The inimitable Mr de Margerie (1951 – 2014)

The Oilholic woke up to the sad news that Total CEO and Chairman Christophe de Margerie had been killed in a plane crash at Moscow’s Vnukovo airport. This tragedy has robbed the wider oil & gas fraternity of arguably its most colourful stalwart.

Held in high regard by the industry, de Margerie had been the CEO of Total since 2007, later assuming both Chairman and CEO roles in 2010. Instantly recognisable by his trademark thick moustache, de Margerie increased the focus of Europe’s third-largest oil and gas company on its proven reserves ratio like never before.

He joined Total in 1974 straight after graduating from the Ecole Superieure de Commerce in Paris and spent his entire professional life at the company. Rising through the ranks to the top of the corporate ladder, de Margerie was instrumental in taking Total into markets the company hadn’t tested and to technologies it hadn’t adopted before. Wider efforts to improve Total’s access to the global hydrocarbon pool often saw de Margerie take actions frowned upon by some if not all. 

For instance, Total went prospecting in Burma and Iran in the face of US sanctions. France has a moratorium on shale oil & gas drilling, but de Margerie recently saw it fit to get Total involved in UK's shale gas exploration. Over the last decade, as this blogger witnessed Total ink deals which could be subjectively described by many as good, bad or ugly, one found many who disagreed with de Margerie, but few who disliked him.

Even in the face of controversy, the man nicknamed “Big Moustache” always kept his cool and more importantly a sense of humour. Each new deal or the conquering of a corporate frontier saw de Margerie raise a spot of Scotch to celebrate. That’s some tipple of choice when it came to a celebration given he was the grandson of Pierre Taittinger, the founder of Taittinger champagne.

The Oilholic’s only direct interaction with the man himself, in December 2011 at the 20th World Petroleum Congress (20th WPC) in Doha, was indeed a memorable one. Jostling for position while the Total CEO was coming down from a podium, this blogger inquired if there was time for one question. To which the man himself said one could ask three provided they could all be squeezed into the time he had between the auditorium and VIP elevator!

In a brief exchange that followed, de Margerie expressed the opinion that exploration and production (E&P) companies would find it imperative to venture into "geologically challenging and geopolitically difficult" hydrocarbon prospects.

“All the easy to extract oil & gas is largely already onstream. We’re at a stage where the next round of E&P would be much more costly,” he added. One could have gone on for hours, but alas a few minutes is all what Qatari security would permit. Earlier at the auditorium he was leaving from, de Margerie had participated in deliberations on Peak Oil, a subject of interest on which he often “updated” his viewpoint (photo above left).

“There will be sufficient oil & gas and energy as a whole to cover global demand…Even using pessimistic assumptions, I cannot see how energy demand will grow less than 25% in twenty years time. Today we have roughly the oil equivalent of 260 million barrels per day (bpd) in total energy production, and our expectation for 2030 is 325 million bpd,” he said.

De Margerie forecast that fossil fuels will continue to make up 76% of the energy supply by 2050.

“We have plenty of resources, the problem is how to extract the resources in an acceptable manner, being accepted by people, because today a lot of things are not acceptable,” the late Total CEO quipped.

He concluded by saying that if unconventional sources of oil, including heavy oil and oil shale, were to be exploited, there will be sufficient oil to meet current consumption for up to 100 years, and for gas up to 135 years. What he astutely observed at the 20th WPC does broadly stack-up today.

In wake of sanctions on Russia following the Ukrainian standoff, de Margerie called for channels of dialogue to remain open between the wider world and country’s energy sector. Total is a major shareholder in Russian gas producer Novatek, something which De Margerie was always comfortable with. He ignored calls for a boycott of industry events in Russia, turning up at both the St Petersburg forum in May and the 21st World Petroleum Congress in Moscow in June this year.

However, the shooting down of Malaysian Airlines MH17 over eastern Ukraine in July prompted him to suspend buying more shares in Novatek. That cast a shadow over Total’s participation in Yamal LNG along with Novatek and CNPC. Nonetheless, de Margerie was bullish about boosting production in Russia. 

According to Vedomosti newspaper, he was in town on Monday to meet Russian Prime Minister Dmitry Medvedev and discuss the climate for foreign direct investment in the energy sector. As events conspired, it turned out to be the last of his many audiences with dignitaries and heads of capital, state and industry.

Later that foggy Monday evening, the private jet carrying de Margerie from Vnukovo airport collided with a snow plough and crashed, killing all on-board including him and three members of the crew. Confirming the news, a shocked Total was left scrambling to name a successor or at least an interim head to replace de Margerie.

In a statement, the company said: “Total’s employees are deeply appreciative of the support and sympathy received, both in France and in the many countries where Christophe de Margerie was admired and respected.

“Mr de Margerie devoted his life to building and promoting Total in France and internationally. He was equally devoted to Total’s 100,000 employees. As he would have wished, the company must continue to move forward. Total is organised to ensure the continuity of both its governance and its business, allowing it to manage the consequences of this tragic loss.”

According to newswire AFP, Total’s third quarter results would be released as scheduled on October 29. Paying tribute, French President Francois Hollande said the country had lost “a patriot” while OPEC Secretary General Abdalla Salem El-Badri said the industry had lost “an extraordinary and charming professional, who will be sorely and sadly missed by all who had the honour of knowing and working with him.” 

In a corporate sense, Total will move on but French commerce and the oil & gas business would be intellectually poorer in wake of de Margerie’s death. His forthright views sparked debates, his stewardship of France’s largest company inspired confidence, his commanding presence at market briefings made them more sought after and his sense of humour lit up forums. But above all, in the Oilholic’s 17 years as a scribe, one has never met a more down-to-earth industry head. Rest in peace sir, you will be sorely missed.

