October 22, 2014 / 11:34 AM / in 3 years

Total names refining boss to replace de Margerie

PARIS (Reuters) - French oil company Total (TOTF.PA) has appointed refining boss Patrick Pouyanne as chief executive to succeed Christophe de Margerie who was killed in a plane crash in Moscow this week.

Thierry Desmarest, Chairman of French oil company Total, speaks during the company's annual shareholders meeting in Paris May 16, 2008. REUTERS/Benoit Tessier

Pouyanne, 51, head of refining, had been considered as possible candidate to succeed de Margerie in the past and has a reputation as a shrewd cost-cutter.

The world’s fourth largest oil company also named Thierry Desmarest, a former Total CEO, as non-executive chairman. The appointments came less than 48 hours after de Margerie’s death.

Desmarest, 68, also previously honorary chairman of the oil group, will keep the chairman position until the end of 2015, after which the roles of CEO and chairman will be combined, Total said in a statement following an emergency board meeting. De Margerie was both chairman and CEO.

Total’s choice of a man from the downstream business comes just over a year after rival Royal Dutch Shell (RDSa.L) elevated Ben van Beurden, who formerly headed the Anglo-Dutch group’s refining arm, to become chief executive.

“Being in the downstream gives you more of a feel for costs, which is the big focus of the industry at the moment, whereas in the upstream you get a bit carried away sometimes, it’s kind of sexy,” Iain Reid, a BMO analyst in London, said.

“In the downstream it’s more about manufacturing and hard work - that’s what these big oil companies need at the moment.”

Under pressure from shareholders, major oil companies have sought to cut capital expenditure swollen during the years of high oil prices. Total initiated a “soft landing” in capex last year and unveiled a plan to cut operating costs last September.

Pouyanne had a major role in merging Total’s loss-making “downstream” refining and petrochemical businesses, a shake-up designed to counter declining European gasoline demand and bring $650 million in extra cash per year from 2015.

Analysts said Pouyanne’s success in creating synergies and cutting costs in the refining arm could be used as a template for the rest of the group.

Desmarest’s experience will prove useful in revamping the group’s exploration business, after the failure of a so-called “high-risk, high-reward” strategy launched in 2011 which consumed more than $10 billion but delivered no major oil discoveries.

“It’s no secret that Christophe de Margerie did not succeed in its costly transformation of the exploration division,” John Plassard, deputy head of Mirabaud Securities, said.

“A management split will rule out this kind of mistakes made by one man,” he said.

INTERNATIONAL CONTACTS A PRIORITY

Pouyanne will face a politically sensitive situation in France, where he told unions earlier this year that Total would seek to cut capacity among its five refineries, with more details about the plan expected next spring.

The company will be hoping to avoid a repeat of its problems in 2010 when Total’s decision to close down the Dunkirk refinery prompted weeks of strikes by angry unions and disrupted French oil supplies.

A union source said Pouyanne could be harsh with his staff but was very sharp and engaging with outsiders.

An engineer by training, who worked as a ministerial adviser under previous conservative governments, Pouyanne will also have to beef up his contact book and forge stronger links with big oil producers.

De Margerie’s close relationship with political leaders such as Russia’s Vladimir Putin and with the rulers of Saudi Arabia and the United Arab Emirates, for instance, was considered as one of the main strengths of the late CEO, the scion of a family of diplomats.

“He (Pouyanne) will have to maintain the extensive international network that de Margerie had developed over the years, that was mentioned by Desmarest and other board members during the meeting, that’s his priority,” Jean Alessandri, a union representative who sits on the board of Total, said.

Desmarest headed the group during the mergers of Total with Petrofina and then Elf in 1999, transforming the company from a mid-sized player to one of the big five oil “majors”.

“A Desmarest/Pouyanne tandem would combine experience and expertise,” Christian Jimenez, a fund manager at Diamant Bleu-Gestion, which owns Total shares, said.

“It’s a quasi-ideal configuration, at least for the next few years until we have seen whether Pouyanne displays any talent as a strategist.”

Additional reporting by Raoul Sachs, Alexandre Boksenbaum-Granier and Emmanuel Jarry; Editing by Brian Love, James Regan and Jane Merriman

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