Total Seeks up to $15 Billion in Chinese Financing for Russian Project

March 23, 2015

Total SA is seeking the equivalent of up to $15 billion in Chinese financing to fund its expansion in Russia, its chief executive said, as U.S. sanctions complicate the French oil giant’s big bet there, writes The Wall Street Journal.

Total Chief Executive Patrick Pouyanné also told The Wall Street Journal that it expects oil-price volatility to continue through 2015 as oil supplies, driven partly by a rising tide of new production in the U.S., outstrip demand. “I think the price will not stabilize,” he said. “The idea that you will stabilize something is wrong. Volatility is in the commodity business.”

Mr. Pouyanné said Total is focusing on costs amid oil’s price slump, though he sees little prospect for big oil-sector deals for the time being.

“Our anticipation is that the increase of supply will remain above the increase of demand in 2015,” he said. “For me, I see this period as an opportunity to clean up the cost base of our company.”

Mr. Pouyanné said he was seeking the equivalent of $10 billion to $15 billion in Chinese financing for the $27 billion Yamal liquefied-natural gas project in the Russian Arctic. He said the Chinese financing may come in both euros and yuan.

“You have a strong willingness to build the project financing” from the Chinese financial institutions, he said. “It’s not an easy task, to be clear. We would have preferred to do it with dollars.”

Mr. Pouyanné said he aimed to have a financing agreement by the middle of 2015 but didn’t say which Chinese institutions might be involved. Total, Russia’s OAO Novatek and China National Petroleum Corp. have invested in Yamal.

“There is a commitment there,” he said. “It’s a question then of conditions and we are working on that.”

If Total were to raise $15 billion it would be the largest reported private corporate deal that Chinese banks have taken part in, beating the $12 billion syndicated loan to Daimler AG in 2013 in which two of the 34 banks were Chinese.

Total expects Russia will be the most important region for its oil and gas output by 2020, when it hopes for production of around 400,000 barrels of oil equivalent a day. Last year, Total as a whole produced 2.2 million barrels a day.

Meanwhile, Mr. Pouyanné said Total’s project with another Russian company, Lukoil, to explore the vast Bazhenov shale reserves was on hold. He said the company hadn’t sought exemptions from the European Union for sanctions that have delayed the project.

Oil companies globally face the threat of eroding profits due to low oil prices. Brent crude prices have fallen to about $55 from more than $100 last year. U.S. oil prices are even cheaper.

“We need to react but not to overreact,” Mr. Pouyanné said. The company has announced 2,000 job cuts by 2017 and is seeking to divest $10 billion in assets. Among them, the company is considering selling its Frigg pipeline operations in the North Sea, said Mr. Pouyanné,