Staying power in a volatile region
Paris, April 7, 2013
He is one of the Middle East oil and gas industry’s most powerful men. And probably one of its busier individuals, in charge of a portfolio of strategic interests stretching across the region. But in the relative calm of corporate headquarters in Paris, the Middle East’s social uprisings, political crises, security issues and everyday idiosyncracies seem a world away as we talk with Arnaud Breuillac, Total’s regional president for Exploration & Production.
Breuillac was appointed to the post in July 2010. It is a region he knows well, having worked as a young process engineer in Abu Dhabi almost three decades ago. But within about eight months of taking up the role, parts of the Arab world in which Total is invested erupted in protest. Managing vital strategic interests for one of the world’s largest oil companies in one of the world’s most volatile regions called more than ever on his skills as diplomat, strategist and businessman.
If the escalating regional situation in 2011 was a stern test of Breuillac’s management skills, it was also a test of resolve for Total, which has been operating in the Middle East for more than 90 years. The company covets close ties with several host governments across a region which accounts for about a quarter of the company’s global oil and gas output.
A growing proportion of output comes from countries which found themselves at the heart of the Arab Spring movement, including Yemen, Iraq and Syria. Total was forced to pull out of Syria in 2011 as the European Union (EU) tightened sanctions on the country, but its operations in Yemen and Iraq have continued.
Breuillac says the regional situation has been an opportunity to demonstrate Total’s staying power to regional stakeholders, not least in Yemen, the Arabian Peninsula’s poorest state and where sporadic terror attacks on oil and gas facilities long precluded the 2011 unrest and the instability that followed.
“We are the only major oil company operating in Yemen, and are acutely aware of the importance of our operations there,” Breuillac acknowledges.
“Even during the most difficult days of 2011 at the height of the political crisis when all the main oil companies had left Sanaa, we kept our offices and operations open. We believed if we could guarantee the security of our employees and contractors we should stay,” he says.
“I met the president [Abd Rabbuh Mansur Hadi] recently and he confirmed to me how important it was for his country.”
Yet Total has not emerged completely unscathed by the experience. In May 2012 one of its staff was killed in an ambush on a convoy of vehicles in the Seiyun area, close to an oilfield the company is developing.
Last year alone, Total also suffered eight incidents of sabotage on its gas pipeline, which supplies gas from the field to the $4.5 billion Balhaf gas processing facility, the country’s largest industrial complex and a vital economic lifeline for the impoverished country. The attacks reduced the annual export capability of the Yemen LNG plant, in which Total has a 39.62 per cent stake, by a fifth, says Breuillac.
“Efforts to secure oil and gas facilities are crucial for Yemen if it is to recover from the crisis of 2011, and we know it is high on the agenda of the president and Yemeni government,” he notes. He stresses that the company will not compromise the safety of its personnel in the pursuit of profit.
“The security of our personnel is the overriding consideration, regardless of what is at stake in terms of lost production or revenues. If we can’t sufficiently protect our personnel we withdraw them,” he says.
In Yemen, Total has taken steps to protect its staff – the company has its own airstrip for crew changes at both Balhaf and at its Block 10 field operations in Seiyun.
The challenges faced by Total in Iraq are no less challenging but are arguably more politically charged. Having acquired stakes in oil exploration blocks in the semi-autonomous northern Kurdistan last year, Total unwittingly found itself caught up in fractious Iraqi domestic politics.
Claiming the Kurdish deal had breached Iraqi law, the government in Baghdad issued the company with an ultimatum last summer to either give up its interest in the north, or sell its stake in the large Halfaya oilfield in the south, which Total is developing as part of a Chinese-led consortium. However, there is no indication of any date for this to happen.
“If we discover oil in the northern part of Iraq we feel we will be adding value for the country,” insists Breuillac, who also confirms that the Halfaya project, which achieved first commercial production in mid-2012, “is progressing quite well given the context of Iraq’s security issues and administrative hurdles.”
