New York Times: Tough Days to Be a French Oilman

(Total says that its chief executive, Christophe de Margerie above, is not culpable.
Martin Bureau/Agence France-Presse — Getty Images)

Comment on this article received from a Shell Insider: the gas field discovered offshore Qatar in 1971 (see para 7) was discovered and subsequently relinquished by Shell!
              
By CRAIG S. SMITH
Published: March 27, 2007

PARIS, March 26 — Christophe de Margerie, the new chief executive of Total, France’s largest corporation and one of the world’s big energy companies, was formally placed under investigation last week on suspicion of paying bribes to win a huge gas project in Iran.

It was an ignominious moment for Mr. de Margerie, an heir to the Taittinger Champagne empire and a man of aristocratic lineage.

The mustachioed 55-year-old executive (Le Monde likened his appearance to that of a head waiter at a big Parisian brasserie) spent a night in jail before being taken to the Palace of Justice for a long day of questioning.

Total insists that its chief executive, who took office last month, is innocent and that the company abided by all “applicable law” in winning the Iranian gas concession. That is not necessarily saying much because bribes paid abroad were tax-deductible in France until 1997 and not totally outlawed until 2000.

Instead, analysts say, Total’s aggressive practices may indicate the direction that the rest of the industry is headed as shrinking reserves force companies to search harder for deals in difficult parts of the world. Total, despite having no reserves at home, is today the world’s fastest-growing large oil company.

“A lot of the oil majors actually are going to have to move toward Total’s model rather than the other way around,” said Jon Rigby, an oil analyst with UBS in London, “as they replace volumes from the United States and the North Sea. Total already has built a significantly differently shaped portfolio to the other majors.”

The story began in 1971 when the world’s largest gas field was discovered off Qatar, deep in waters of the Persian Gulf. In the years following, the region was racked by political instability, not least the Iran-Iraq war of 1980-88, which kept the Iranians from exploring in their own waters until late in the decade, when they found that the gas field extended into their territory, too.

Iran laid out a development plan in several phases for its share of the gas field, which it called South Pars, or South Persia. Its national oil company embarked on the first phase; the others have gradually been contracted to foreigners.

The suspected bribes concern Phases 2 and 3, which were awarded to Total in 1997. It has since invested $2 billion in the project with its partners, Gazprom of Russia and Petronas of Malaysia, building two offshore drilling platforms that are linked by more than 100 miles of pipeline to a vast processing complex in the desert near Asalouyeh. It is one of the largest natural gas projects in the Middle East.

With little oil in France, the company has built its business chasing development projects in remote corners of the world — deep off the coast of Angola, in the mangrove swamps of Nigeria, under the scorching Libyan desert and below the turbulent North Sea. Total now conducts exploration and production operations in 44 countries.

The aggressive, far-reaching strategy has paid off. Its success at finding hydrocarbons nearly doubled the company’s reserves from 2004 to 2006, and Total estimates that its oil and gas output will increase 5 percent a year through 2010. It is the top foreign oil producer in Africa and the second biggest in the Middle East. It is also the No. 2 producer of liquefied natural gas in the world, after Shell.

The foray into Iran was the work of Mr. de Margerie, who was in charge of Total’s business in the Middle East in the 1990s.

At the time, he was looking for ways to tap into the energy reserves of Iran and Iraq, which had been neglected during years of war and sanctions. Despite the political difficulties and hazardous environment, oil executives found these countries hard to ignore: together, they hold more than 20 percent of the world’s proven oil reserves.

A bankrupt Iran was eager to resume development of its energy industries, which were in tatters after the punishing war with Iraq, and to attract foreign investors. Initially, Iran turned to an American company, Conoco, but its overture was blocked by President Clinton under pressure from Congress. This opened the door to European companies, including Total, to step in.

Big business in the Middle East is notoriously corrupt, and the oil industry has a reputation for playing along. There was little surprise among oilmen, therefore, when accusations of bribery involving the South Pars concessions surfaced in 2003.

