Total’s position that has been assured first.

Gazprom declined to comment on why it had chosen Total, but analysts said it was always likely that a European company would have been its first choice of partner.

Mark Spelman of Accenture, the consultancy, said: “The Americans are out of favour for this sort of deal. Other European companies such as Eon and Eni have been doing deals with Gazprom, and Total was the obvious one not yet in the mix.” As one of the world’s top five international oil companies, the “super-majors”, Total also brings a greater financial strength to the project than its rivals can muster.

One person familiar with the situation said that was an important consideration in the deal: Gazprom felt it could buy in whatever technology it needed, but wanted partners to share the risks of developing such a large project.

Stephen Dashevsky, head of research at Aton Capital in Moscow, said: “Statoil or Norsk Hydro is a large company by European standards, but by Shtokman standards, Gazprom may have thought that it needed a real super-major as partner.”

Some of Total’s know-how will be relevant: it is experienced in deep-water production, and growing fast in liquefied natural gas, which is to be part of the Shtokman development; Gazprom hopes to be shipping LNG from the project in 2014.

Above all, however, the great advantage for Total may have been its willingness to compromise.

The person familiar with the deal said Total had won favour particularly because of its flexible approach and willingness to take part in the special purpose vehicle that will be set up to develop the field, without taking part directly in sales of the gas.

That fits with Total’s general approach, which contrasts markedly with the typical behaviour of US or even British companies. Where others might come to a country and seek to impose a particular way of doing business, Total is prepared to listen and adapt to local conditions.

This approach has helped Total do business in Saudi Arabia and Bolivia, for example. In Venezuela, where ExxonMobil and Conoco walked away from heavy oil upgrader projects rather than accept new terms from president Hugo Chávez, Total was one of the companies that stayed.

Critics have argued that its strategy gives too much away. But its relative strength outside the developed world, where almost all the growth in world oil and gas production is coming, has put Total in a much better position for growth than its super-major peers.

In May Christophe de Margerie, Total’s chief executive, reaffirmed his expectation that the company’s oil and gas production would grow by an average of 5 per cent a year between 2006 and 2010: better than Royal Dutch Shell, BP, or even Exxon, the acknowledged industry leader. Speaking to the Financial Times recently, Yves-Louis Darricarrère, Total’s head of exploration and production, said oil companies today had to learn to accept the consequences of resource nationalism.

This meant increasing a company’s contribution to local communities and using more local suppliers, for example, as well as recognising that sometimes the agreements of 15-20 years ago might have favoured the multinationals.

But this did not mean the end of profits for oil companies.

Additional reporting by Peggy Hollinger

Copyright The Financial Times Limited 2007

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