By GERALDINE AMIEL
French oil major Total stopped buying Iranian crude oil for its refineries and trading activities at the end of 2011, six months ahead of the effective implementation of a European embargo on Iran's oil, and has partly replaced it with oil from Saudi Arabia, chief financial officer Patrick de la Chevardiere said Friday.
Total's acknowledgement that it has substituted some Iranian crude oil with Saudi oil is the first such public comment by a major European oil company since the European Union decided last month to embargo Iranian oil.
The company's previous Iranian crude oil supply had been "some heavy oil that was well suited for our French refineries," and the substitution crude oil the group has found since it stopped buying from Iran is "a bit more complicated to process," de la Chevardiere said in an interview with Dow Jones Newswires and the Wall Street Journal.
Total has acted early to remove its exposure to Iran as the US and Europe have tightened sanctions on the Islamic Republic over its nuclear activities, which they allege are aimed at developing nuclear weapons.
Iran denies the claim and says its activities are designed to develop peaceful nuclear power capabilities for the country.
Iran, meanwhile, has warned its oil-exporting neighbors in the Persian Gulf not to step in to make up any shortfall in Iranian oil supply caused by enforcement of the sanctions, and Saudi Arabia has said it is not actively attempting to seize market share from its neighbor.
But Total said it has turned to Saudi Arabia to replace some Iranian oil, even if the Saudi oil isn't as particularly suited to French refineries.
"The Saudis are doing their bit" to compensate the loss of Iranian crude on the oil market, de la Chevardiere said.
He declined to disclose the amount of oil Total had been buying from Iran and wouldn't specify the amount of oil provided to the company by Saudi Arabia.
Italy and Greece buy Iranian crude oil, the Total CFO said, noting that Greece has bought the oil through generally looser credit terms than other oil-exporting countries.
India is now buying extra Iranian crude oil as others reduce their dependence on the Islamic Republic, he said.
Speaking on a train to London, where he was to present the group's fourth-quarter earnings to investors, de la Chevardiere said that tensions affecting the oil market are likely to keep oil prices high throughout this year.
These include the unrest in oil producers Libya and Syria, but also the heightened rhetoric over sanctions on Iran, while demand is still forecast to increase in emerging markets, he said.
"If one excludes a potential global economic recession, and if OPEC [the Organization of Petroleum Exporting Countries] keeps on reacting when prices weaken, I can say that the crude oil price should stand well above $80 a barrel at the end of the year," the Total CFO said.
Earlier Friday, Total reported a 12.8% increase in fourth-quarter net income on high oil prices and in spite of weak refining and chemical markets and stable output.
Total reported fourth-quarter net profit of 2.29 billion, up from 2.03 billion in the same period a year earlier.
The group's adjusted net income, an earnings benchmark that strips out non-performance-related inputs and is closely watched by investors, came in slightly above expectations.
The company is still awaiting Russian authorities' decision on a potential tax-rebate request for its Shtokman liquefied gas project off the Arctic circle, and Total now expects to make a final investment decision - already postponed several times - with its partners in Russia at the end of the first quarter, de la Chevardiere said.
Total, which is the third largest European integrated oil and gas company, said Friday it plans to invest a net $20 billion in 2012, less than the $22.2 billion it invested in 2011.
The company's investments last year were 40% higher than in 2010. Eighty percent of its planned 2012 investment will be in its oil and gas exploration activities.
The company's management forecast annual investment of $23 billion in 2012-2014 as it expects oil prices to remain elevated.
Total confirmed it targets a 2.5% increase in average annual output in 2012-2015.
Total has given priority to exploration and production, as its refining and marketing activities are still being weighed down by severe weakness in European refining margins, causing the group to lose "several hundred million euros" in 2011, de la Chevardiere said.
He declined to provide the exact figure.
European margins rose in January to $30/ ton, from an average of $15/ ton in each month last year, due to the unusually cold weather in Europe and as Swiss-based refining group Petroplus filed for insolvency and idled most of its European plants.
But European refining margins will remain weak until other companies cut their production capacities, de la Chevardiere said.
He noted that demand for refined oil products is on a "constant downward path" as car engines become more efficient and as carbon-emission policies in Europe grow more restrictive.
"We did our part; it's time others do theirs also," the CFO said, referring to Total's idling of one of its six French refineries, near Dunkirk, in 2009.
Dow Jones Newswires