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Total Agrees to Lukoil Shale Deal, Brushing Off Russia Sanctions

Christophe de Margerie
Christophe de Margerie, chief executive officer of Totale SA, left, shows his name badge as he greets Gennady Timchenko, Russian billionaire, right, between sessions on the opening day of the St. Petersburg International Economic Forum on May 22, 2014. Photographer: Andrey Rudakov/Bloomberg

Total SA agreed to seek shale oil in Western Siberia with OAO Lukoil, brushing off U.S. and European sanctions against Russia over its annexation of Crimea.

Chief Executive Officer Christophe de Margerie signed the deal at the St. Petersburg International Economic Forum in a demonstration of Total’s commitment to Russia, after officials from companies including Citigroup Inc., Morgan Stanley and ASA Statoil withdrew from the meeting.

Total and Moscow-based Lukoil will set up a venture to seek so-called tight oil in the Bazhenov area of Siberia under their agreement, the French company said in a statement. Siberian shale has “huge potential,” de Margerie said. Investment in the venture will be $120 million to $150 million in the first two years, according to Lukoil CEO Vagit Alekperov.

Total says its Russian business isn’t affected by sanctions against the country, including on Gennady Timchenko, shareholder of OAO Novatek in which the French oil producer holds a stake. De Margerie said last week it was “business as usual” even as the U.S. and Europe ratcheted up restrictions against Russia following its annexation of the Crimean region of Ukraine. CEOs from Eni SpA and Royal Dutch Shell Plc also attended the St. Petersburg forum.

Follows Exxon

The deal with Moscow-based Lukoil is to explore and develop four licenses spanning 2,700 square kilometers (1,000 square miles) in the Khanty-Mansi Autonomous District, according to the statement. Lukoil will hold 51 percent and Total the rest, with seismic exploration planned for this year and drilling in 2015.

“Total’s entry into the Bazhenvov play, one of the world’s largest shale-oil formations, reinforces our position in non-conventional hydrocarbons,” de Margerie said in the statement.

With the accord with Russia’s second-largest oil producer, Total follows Exxon Mobil Corp. and Statoil, which already have tight-oil ventures with OAO Rosneft in Western Siberia, and Royal Dutch Shell, partnered with OAO Gazprom Neft. The French company plans billions of dollars of investment to boost output in Russia as a key part of its aim to expand global production.

As part of the program, Total says it’s sticking with plans to raise its stake in Novatek and is pushing ahead with its Yamal LNG Arctic liquefied natural gas venture. Russia may be Total’s largest oil and gas supplier by the end of the decade, Michael Borrell, senior vice-president for continental Europe and central Asia, said last month.

The country was Total’s biggest supplier after Nigeria, the United Arab Emirates and Norway last year, providing 207,000 barrels of oil equivalent a day. Total is seeking to raise the figure to about 400,000 barrels by 2020, Borrell said.

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