Future of energy depends on ability to control costs – Total CEO

04 March 2014 21:59 Source:ICIS News

HOUSTON (ICIS)--The global energy industry has a bright future but must find a way to fight inflationary pressures on costs, the CEO of France-based Total said on Tuesday.

"This is the right time to start thinking about cost control, the future and responsibility," Christophe de Margerie said during a keynote address at IHS CERAWeek 2014.

Costs should not be controlled by shorting safety, pollution controls or quality, he said.

"A good company [that] is extremely capital intensive cannot just ignore that they are responsible for what they are producing. There are ways of being excellent, being definitely safer, being cleaner without always adding additional costs," de Margerie said.

Rather, costs need to be controlled from the beginning stages of a project. Total looks at all aspects of its new projects to develop efficient and cost-effective ways to pursue them, said the CEO of the global energy and petrochemical major.

Some projects may not be worth doing due to difficulty in controlling risks to employees and equipment, or due to a lack of understanding of future costs of production, de Margerie explained. It is better to know those things early in project planning before much money has been invested in it, he said.

"If you want to give a good product, you can control the costs. Excellence does not mean at any price," de Margerie said.

Controlling costs also means working in partnership with contractors and subcontractors, working with transparency and open books, he said. Companies can look for synergies with contractors and share ideas, the CEO said.

"We [in the industry] work with contractors like they're competitors. We're not," de Margerie said.

The CEO stressed that the energy industry can no longer afford double-digit inflation for capital projects. While many long-timers in the industry are used to high-priced project costs, new members of boards ask if it is normal to spend $55bn on a single project, de Margerie said.

"It's a lack of efficiency in most cases," he said.

Another way to control costs it to manage assets more actively, divest those that do not have an upside and forgoing investment in those that are not worth it, the CEO said. Companies cannot say yes to every project, he said.

"At Total we say, 'Yes, but at what cost?'" de Margerie said. "If we say at any price, we're not doing our jobs."

By Jessie Waldheim