In that case, officials at the big Norwegian company Statoil said they agreed to pay more than $15 million in “consulting fees” to Mehdi Hashemi Rafsanjani, one of the five children of a former Iranian president, Ali Akbar Hashemi Rafsanjani, to win contracts to develop the offshore platforms in South Pars Phases 6, 7 and 8.

After the company had paid $5.2 million on the contract, details were leaked to the press, eventually forcing the resignations of Statoil’s chairman, Leif Terje Loeddesoel, and its chief executive, Olav Fjell. Late last year, the company paid $21 million in fines to the United States Justice Department and the Securities and Exchange Commission to settle the case. (Statoil is subject to American law because its shares are listed on the New York Stock Exchange.)

During the Norwegian investigation, Statoil executives said the fees paid to Mr. Rafsanjani were based on a contract that he said had been used with other multinational oil companies, suggesting that Statoil was not alone.

“Unfortunately, this sort of corruption has become an epidemic in Africa and the Middle East,” said Nicolas Sarkis, director of the Arab Center for Petroleum Studies in Paris.

In December 2004, the Swiss police were notified that 9.5 million Swiss francs, or about $7.8 million, had been transferred to an account opened at the Geneva branch of a venerable Swiss private bank, Lombard Odier Darier Hentsch. The account was controlled by an Iranian living in Switzerland, Bijan Dadfar, whom the French news media have since reported is an employee of the younger Mr. Rafsanjani.

Swiss authorities in Lausanne began a money-laundering investigation and investigators eventually traced the money to Total, according to people familiar with the investigation. The investigators discovered that the company had deposited the equivalent of tens of millions of dollars into the account from 1999 to 2003.

This past December, the Lausanne prosecutor, Patrick Lamon, responded to a request for information on the case from a French investigative magistrate, Philippe Courroye, who had already questioned Mr. de Margerie on a separate matter. In October, Mr. Courroye held Mr. de Margerie for two days in an investigation about the United Nations oil-for-food program in Iraq, from which billions in illegal fees were skimmed.

The information that Mr. Lamon sent Mr. Courroye, including elements of the Statoil investigation, led to the new French inquiry.

Despite the cloud hanging over Mr. de Margerie, Total named him chief executive on Feb. 13.

Last week, he was summoned by the police and spent Wednesday night in custody before being transferred to Mr. Courroye’s office for questioning. Also questioned were the head of Total’s gas affiliate, Philippe Boisseau; the executive formerly responsible in the South Pars project, Michel Naylies; and another executive of the group, Patrick Rambaud.

On Thursday, Mr. Courroye announced that he was placing Mr. de Margerie under formal investigation, one step short of indictment, for “corruption of foreign officials” and “misuse of company assets.”

But people at Total said that such investigations often remained open for years until they were forgotten and quietly closed. The company issued a statement expressing its confidence that this one would eventually show that Total did not engage in any illegal activities, adding that it “adheres to a strict code of conduct regardless of the difficulties linked to its activities and the environments in which it operates.”

The investigation, though, has not helped Total’s image, already tainted by a corruption scandal at Elf, since merged into Total, and a continuing trial over the sinking in 1999 of the oil tanker Erika, which led to the worst environmental disaster in French history.

In the meantime, Mr. de Margerie’s double bet in Iraq and Iran has largely unraveled. The war and insurgency in Iraq means that it will be many years before the country’s huge reserves are developed and, even then, American companies are likely to be in better shape to step in than the French oil giant.

The diplomatic standoff over nuclear proliferation between Iran’s president, Mahmoud Ahmadinejad, and Western nations including France may well freeze new investments by Total, Royal Dutch Shell and other European companies in the South Pars gas field.

As chief executive, Mr. de Margerie is leading discussions on a $10 billion plan to build a liquefied natural gas plant for the South Pars field.