“The worst-case scenario is that we can’t restart before the end of year,” said Chief Financial Officer Patrick de la Chevardiere in an interview today. The cost of lost production and plugging the North Sea well may reach about $400 million by the end of this year, a fraction of the slump in the company’s market capitalization since the leak erupted March 25, he said.
“What is clear is that the market overreacted to the incident,” he said. The company estimates it’s undervalued by 4 percent to 5 percent compared with its European peers.
Total seeks to turn the page on an incident that rattled confidence in its ability to meet a pledge to boost output in coming years. In the next few weeks Total plans to cement and abandon the G4 well that leaked for almost eight weeks.
The Elgin field, about 240 kilometers (150 miles) east of Aberdeen, Scotland, and the nearby Franklin operation together provide about 2 percent of the company’s annual output.
“I’m not changing my target for 2015,” De la Chevardiere said, with output picking up even if there isn’t any growth this year after the Elgin incident and halts in Nigeria and Yemen.
The explorer has pledged to raise production on average 2.5 percent a year from 2010 to 2015, with 25 new projects expected to add 600,000 barrels of oil equivalent a day. That’s based on a Brent crude price of $100 a barrel, with 95 percent of the developments either already producing or being developed.
Depends on Syria
Total had forecast output growth of 2 percent to 3 percent in 2012 depending on Syria, where the company halted operations because of political violence. The Paris-based operator plans to boost production and explore more aggressively to reverse a slump that saw output slide to a nine-year low in 2009.
The leak is being probed after forcing Total to evacuate the three platforms at the Elgin and Franklin fields, site of some of the biggest installations in the world used to pump oil and natural gas from high-pressure, high-temperature wells.
Seepage from the G4 wellhead may have come from a rock formation about 4 kilometers under the seabed and above the main producing reservoir that was plugged more than a year ago, according to Total’s website.
“It’s not a given that the incident is linked to high- pressure, high-temperature characteristics,” De la Chevardiere said. “I don’t have a rational explanation today. This is the first incident of this kind in this type of field.”
Health and Safety
Total runs Elgin and Franklin with a 46 percent stake and has drilled new wells and added platforms in recent years to try to delay their decline. The U.K.’s Health and Safety Executive will decide on whether to allow Total to resume operations, a choice on which De la Chevardiere has “no visibility.”
Lost output is costing the company $1.5 million a day and another $50 million after taxes and insurance for plugging the leak including payments for rigs and outside expertise.
“There were no deaths, no injuries and practically no pollution,” De la Chevardiere said. Total isn’t expecting legal challenges over Elgin because pollution was limited, according to the company. The leak is mostly methane, a greenhouse gas that isn’t toxic, while condensate volumes were small, forming a thin sheen that evaporated or was quickly degraded, it said.
“Who would go after us and why? Who was harmed?” he said. “Losing 55,000 barrels of oil equivalent a day isn’t fun, but it isn’t threatening the viability of our investment program.”
The company also stopped a natural-gas leak in the Niger Delta region of Nigeria on May 13. “Nigeria will restart by the end of the year,” De la Chevardiere said today, with Total’s share of production 20,000 barrels of oil equivalent a day.
To contact the reporter on this story: Tara Patel in Paris at firstname.lastname@example.org