Total to Merge Upstream Gas with Gas, Power, Renewables (Clarification)

(Clarifies reorganisation brings no change of management)

French oil company Total is to merge its LNG business with its Gas, Power & Renewables (GRP) business, it said during an analysts' call February 8, but there will be no change of management of the respective teams, it told NGW: "This refers to the upstream gas-producing assets, that were under management of the Exploration and Production Division and will integrated in GRP." Total said this signalled "the emergence of what has been called... 'integrated gas'."

CEO Patrick Pouyanne said that this would make comparisons with the respective divisions' past performance harder for analysts, but on the other hand it made operational logic, given the close ties between the two teams.

As an example he cited Myanmar, where Total is expecting to supply and regasify LNG for its gas-fired project. And given the long plateau production levels associated with LNG export plants, such as Yamal in Russia, the merger would also add some stability to guidance about the expanded group's earnings. He said the proposal to merge the two had good feedback and would go ahead in 2019. Shell already has an Integrated Gas division, including upstream gas supplied to LNG plants with its liquefaction business.

Philippe Sauquet, who heads Total's existing Gas, Power & Renewables business, will continue to do so when it merges with the LNG business.

The acquisition of French Engie's LNG division agreed three months ago, effective January 1 2018 but due to close mid-2018, gives Total access to some 40mn mt/yr of production, or 10% of the global market, putting it second after Shell, among the international oil companies. It will allow Total to save money on shipping, being able to optimise deliveries, rather than having vessels going "around the world in a crazy way", such as the voyage from Norway to Asia that added $2.50/mn Btu to the delivered cost, Total said.

Pouyanne said the deal was a "unique opportunity for a step change." For LNG markets to commoditise, he said, size and flexibility were needed; this deal would improve both of those. For example, Total now has a stake in Cameron LNG in the US, which fits with its own interests in the Barnett shale: "This is fully integrated, and ready to export from 2019," he said. "We are fully supportive of plans to expand Cameron LNG, and we think Henry Hub [US gas benchmark contract] will remain low for a long time."

Another big project is in Papua New Guinea, where Total is engaged in one upstream gas production to LNG project and ExxonMobil in another. Merging the two would make sense, and indeed the thoughts the two teams have to extract maximum value from them are converging, Total said: "We've all spent money on these resources, now let's develop them."

Total is expanding its low-carbon businesses generally and is working "along the whole gas value chain," he said, to enhance the demand for gas; however that might not be necessary given the massive ramp-up in demand and prices, which rose by 10% last year – while everyone had been pessimistic, expecting half that, at most. He said this was supported by demand from India, Pakistan and most obviously China. 

Pouyanne also said that more acquisitions were to be announced soon, responding to an analyst who asked whether higher oil prices meant that deals such as the Maersk Oil takeover, expected to get the green light this quarter, were now no longer on the menu. "Things should be harder when negotiating at $60-$65[/barrel Brent] than at $50," he said, "and we were right to move quickly last year." But the upcoming announcements would show that it is possible to gain access to low-cost reserves, he said.