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© Gaurav Sharma 2014. Photo: The late Christophe de Margerie, former CEO and Chairman of Total, addresses the 20th World Petroleum Congress, Doha, Qatar, December 2011 © Gaurav Sharma.

EU’s Russian gas, who gets what & BP’s Bob

The vexing question for European Union policymakers these days is who has what level of exposure to Russian gas imports should the taps get turned off, a zero storage scenario at importing nations is assumed [hypothesis not a reality] and the Kremlin's disregard for any harm to its coffers is deemed a given [easier said than done].

Depending on whom you speak to, ranging from a European Commission mandarin to a government statistician, the figures would vary marginally but won't be any less worrying for some. The Oilholic goes by what Eurogas, a non-profit lobby group of natural gas wholesalers, retailers and distributors, has on its files.

According to its data, the 28 members of the European Union sourced 24% of their gas from Russia in 2012. Now before you say that's not too bad, yours truly would say that's not bad 'on average' for some! For instance, Estonia, Finland, Lativia and Lithuania got 100% of their gas from Russia, with Bulgaria, Hungary and Slovakia not far behind having imported 80% or more of their requirements at the Kremlin's grace and favour.

On the other hand, Belgium, Croatia, Denmark, Ireland, Netherlands, Portugal, Spain, Sweden and the UK have nothing to worry about as they import nothing or negligible amounts from Russia. Everyone in between the two ends, especially Germany with a 37% exposure, also has a major cause for concern.

And it is why Europe can't speak with one voice over the Ukrainian standoff. In any case, the EU sanctions are laughable and even a further squeeze won't have any short term impact on Russia. A contact at Moody's says the Central Bank of the Russian Federation has more than enough foreign currency reserves to virtually guarantee there is no medium term shortage of foreign currency in the country. Industry estimates, cited by the agency, seem to put the central bank's holdings at just above US$435 billion. EU members should know as they contributed handsomely to Russia's trade surplus!

Meanwhile, BP boss Bob Dudley is making a habit of diving into swirling geopolitical pools. Last November, Dudley joined Iraqi Oil Minister Abdul Kareem al-Luaibi for a controversial visit to the Kirkuk oilfield; the subject of a dispute between Baghdad and Iraqi Kurdistan. While Dudley's boys have a deal with the Iraqi Federal government for the oilfield, the Kurds frown upon it and administer chunks of the field themselves to which BP will no access to.

Now Dudley has waded into the Ukrainian standoff by claiming BP could act as a bridge between Russia and the West. Wow, what did one miss? The whole episode goes something like this. Last week, BP's shareholders quizzed Dudley about the company's exposure to Russia and its near 20% stake in Rosneft, the country's state-owned behemoth.

In response, Dudley quipped: "We will seek to pursue our business activities mindful that the mutual dependency between Russia as an energy supplier and Europe as an energy consumer has been an important source of security and engagement for both parties for many decades. We play an important role as a bridge."

"Neither side can just turn this off…none of us know what can happen in Ukraine," said the man who departed Russia in a huff in 2008 when things at TNK-BP turned sour, but now has a seat on Rosneft's board.

While Dudley's sudden quote on the crisis is surprising, the response of BP's shareholders in recent weeks has been pretty predictable. Russia accounts for over 25% of the company's global output in barrels of oil equivalent per day (boepd) terms. But, in terms of booked boepd reserves, the percentage rises just a shade above 33%.

However, instead of getting spooked folks, look at the big picture – according to the latest financials, in petrodollar terms, BP's Russian exposure is in the same investment circa as Angola and Azerbaijan ($15 billion plus), but well short of anything compared to its investment exposure in the US.

Sticking with the  crudely geopolitical theme, this blogger doesn't always agree with what the Henry Jackson Society (HJS) has to say, but its recent research strikes a poignant chord with what yours truly wrote last week on the Libyan situation.

The society's report titled - Arab Spring: An Assessment Three Years On (click to download here) - noted that despite high hopes for democracy, human rights and long awaited freedoms, the overall situation on the ground is worse off than before the Arab Spring uprisings.

For instance, Libyan oil production has dramatically fallen by 80% as neighbouring Tunisia's economy is now dependent on international aid. Egypt's economy, suffering from a substantial decrease in tourism, has hit its lowest point in decades, while at the same time Yemen's rate of poverty is at an all-time high.

Furthermore, extremist and fundamentalist activity is rising in all surveyed states, with a worrying growth in terror activities across the region. As for democracy, HJS says while Tunisia has been progressing towards reform, Libya's movement towards democracy has failed with militias now effectively controlling the state. Egypt remains politically highly-unstable and polarised, as Yemen's botched attempts at unifying the government has left many political splits and scars.

Moving on to headline crude oil prices, both benchmarks have closed the gap, with the spread in favour of Brent lurking around a $5 per barrel premium. That said, supply-side fundamentals for both benchmarks haven't materially altered; it's the geopolitical froth that's gotten frothier. No exaggeration, but we're possibly looking at a risk premium of at least $10 per barrel, as quite frankly no one knows where the latest Eastern Ukrainian flare-up is going and what might happen next.

Amidst this, the US EIA expects the WTI to average $95.60 per barrel this year, up from its previous forecast of $95.33. The agency also expects Brent to average $104.88, down 4 cents from an earlier forecast. Both averages and the Brent-WTI spread are within the Oilholic's forecast range for 2014. That's all for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2014. Photo: Sullom Voe Terminal, UK © BP