with Jacques de Boisséson, General Director, Total E&P Russia
Mr. de Boisséson, prior to arriving in Russia you spent decades working in leading positions for Total in China, Qatar, Colombia and East Africa. How has been your learning curve in Russia compared to the other countries?
My learning curve here was probably easier than in China where I spent the previous six years. Russia is a more familiar environment to me as we are in a European context. The oil and gas industry has been established for a long time in this nation, and, although it is working along its specific lines and standards, it has a lot in common with the industry in the West.
Total’s partnership with Novatek has worked out as an incredible bet as Novatek emerges as a stronger player day after day. As a foreign operator on the market, it seems that Total is about to be successful. When will the strategy be considered a success?
Although we have acquired our stake in Novatek in 2011, we have had a long standing relationship with them as our first business relations were established almost ten years ago.
Total and Novatek complement each other in terms of know-how. Novatek has a tremendous track record and allowed us to make rapid inroads into the Russian market; in return, we have allowed them to shorten their learning curve in the international arena, in particular with relation to Yamal LNG—an international project by nature. That being said, our partnership with Novatek can be considered a success already, and will greatly accelerate the Group’s development in Russia.
Last week, after years of lobbying from Novatek, Minister Novak confirmed that both Novatek and Rosneft will be allowed to export LNG from their Arctic fields – which is good news for the Yamal project. What does the Yamal LNG plant represent for Russia?
Apart from its domestic market, Russia has concentrated in the past on pipeline gas exports to Europe. The country has further potential in two areas: exports to the East and LNG exports. Today, Russia is waking up to these two missing parts in its strategy.
Gazprom’s legal gas export monopoly is based on the fact that gas exports are solely pipeline exports to Europe. However this monopoly is not adapted to today’s wider strategy for Russia; that is why these discussions are currently being held.
Could you elaborate on Total’s operations in Russia?
In addition to Yamal LNG, we are partnering with Novatek for the development of the Termokarstovoye gas and condensate field. This is a traditional “Novatek style” project, in the sense that it is the kind of fields that Novatek has successfully developed in the past and it is in the area where Novatek has been operating for a long time. We are currently in the process of drilling the wells, installing gas treatment facilities and constructing pipelines to export the gas into Gazprom’s network. Production of the Termokarstovoye field is scheduled to start in 2015.
Total’s roots in Russia are in the Kharyaga field, 60 km inside the Arctic Circle, in an area of extreme cold and a very sensitive tundra environment. Total has been operating this field in Russia’s Timan Pechora Basin since 1999 under the country’s sole Production Sharing Agreement (PSA) for an onshore project. Kharyaga PSA was the first PSA project in Russia to become profitable for the State.
Moreover, we have an office in Murmansk, which deals with Shtokman, another pioneering LNG project in the Arctic. This project is a major challenge but worth confronting.
By 2020, Total aims to have Russia represent 15% of its global hydrocarbon production—hence becoming Total’s number one production country. Can you elaborate on the strategic importance of Russia for Total and how close to the target you are?
First of all, Russia is the number one oil producing country in the world, just ahead of Saudi Arabia, which is practically closed to private investment. This country is the place for a private international oil company such as Total to get access to the largest reserves and production base in the world. For this reason, we have decided a couple of years ago that we wanted to establish Russia as one of our core areas for production.
Our global target is to produce 3 million barrels of oil equivalent per day in the latter part of the decade, and we hope to be producing in Russia 15% of this target, which equals 450.000 barrels of oil equivalent per day. This number is mainly based on the success of the current development in Kharyaga, on the future production in Termokarstovoye, on the launch of Yamal LNG, and most of all on the beneficial impact from Novatek’s growth.
We aim to increase our stake in Novatek up to 19.4%. As Novatek aims to double its production between now and 2020, almost 400.000 barrels per day will come from our partnership with them.
In addition, we also have the Shtokman project, which can contribute significantly to our production figure in the future.
Do you consider production of unconventional hydrocarbons as a leverage to reach your target?
Production of shale and tight oil, yes. The production of unconventional gas is a different story. Currently there are enough conventional gas reserves, and therefore it is not Russia’s intention to incentivize the production of unconventional ones.
Russia has two main sources to maintain or possibly grow its oil production: unconventional oil onshore, and the Arctic Shelf, which has not been explored yet. Naturally, Total is willing to participate in both to ensure production growth.
Regarding the Arctic, we remain particularly cautious: we are aware that an oil spill would be extremely damaging if it happened under the ice sheet. And, as an industry, do we have the necessary technologies and logistics to handle this type of accidents?
On the contrary, as far as onshore unconventional oil is concerned, we are very much willing to bring in our technologies and experience to this new area of operation in Russia.
Last week, our colleagues met Martin Tiffen in Norway; he was proud to say that Total is back in the game and elaborated on their production technology and fast track programs for the Martin Linge and Alta fields. What synergies do you see with the Norwegian affiliate?
We certainly see synergies as Shtokman is in the Barents Sea, which Russia shares with Norway. Despite being a specific field, it has certain common features with other harsh offshore environments –such as the ones in Norway. We have not found the right development scheme yet for Shtokman, but if we are to succeed, it will be by using all the expertise we have acquired, including in Norway.
Technical issues in developing oil and gas fields in Russia are huge. We will have to apply advanced technologies in all fields from deep reservoirs to remote offshore projects.
Also, tight reservoir technologies are important for the development of the industry in this country. Generally, productivity of reservoirs in Russia is not very high; and does not allow for very profitable projects as such. There is definitely a necessity to improve productivity through enhanced technology.
How much does Total spend in R&D?
The oil industry in general has a difficulty identifying the expenditures which belong to R&D. Technology is everywhere. When we develop a field, we acquire and improve technology as we go.
For the Yamal LNG for instance, we have to build a plant on the permafrost in harsh conditions. It has never been done anywhere else before and requires state-of-the-art techniques.
As another example, the Kharyaga field consists of six reservoirs. LUKOIL and their predecessors have been producing reservoir one, four, five and six for many years and left reservoir two and three behind as they were too challenging. These two reservoirs are the ones Total is now producing, because we have the right technology. If they were not difficult they would not be allocated to us!
Looking ahead, what are your personal ambitions for the coming three to five years for the Russian affiliate?
One of the good surprises I had when arriving in the Russian affiliate was to see the quality of the people here. There is a lot of potential yet to be exploited, and I believe that Russia can contribute to the talent pool of Total Group. I wish that Total in Russia continues to grow both in quantity and in quality.
Naturally my aim is to reach our production targets, which are ambitious but I believe we have what it requires achieving them. I am confident that Russia will become Total’s number one contributor to the global production of the Group. We have to be the first in class in production, but also in safety, reliability, and ethics. Not only because we committed to it, also because it is the way to get further opportunities in the business. It is the condition for growth.