The French oil major is looking for up $15 billion in Chinese financing to develop projects in Russia
Many companies are trying to steer clear of extra risk in Russia as the West continues to add new sanctions against the country since it annexed Crimea early last year. Oil majors like Chevron (ticker: CVX) and ExxonMobil (ticker: XOM) have pulled out of projects in Russia as the risk associated with being caught in sanctions becomes too much to justify continued cooperation. France’s Total (ticker: TOT) has decided to buck this trend.
“In my philosophy, if you begin to rush out of a country each time you have a difficulty, the people will remember you are not faithful,” said Total Chief Executive Patrick Pouyannè told The Wall Street Journal. Mr. Pouyannè said that Total would be seeking the equivalent of $10 to $15 billion for the $27 billion Yamal liquefied natural gas (LNG) project in the Russian Arctic.
Most of this financing is expected to come from Chinese banks, said Mr. Pouyannè. “You have a strong willingness to build the project financing” from the Chinese financial institutions, he said. “It’s not an easy task, to be clear. We would have preferred to do it with dollars.” He said the Chinese financing may come in both euros and yuan. China and Russia are locked in to a 30-year gas deal reported to be worth more than $400 billion.
Total’s CEO said that he hoped to have a financing agreement by the middle of 2015 but didn’t say which Chinese institutions might be involved. Total, Russia’s Novatek (ticker: NOTK) and China National Petroleum Corp. (CNOOC) have all invested in the Yamal project.
Total expects Russia will be the most important region for its oil and gas output by 2020, when it hopes for production of around 400 MBOEPD from the country. Last year, TOT as a whole produced 2.2 MMBOPD.
If Total were to raise $15 billion it would be the largest reported private corporate deal that Chinese banks have taken part in, beating the $12 billion syndicated loan to Daimler AG in 2013 in which two of the 34 banks were Chinese.
Pouyannè’s outlook for the market
Although the focus of Mr. Pouyannè’s interview with The Wall Street Journal was focused on Total’s hopes at financing the Yamal project, he also offered his outlook for the oil market as a whole. On the topic of prices, he said, “I think the price will not stabilize. The idea that you will stabilize something is wrong. Volatility is in the commodity business.”
Total’s CEO said that the company was using the price slump as an opportunity to cut costs. ”Our anticipation is that the increase of supply will remain above the increase of demand in 2015,” he said. “For me, I see this period as an opportunity to clean up the cost base of our company.”
Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication.