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Shale Part of 'Portfolio Cocktail Moving Forward,' Says Total Exec

Total SA wants to cook up some new deals in the U.S. shale patch, either through more joint ventures (JV) or on its own, a top executive said Wednesday.

John Bannerman, CEO of Houston-based Total E&P USA, said the French oil major isn't satisfied with its holdings in North America and is looking for onshore properties to boost its operated unconventional holdings. He was a keynote speaker at the Second Annual World Shale Gas Conference and Exhibition in Houston.

Total gained entry into the U.S. shale business in late 2009 when it paid $2.25 billion to secure a quarter interest in Chesapeake Energy Corp.'s Barnett Shale properties. The deal on the 266,000 net acres at the time gave Chesapeake needed cash to fund development activities. For Total, the purchase remains its only entry to date in U.S. shale plays. But not for long, Bannerman said.

"Basically, with our position in the United States currently to our size globally, we're not satisfied with it," he said of Total's U.S. operations. "In terms of increasing our presence, we very clearly are on the lookout. We are aligned with industry at the moment in terms of moving from dry gas to liquids. It makes sense, where we are today. Each play as it presents itself needs to be examined very closely, without saying too much on targeted plays in the United States."

Will Total use the JV partnership with Chesapeake as its model?

"Same as in the past? Perhaps or perhaps another way. All doors are open," he told the audience. Shale's impact on Total's operations today is "fairly insignificant. We clearly see it as part of our portfolio cocktail moving forward and we see it as a contributor to the bottom line in a five- to 10-year time span. It's not going to revolutionize our old portfolio, which is very much designed [around] conventional, deepwater...but we see it as a contributor in five to 10 years."

And in the "current climate" of gas prices, "liquids have an added advantage."

Bannerman took over the Houston office in September and admits that he's still on a learning curve about unconventionals. He previously had been responsible for Total's worldwide drilling program.

Earlier this month Chesapeake announced that it had completed yet another JV transaction with an undisclosed "international major energy company" on some of its prospective liquids-weighted Utica Shale property in Ohio (see Shale Daily, Nov. 4). If Total is the undisclosed partner, Bannerman would not say. However, he added that there were "good reasons" that Chesapeake's partner has not yet been revealed.

"As I speak, we have no operated production from shale gas," said Bannerman. "Nevertheless, we have taken the first steps and like many see shale gas as an opportunity not only for the industry but also long term as a source for the world to move to low carbon."

Total may be on a learning curve but the industry as a whole also has much to learn, he said.

"It's good to remember the past and to recognize the groundbreaking work by the independent pioneers. Shale gas is a true play where pioneers like George Mitchell and others combined tried and tested technology -- horizontal drilling and multi-stage hydraulic fracturing [fracking] -- and that combination unlocked the resource. If ever there was a reason for the majors to stay modest, it's what I just said."

Bannerman admitted that from a business perspective, he'd be "more comfortable if the gas price was higher, but Total and Chesapeake are doing well in their Barnett venture to reduce costs and optimize fracking costs. "The immediate future is a real challenge but I'm optimistic the teams will rise to the challenge."

Like others have said before him, Bannerman noted that to some extent, the gas industry has been a "victim of its own success. However, the reduced gas price has supported the economy and continues to support it in this difficult period. But we have to ensure profitability. It seems inconceivable...in the medium term that the [gas] price will not rise, perhaps not to the peaks of before but to a level of improved profitability without adversely affecting the economy."

There are challenges in the United States for the shale gas industry, he admitted. "I say that with time and the usual can-do spirit of this industry all issues can be worked through successfully."

Outside the United States Total has permits to drill in unconventional formations in Argentina, France and Denmark. In Argentina the company is working on its first shale gas well and the company is "quietly confident that most of the necessary ingredients are there for a successful shale development. But it's still early days. There are many challenges ahead." (Spain's Repsol YPF just days ago said it had discovered a massive oil shale deposit in Argentina that was big enough to nearly double its reserves base.)

Total holds two of three licenses issued by Danish authorities to test an unconventional formation there. It's the "least mature from a geological point of view," Bannerman said of the country's shale prospects. An exploration well is planned in the near future. The company also is partnering with ExxonMobil Corp. on a Polish shale formation but that also is in its early days.

Total is headquartered in Paris but that doesn't mean the company has gotten any special treatment from the French government for its proposed shale operations. There are "problems in the home patch" after French authorities voted to ban fracking, which in turn has held up exploration in a prospective shale formation. "But the issue is far from over," said Bannerman. "Our initial wells were to determine if the resource existed or not. For the moment it's a case of 'watch this space.' Total is not a company that gives up easily if we feel the arguments are valid."

Bannerman called himself a "modest newcomer" to the shale side of the energy industry. "I don't have a '9-9-9 plan and as a Brit I can't run for president." But he recommended the industry follow three "Cs" to ensure its success moving forward: communication, competency and creativity.

"We need to communicate the advantages of shale gas to the United States...The arguments are sound and if they are clear, honest and precise, the majority will be convinced, which will buy us time to develop alternative energies."

Competency "is a prerequisite for operating. We have to accept the recent tragic events in the offshore and the loss of 11 of our colleagues" in the Macondo well blowout last year. "Even if the technology [in the offshore] is a world apart from shale gas, it has put the industry on the defensive. We have to meet the challenge and improve our methods. Often it's technology that influences regulation, and we need to work constructively with regulators" to ensure the safety of operations.

Bannerman's third "C" is for creativity, which he said "will be required to drive down the costs, while at the same time dealing with water issues and reducing our footprint. Industry has demonstrated creativity many times in the past and I'm confident that we will rise to the challenge in the future...We have been presented with too good of an opportunity to miss or pass up."

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