Total surrender?

On Tuesday France’s Total presented a new organisation which purports to achieve its ambition of “becoming the responsible energy major”.  I must confess, if I thought Total’s strategy was rather unclear before, it is doubly so now.

Total spent 2015 meeting the short-term goals set in response to the ongoing imbalances resulting from the fall in oil prices that began in June 2014.

Yet even as it addresses these immediate challenges, the Group must also prepare for the medium and longer term and work to strengthen its position as a global energy leader.

By carrying out its core business more efficiently?  By emulating the practices of ExxonMobil, which is more successful an oil company on every measure which matters to an investor?

Apparently not:

Total’s ambition is to meet the energy needs of a growing world population, tackle climate change and provide solutions that match changing customer expectations.

Lofty goals do not a corporate strategy make.  You’d never guess that Total’s CEO Patrick Pouyanne started his career in politics, would you?

Accordingly, as part of its “One Total” company project, on April 19, 2016 the Group presented a wide-ranging new organization plan to employee representatives.

Beware any company that launches a “One <Insert Company Name Here>” campaign: if unity within a company needs to be emphasised, things have likely already gotten pretty bad.

The reorganisation itself is made up of 3 parts:

1. Creation of the Gas, Renewables & Power Segment

Gas, Renewables & Power will spearhead Total’s ambitions in the electricity value chain by expanding in gas midstream and downstream, renewable energies and energy efficiency.

We intend to deploy a proactive strategy in gas markets to meet demand and identify new outlets for our production. We will also produce and sell power from renewable sources. Electricity will be the energy of the 21st century and the growth of gas and renewables is pushing us to take a value chain approach to electricity. We have multiple ambitions in renewables in 20 years’ time: be in the top three in solar power, expand in electricity trading and energy storage, be a leader in biofuels, especially biojet fuel, and consider potential development opportunities in other renewable energies.

So Total is going to shift its focus away from oil and gas production towards electricity generation.  There are two reasons why I think this should concern an investor.  Firstly, this sort of strategy should come about on its own merits, not as a result of a crash in the oil price.  If this is a sensible strategy now, why was it not considered 2 years ago instead of “we need to produce 5m barrels per day” or whatever the figure (which was never met) was?  This smacks of a company having underperformed at at its core business opening new product lines instead of fixing the underlying issues.  Secondly, what makes Total think it can generate and trade electricity more efficiently and profitably than those who do this as a core business?  Sure, there is a link with the gas production and Total has long been an investor in solar power, but the structure and nature of the company is hardly suited to activities which will almost certainly have fine margins.  And this:

We intend to deploy a proactive strategy in gas markets to meet demand and identify new outlets for our production.

Might I ask what you were doing before?

2. Creation of the Total Global Services Segment

Total Global Services will continuously improve Total’s efficiency — thereby benefiting all businesses — by pooling support services globally: Accounting, Purchasing, Information Systems, Training, Human Resources and Facilities Management.

Ah, so Total is finally going to do what everyone else did a decade ago: offshore the support functions to somewhere cheaper than Central Paris.  Oh wait, this is France:

No jobs will be lost and there will be no mandatory geographic relocation. Total is committed to conducting this project in close collaboration with employee representatives and unions, with the intention it will be supported by all.

Naturellement.  So these giant, global centres of support to the coal-face will be working a 35 hour week and absent for the whole of August.

3. Holding re-centered on strategic functions; Human Resources and Corporate Social Responsibility which lies at the heart of Total’s Ambition

People & Social Responsibility This division will consist of Human Resources; Health, Safety & Environment, which will combine all Segment central HSE departments in order to deploy a strong, uniform environmental and safety model; the Security Division; and a new Civil Society Engagement Division, which will manage all of Total’s initiatives in this area. The Senior Vice President, People & Social Responsibility, will be a member of the Executive Committee.

Rejigging the corporate overheads with additional expenditure on the stuff that Social Justice Warriors like.

Strategy & Innovation
Strategy & Innovation will comprise the new Strategy & Climate Division, responsible for assuring the 2° C global warming scenario is incorporated into Total’s strategy;

Oh Dear Lord.  Total’s adopted virtue-signalling as a corporate strategy.

The new organization will underpin an even more efficient Total, one that also listens and welcomes dialogue with its customers and stakeholders. Our teams make Total who we are today and will shape who we will be tomorrow — a leading energy player. They are the architects of our success, which is why Human Resources and Civil Society Engagement are cornerstones of this project and will be represented on the Executive Committee.

I am dearly hoping the remaining cornerstones include profitability.  Civil Society Engagement sounds wonderful, but it’s not quite the same as a nice, fat, monthly dividend cheque.

If I were to be deeply cynical – and I am – I would say that the oil price crash has revealed that Total has major structural issues that it cannot address due to a combination of French politics and a senior management who has no idea where to begin.  Patrick Pouyanne, being well-versed in French politics, is therefore attempting to position the company such that it is viewed as an integral part of a green, sustainable, responsible French societal landscape whereby what is good for Total is also good for France and the rest of the world.  Then when the time comes for Total to beg the government for French taxpayers’ cash or state favours, as seemingly every other large French industry eventually does, it will be all the more easy to justify.

I guess running a good, old-fashioned oil company while turning a profit was all a bit too difficult.

“Let’s do as they say.”

3 Responses to Total surrender?

  1. dearieme says:

    As my dear old Dad used to say,KN “Doesn’t it make you want to spit?”

  2. phil says:

    Saw this today on Energypedia

    Total announces proposed acquisition of Saft Group

    http://www.energy-pedia.com/news/general/total-announces-proposed-acquisition-of-saft-group-167414

    Looks like they are continuing to focus on their core business, anything other than upstream E&P, and are spending almost a billion dollars on a battery storage company

  3. MSimon says:

    Wind energy profitable? Only if the tariffs do not include the required backup.

    Governments have made such decisions. They can unmake them.

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