CEO: Oil industry ‘no longer the deep pocket’ as costs soar

HOUSTON — Oil industry costs are spiraling out of control, and it’s time to rein them in, Total CEO Christophe de Margerie insisted Tuesday.

“Excellence cannot be an excuse for doing anything at any price,” de Margerie told oil and gas industry executives gathered at the IHS CERAWeek energy summit in Houston. “We cannot continue to swallow this huge inflation.”

The French oil executive suggested that soaring capital expenditures are partly being driven by greedy subcontractors. He stopped short of naming names, but blamed “Asian countries (that) think we are ready to pay forever.”

“We have to go to the sub-subcontractors and say: ‘We know what’s going on. We can no longer be the deep pocket,’” de Margerie said.

Big oil cuts

De Margerie’s comments came as other industry leaders highlighted the climbing costs of oil projects. Chevron CEO John Watson noted that those ventures are becoming far more complex, even as labor costs and offshore rig prices escalate.

Industry leaders also are under pressure to cut their capital spending — the backdrop for recent cuts announced by Shell Oil Co. and other energy majors.

Read more: Activist investors pressure energy companies to cut spending

The immediate answer was not clear for executives looking to get new balance in their books.

Safety expenses

While Watson suggested companies could look to share engineering work across projects, de Margerie urged more restraint on potentially inefficient environmental and safety expenditures that may have jumped in the wake of the 2010 Deepwater Horizon disaster.

He suggested that safety and environmental concerns after the Gulf oil spill had been used to justify outsize expenses.

Cost-cutting doesn’t mean you are not doing your job properly, he stressed.

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

“It’s now time to stop this, and we can do it without putting people in trouble” or at risk, he said. “It’s a lack of efficiency in most cases.”

‘Enhanced stimulation’

De Margerie’s colorful conversation with IHS CERA Chairman Daniel Yergin briefly strayed from cost concerns into oil-field terminology Tuesday. He suggested the industry made a blunder in widely adopting “hydraulic fracturing” as the name of the pivotal well completion technology allowing companies to extract previously inaccessible oil and gas resources.

He derided “this stupid word we are using, which is ‘fracturing.’” Yergin said he preferred “enhanced stimulation.”

He also cautioned against oil and gas industry pronouncements about abundant energy resources. When industry leaders “say there is plenty of oil and gas . . . you’re sending the message that we don’t care about the environment,” de Margerie said. “We do care. And the problem today is not the oil and gas resources — it is access to those resources.”

Some resources are locked away in relatively unfriendly countries, de Margerie said. There is “no more peak oil” and “no more peak gas,” he said, but those geopolitical and access constraints do translate into “peak capacity.”


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