Video"Because it is my first conference call, let me introduce myself," said a voice on the other end of the line. "You can call me Patrick." This casual introduction marked a changing of the guard at the top of corporate finance in Europe. Analysts on the August conference were hearing from Patrick de La Chevardière for the first time since he took over two months earlier as CFO of Total, the French oil giant. It was a momentous occasion, as de La Chevardière was stepping into a post held for 14 years by his hugely popular predecessor, Robert Castaigne. Although, like Castaigne, he has spent his entire career at Total, including five years as deputy CFO, it will "obviously" be a challenge to live up to such a "prominent personality," he told CFO Europe as he approached the psychologically significant milestone of the first 100 days in his new role.
"Internally, when Robert said something, it was like the voice of God," de La Chevardière chuckles. "I now have to prove that I am like God, which could take some time."
As well as living up to the legacy of his mentor, the responsibilities that come with the CFO post at Total are formidable. The largest company in terms of market cap in the euro zone, Total employs nearly 100,000 people, pumps more than 2.3m barrels of oil every day and generated €160 billion in sales last year. From one of the thousands of offices in the company's imposing headquarters — the tallest tower in the La Défense district of Paris, as nothing about Total is small scale — he must wonder about how much influence a single executive can have on a company of this size. (See "Giant Steps" at the end of this article.)
Called to Account
Fortunately for the CFO, soaring oil prices this summer made his first conference call relatively easy. "Our results are straightforward," he told analysts, with record-high oil prices leading to record-high profits. The group reported adjusted net income of €7 billion in the first half of 2008, a figure that the press couldn't resist breaking down into a remarkable rate of €1.6m an hour.
But future presentations may be less straightforward. The massive profits reaped by the international "super majors" — a group that includes Total, ExxonMobil, ConocoPhillips, Chevron, BP and Shell — have resulted in a backlash against contracts signed when the price of oil languished around $20 a barrel in the 1990s. "Resource nationalism" is on the rise, with host governments — which control some three-quarters of the world's oil reserves — keen to renegotiate, or even scrap these agreements.
As a result, state-owned oil players such as Saudi Aramco, Petrobras and China National Petroleum Company — referred to as national oil companies, or NOCs — are growing in confidence and cash flow, challenging the super majors at home and, increasingly, abroad. A recent report by Moody's Investors Service questioned whether the super majors could "retain a differential advantage based on capital resources and technology" as NOCs enjoy "a combination of foremost access to new resources, increasing technological sophistication, and political and economic agendas that do not necessarily put shareholder return as a first priority."
What's more, in the short time de La Chevardière has been CFO, the price of oil has ranged from an all-time high near $150 a barrel in July to around $90 in mid-September. With banking turmoil threatening to dampen the broader economy, thereby crimping demand for oil, the price of a barrel in September hovered around the level that Total executives, in a mid-year strategy update, say represents the breakeven point for marginal production in the Canadian oil sands, where many oil majors plan to ramp up production. Other important projects in development in offshore Angola will break even at $70 a barrel, a level that may be tested if the economic gloom worsens. And like other heavy industries, oil companies have been affected by labour shortages and unprecedented input-cost inflation. (See "Up, Up, Upstream" at the end of this article.)
Powers of Persuasion
The biggest challenges the operators now face are of the "above ground" variety, according to industry lingo. Gaining access to the most potentially lucrative oil and gas fields requires increasingly tricky negotiation with emboldened host governments and NOCs. And after a contract is signed, plenty of risks remain where oil firms operate. As Moody's explains, "A long list of examples would include tightening state controls over the oil sector in Russia and Brazil; nationalisation and forced sales in Venezuela, Russia, Kazakhstan and Bolivia; and the impact of civil unrest in Nigeria and Iraq." In July at the World Petroleum Congress in Madrid, Lawrence Eagles of the International Energy Agency, an intergovernmental organisation, said the industry's key projects had seen initial cost estimates double and deliveries delayed by more than a year, resulting in lost production of 1m barrels a day.
In this environment, "it's not just about what you know, but who you know," says Neill Morton, an analyst at MF Global. "More and more, it is about who is at the negotiating table rather than whether your drilling engineers or seismic guys are better than the next company's."
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