The Total executive admits the company was disappointed by the type of contracts and terms offered to foreign oil firms by Iraq in recent bid rounds. The Iraqi oil minister has himself acknowledged publicly that some terms were unfavourable, and confirmed that his ministry was studying more attractive contract models.
“It is no secret that we were frustrated by the relatively modest share of the Iraqi [oilfield] reconstruction activities awarded to us and the types of contract on offer,” says Breuillac.
Although becoming embroiled in politics is an occupational hazard in Iraq, he insists that Total “wants to steer well clear of any political debate in Iraq”, including issues relating to revisions of the country’s petroleum law.
“We tell them [the government] what we think, but respect they may have a different view. The issues [regarding the law] are to do with the political structure of Iraq, and we don’t want to get into the political debate in Iraq,” he says.
The waters are far clearer and calmer in the company’s other main regional theatres of operation, Abu Dhabi and Qatar, where relationships run deep and legacies are more entrenched.
In Abu Dhabi the company has interests both in upstream oil and gas as well as in power generation and desalination, petrochemicals and solar energy. Sovereign wealth fund Mubadala is a partner on the Dolphin project, and Total has even helped the fund expand its own horizons in exploration activities in Malaysia.
Next January state oil company Abu Dhabi National Oil Company (ADNOC) is expected to award a new onshore concession for its onshore subsidiary ADCO, in which Total has a 9.5 per cent share. Describing Total as a “partner of choice” for Abu Dhabi, Breuillac hopes for a favourable outcome.
“The concession represents about two thirds of Abu Dhabi’s resources, so we know it is very important for them and Total is very interested in participating in the new concession,” he states.
Total also hopes to enhance its presence in Qatar, following the recent renewal of a 25-year production sharing contract in the Al Khalij field, which will take effect in 2014. Activities are starting on an offshore exploration block operated by China’s CNOOC.
“We believe Qatar’s exploration potential is still interesting,” Breuillac explains. “Every year in the Middle East significant discoveries are announced even in mature basins. Technology allows us to visualise new reservoirs and drilling potential better than ever, and new drilling capabilities enable us to exploit even narrower targets,” he continues.
“Then there is the unconventional oil and gas area such as shale gas, which in the Middle East is yet to be assessed. Even if the potential here is perhaps less exciting than that of the US, Russia or China, it could still be huge one day.”
Any impact of the US shale gas revolution on LNG markets would be keenly felt by Total, which as well as Yemen LNG has stakes in large gas processing projects in Qatar and Oman.
“We can expect the US to continue to be well supplied for many years with relatively cheap gas even if it is more expensive than today, and whether this will have a small or medium impact depends on if the US begins to export 20 to 30 million tonnes per year [of LNG] or the upper scenario of 70 million t/y – which would change the balance.
“In terms of prices, there will always be differences. Qatar and Yemen are very well located to be able to arbitrate between the western and eastern gas markets, which is good for them.”
In the shifting sands of the Middle East, where the line between opportunity and risk is fine, relationship management is paramount, particularly with host governments and local populations. Breuillac says the relationship between oil majors like Total and Middle East national oil companies (NOCs) has changed markedly since the 1970s.
“In the 70s and 80s NOCs wanted to do things on their own, and they did so with mixed success. Later they re-engaged with IOCs [international oil companies] but purely to buy technology, services or people.”
“Today, they look at us as partners. Some want to expand globally, because they want to bring the knowhow that comes from international exposure back to their own country.
“When you partner an NOC in a foreign country and have to deal with the authorities of that country, the perspective of the NOC changes completely – they realise what it is like to be in our shoes. This is a game changing evolution. Now the NOCs understand why we do certain things, and there is better alignment.
“Also, a lot of the technologies the industry needs for the future don’t yet exist – NOCs know we have to work together to develop them, bringing their own sophisticated knowledge of their own reservoirs.”
As the winds of change whistle through the Middle East, how Total manages its complex web of networks and relationships will become increasingly important.
This article appeared in the April 2013 edition of The Gulf.