New Total boss must overhaul exploration strategy, pursue cost cuts

Tue Oct 21, 2014 12:44pm EDT
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By Michel Rose

PARIS (Reuters) - The sudden death of Total's top executive may make it even trickier for the French oil major to overhaul its expensive exploration strategy while simultaneously cutting costs to please shareholders as oil prices fall.

Total had recently taken the unusual step of naming an outsider to devise a new strategy after a costly three-year drive to increase drilling spending failed to yield significant results - the main blot on Christophe de Margerie's legacy.

It had also started to cut capital expenditure after years of record-high investments, under pressure from shareholders demanding bigger payouts.

With Brent crude now around $85, executing this plan becomes even more critical, and investors are hoping that the group has a plan of action following de Margerie's death.

"We have the feeling that a group like Total has the organization in place to deal with an emergency situation, and this is an emergency situation," said Renaud Murail, a fund manager at Barclays Bourse, who is advising clients to buy Total shares.

The company had been officially planning to take stock of its exploration strategy next year. Total raised its exploration budget by 12 percent between 2012 and 2014 in what it called a "high-risk, high-reward" strategy to find new sources of oil - but about 40 percent of wells drilled in 2012 were dry, and that proportion rose to almost 60 percent last year, according to company figures.

Insiders say a major re-think is already underway, and analysts are hoping the arrival of Kevin McLachlan, an executive from one of the nimbler oil firms Murphy Oil, as head of exploration, will herald a more entrepreneurial spirit.

Big oil firms like Total have struggled to replicate the success of Murphy Oil or Tullow, another independent oil exploration firm, because of their complex decision-making process and their more risk-adverse culture.   Continued...

View of French oil giant Total headquarters in the financial and business district of la Defense in Courbevoie near Paris October 21, 2014.   REUTERS/Charles Platiau