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Patrick Pouyanné is the chairman and CEO of Total
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Total's new MENA adventures

The company is set to benefit from shale in the Middle East despite having shunned it elsewhere

Remember the days of buccaneering Big Oil? Total's boss Patrick Pouyanne certainly does.

The company's chief executive has plunged the French major into a series of eye-catching deals in the Middle East and North Africa. Having turned its back on newer developments with the US shale sector, Total has jumped into Iran, Libya and two feuding Gulf states is a return to the high-risk-high-return of oil companies of old. But the burly Pouyanne, a former rugby player who describes the oil business as "an adventure", insists his investments make sense.

"Stop speaking about shale as if it's the new bible, it's not true," he told Bloomberg in January. "It's not true that it's the lowest (cost) barrel in the world. The lowest barrel in the world, you know where it is? It's in Saudi Arabia, it's in Abu Dhabi, this is where Total invests, by the way. I can develop oil for five dollars a barrel, can you do that with shale?"

The answer is no, but with a big qualification: with shale you get the stability of the US, while turbulence prevails in the Middle East. In the case of Total's $450m acquisition of Marathon's stake in Libya's Waha Oil company, announced in March, it means investing in a war zone. Fighting rages between rival governments in Tripoli and Tobruk, overlaid by an Islamic State insurgency.

Waha, a joint venture with Libya and US companies Hess and ConocoPhillips, produces 300,000 barrels a day in the Sirte Basin, at the centre of the country's oil industry. Waha says production can double, assuming armed factions stay away.

Double or quits

Pouyanne's investment in Iran carries risk of a different kind. Total is the first international oil company to invest in Iran since global sanctions were lifted in 2016, committing an initial $1bn to developing South Pars, the world's largest gasfield. Total's 50.1% stake in a venture, shared with China National Petroleum Corporation and Iran's Petropars, promises huge returns. But Donald Trump has signalled he may re-impose sanctions on Iran, upset about Tehran's ballistic missile programme and its support for Hizbollah. If that happens, Total has signalled it may pull out, knowing that otherwise its US investments would be harmed.

On the other side of the Gulf, Total has struck deals in the United Arab Emirates and Qatar. Both are good investments, but plunge the company into the middle of a worsening rivalry between the two powers. The UAE, along with Saudi Arabia, is a strong advocate of extending the economic embargo of Qatar.

Pouyanne says "we're ready to take risks"; and supporters say he has earned the right to be bold. He took the helm of Total, where he had been head of refining, in the most inauspicious circumstances, following the 2014 death in a Moscow plane crash of popular former chief executive Christophe de Margerie. That coincided with the start of the oil-price crash, which saw prices fall from $114 a barrel to $27/b in 18 months.

Pouyanne also inherited a company stained by bribery scandals originating before his time in charge, and worked to restore its reputation. Big and brash, he courts the media and exudes confidence. He was raised in southwest France, where the brand of rugby played is not for the faint hearted. After working for a decade as a government energy advisor he joined Elf, being kept on when it was absorbed by Total.

Shareholder value

Since taking charge, he has sold $10bn in assets and saved money. The cost-cutting went to the top: Le Figaro reported that two years passed before he gave himself a company jet, apparently using it to sleep while away to save on hotel accommodation. He also restructured: since 2014, upstream's share of the business has fallen from 74% to 50%, with refining and chemicals jumping from 17% to 34%. Reuters says that of the big five majors, Total, along with Shell, have kept the best shareholder value.

That value should jump with Total promising an annual 10% dividend for the next three years, along with plans to buy back $5bn in shares. Paradoxically, doing the two things together means Total will wind up paying more for its shares. True to his boisterous form, Pouyanne took to Twitter in February to broadcast Total's successes, tweeting that since 2014 profits are up 20%, costs down 45%.

Total's success is due partly to a cyclical bounceback in the industry, giving all IOCs a treasure chest to spend. Spending that treasure on the Middle East rather than shale has logic for Total. For one thing, the company missed the original shale boom and investing now would be expensive. By contrast, its Middle East contacts are long-established. "Total have been in the Middle East many years, they've got the relationships, political nous," says John Hamilton, director of UK consultancy Cross Border Information.

Total should also benefit from the foreign policy of France's President Emmanuel Macron and its energetic foreign minister, Jean Yves Le Drian, both keen to burnish the country's image as a Western nation not in America's pocket.

Profiting from France's image

In the case of Libya, French special forces have worked alongside the army of Khalifa Haftar, a Tobruk government general who is despised by the UN-backed Tripoli government. Tobruk appreciates the help from Paris, and Tobruk controls the Sirte Basin. Iran may be more comfortable dealing with Total than US companies, given its worsening relationship with the Trump administration.

"The French state does not have any stake in Total, but we are, in this business, backed by the country image," Pouyanne told CNBC. "When I went to Abu Dhabi with President Macron, a strong image [sic], it helps me in my business in some way."

In causing oil prices to tumble, US shale has drained political clout from the Middle East

MENA isn't the only theatre for Total acquisitions: it has paid $7.5bn to buy Maersk Oil, a North Sea producer, its biggest buy since it absorbed Elf in 2000. In January, it announced a new Gulf of Mexico field, Ballymore. But Pouyanne's philosophy is more Wall Mart than Harrods: "What we don't need is to develop very expensive oil in Arctic regions, you will not see Total exploring in (the) Arctic area."

Another reason for Total's acquisitions is to keep production steady. Wood Mackenzie analyst Valentina Kretzschmar says Total will find a hole in production levels at existing fields in a few years: "New business development is needed to address production decline in a few years." And just as oil prospectors of old knew you had to hit a few duds before finding the gushers, so Pouyanne knows that while any one of his Middle East deals may fail, returns from the rest should, in theory, make up for it.

But the bigger point is this: by luck or intention, Pouyanne is set to benefit massively from the shale revolution, despite turning his back on it. In causing oil prices to tumble, US shale has drained political clout from the Middle East. In a world suddenly awash with oil, the tables have turned in the relationship between IOCs and states, with the companies now calling the shots. Total can pick and choose which states to invest in, and on what terms. Pouyanne's $5-a-barrel production is likely here to stay.

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