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# North Sea Still a Big Part of Total’s Future

## Recent exploration success in the North Sea has motivated Total to invest some $10 billion in the basin over the next 5 years. Recent exploration success in the North Sea could motivate Total to invest$10 billion in the basin over the next 5 years.

The French major has reshuffled its upstream portfolio under the watch of Chairman and Chief Executive Officer Patrick Pouyanne, but the basin remains part of its “DNA,” he said during this week’s SPE Offshore Europe conference in Aberdeen, Scotland. The firm views the North Sea as a destination with low-cost assets that can generate profit, a departure from years past.

Total is operator of the Glendronach gas discovery west of Shetland and a partner in the Glengorm gas and condensate find in the Central North Sea, both announced in the past year and serving as new development opportunities. Total also has a stake in Norway’s giant Johan Sverdrup oil field, where production is scheduled to begin this fall.

Operators, some old and some new, are renewing investment in the North Sea as it becomes more affordable. Consultancy Rystad Energy forecasts that final investment decisions on projects in the region could total 38 in the next 3 years, peaking at $9.3 billion in projects in 2021, up big from a mere$550 million in 2016 during the bottom of the downturn.

Targeting gas and inexpensive oil across its exploration and production unit, Total is now focused on what it can control: breakeven costs, Pouyanne said. The oil-market shock of 2014–2016 fundamentally changed how operators approach the North Sea and, as a result, they are much more disciplined.

He said Total’s $7.5-billion acquisition of Maersk Oil in 2017–2018 should be viewed in that new context. “Without a successful response to the price crash, Total wouldn't have been seeking to make large-scale future commitments in the North Sea,” he said, adding that efficiencies driven by the merger will result in$300 million in savings. Total is expected to produce 450,000 BOE/D from the basin this year.

But the most sustainable cost savings are coming from deployment of new technologies, including extended-reach drilling, high-temperate/high-pressure developments, and long-distance subsea tiebacks. Collaboration between operators and the supply chain have enabled new technologies to be put to use earlier, stimulating innovation, he said.

Pouyanne noted that more cross-border collaboration is needed in the North Sea, as inefficiencies around moving a rig between countries, for example, are “unacceptable.” Decommissioning also remains a challenge where companies can work together to shed costs. Total is partnering with BP and Shell to jointly manage their decommissioning while simplifying and standardizing those projects.

Expanding Total’s gas and LNG portfolio, Pouyanne’s most recent deal was the May agreement to buy Anadarko’s African assets for $8.8 billion amid Anadarko’s takeover by Occidental Petroleum. Those assets represent around 1.2 billion BOE of 2P reserves, of which 70% are gas, and are expected to be free cash flow positive at a Brent oil price of less than$50/bbl. The deal includes the newly sanctioned Mozambique LNG project.

Total is pairing gas with renewable energy sources to bridge the transition into a low-carbon energy future. But an added value of many of its global gas projects, Pouyanne said, is the ability to provide low-cost energy to nearby emerging markets. “With all this activity, we have a clear vision on what is the path to 2025,” he said.

While some of those countries come with geopolitical risk, much of the risk is mitigated by the geographical expanse of Total’s overall asset portfolio, which stretches all over the world. The company’s No. 1 investment region is Russia, and the US is No. 2, he noted.

Traditionally seen as a model of stability, meanwhile, the UK’s risk profile is elevating after Brexit. Pouyanne said the decision was a choice of the British people and must be respected, but he thinks “it’s a fundamental mistake” and “unfortunately our friends in the UK will discover why.”

## Balancing Act

Total’s contributions to a low-carbon energy future include the Teesside and Acorn carbon capture and underground storage projects in the UK. As many North Sea fields are depleting, Pouyanne sees a future for some as “sort of a giant cave for CO2.”

Majors such as Total are under constant pressure to act on climate change but also provide value to investors. To Pouyanne, doing both is a matter of the company’s long-term survival, and dividends “are just a consequence of being profitable and sustainable,” he said.

But providing value now and in the near-term future requires steady investment in oil and gas to fulfill global demand. Gas and oil are the currently “reliable” and “affordable” energy sources, he said. Although many of those projects can be developed offshore, they exclude, for Total, the expensive and environmentally sensitive Arctic regions, he noted as an example.

Power demand is also slated to increase in the coming years, and Total is attempting to keep pace by investing some \$10 billion in low-carbon power production from gas and renewables as well as distribution to customers. The company is already serving 6 million power customers in France and Belgium via low-cost energy. With a staff of just 600, its power ventures “make money,” he said.

However, increasing investment in renewable projects will hinge on their availability, as many variables go into greenlighting such projects—not unlike in oil and gas.