French Oil Company Total Maintains Investments, Predicts Rebound in Oil Prices

Total CEO Christophe de Margerie. (image: rferl.org)

French Oil Giant Total will maintain its investment budget this year, predicting price rebounds as world oil production reaches capacity.  Traditionally one of the more frugal estimators of the oil industry’s ability to meet up with demand, Total CEO Christophe de Margerie estimates peak world oil production to be 89 million barrels a day.  He bases this number upon the cancellation and delay of many large-scale oil projects in response to falling oil prices.  Further, de Margerie notes the decline in rates of supergiant fields—the International Energy Agency conservatively estimates a 3.4% drop in production, while Merrill Lynch looks to large fields and estimates a much greater drop in production of 10.4% a year.

Total is seeking to invest, noting that many others are pulling away from current investment in oil production (such as U.S. major ConocoPhillips).  By investing now, Total hopes to capitalize on the market rebound because current investment levels will not be large enough to respond to rising demand upon economic expansion.  Nobuo Tanaka, IEA executive director, notes that by not continuing investment, the oil industry as a whole may be setting itself up for a major supply crunch upon economic recovery.

Exxon Mobile, still flush with capital despite the recession and falling oil prices, announced in March that it would be upping its investment activity this year from 26 billion to 29 billion.  However, recent reports show that some of Exxon’s smaller partners may not have as disciplined an approach to investment.  State partners, such as Qatar Petroleum (Exxon’s partner in the delayed Barzan gas field project are under different pressures due to their status as national companies.  Lower oil export revenues, combined with pressures to fund social programs mean that Qatar is more concerned with the short-term goal of saving cash.  Some speculate that Total may not be able to spend it’s full investment fund due to similar issues with state company partnerships.

Royal Dutch Shell also takes the long view, planning to invest between 31 and 32 billion in 2009.

In preparation for a price rebound, Total plans to invest 13.6 Billion Euros (18.08 Billion Dollars US) in oil projects this year, mirroring its investment budget for 2008.

By maintaining or increasing investment in oil production companies like Exxon and Total are securing their position as biggest profit-takers when oil demand and oil prices eventually rebound.