Total SA (NYSE: TOT) Eyes UK, China Shale

Brian Hicks

Written By Brian Hicks

Posted February 19, 2013

As of last week, it appears that Total S.A. (NYSE: TOT) of France is definitely aiming to get involved in shale oil and gas development in the U.K. and perhaps even China.

Platts quotes company CEO Christophe de Margerie:

“We see potential in the UK, and we see an opportunity for development for Total,” de Margerie told reporters at a briefing in London. “We are discussing this with the relevant partners.”

It’d be no surprise, of course. Just last year in December, the U.K. finally put an end to its long-standing moratorium on fracking—a key part of the shale development process. The moratorium had earlier been put in place after preliminary tests appeared to link two small earthquakes directly to fracking.

Meanwhile, a report is due soon from the Department of Energy and Climate Change, which should give us all a much clearer picture of the U.K. shale reserves and development scenario. It’s actually being rumored lately that the U.K. may very well be home to much larger shale reserves than previously anticipated.

For example, the Bowland shale, leased by Cuadrilla, could hold up to 1,700 trillion cubic feet. That’s an increase of almost 250 times more than earlier projections, and that’s just one sample. So one can imagine why interest is high over this report.

And it also explains why Total is keen on getting in on some British action. France, of course, continues to observe a ban on fracking—though the issue has come in for heated discussion in that nation. In the meantime, Total is definitely trying to expand into newer pastures.

Aside from its ventures in the U.K. and China, the company—along with the Chinese state-owned CNPC—is working on a massive exploration block in Tajikistan. The block is owned by Canada’s Tethys Petroleum (TSX: TPL). The ambition here is to develop a pipeline running from Tajikistan in order to deliver gas directly to China’s door, completely bypassing the whole of the existing Central Asian gas pipeline network.

As far as the U.K. goes, with the disappearance of the fracking moratorium, it is highly likely that companies like Cuadrilla Resources Ltd. and IGas Energy Plc (LON: IGAS) will seek to commence work on exploratory test drilling later this year. And for that, they will likely seek partners for the purpose of sharing technological knowhow. In that case, Total is clearly positioning itself for easy pickings.

The more interesting case is China, though. According to Businessweek, Total is very close to signing an agreement with a Chinese partner to make advances in its efforts to explore and develop shale gas in that country.

From Businessweek:

“We are in very advanced talks with a big Chinese company for shale gas,” Yves-Louis Darricarrere, head of exploration and production at Total, Europe’s third-biggest energy company, said yesterday in an interview. “I hope we can announce something very shortly.” Darricarrere declined to identify the partner.

Such an agreement comes fairly quickly after an initial memorandum of understanding was signed with Sinopec (China Petroleum & Chemical Corp.) (NYSE: SNP) in 2012. Given the difficult nature of China’s geology and the fact that it does not have an existing shale development infrastructure—yet, purportedly, massive shale reserves—it makes complete sense for Total to try and position itself as a natural partnership choice.

Reportedly, China harbors some 25.1 trillion cubic meters of exploitable shale reserves. But that’s from China’s own Ministry of Land and Resources in 2012, so the claim does need some testing.

The U.S. Energy Information Administration, however, has declared that China could have up to 1,275 trillion cubic feet of technically recoverable shale gas. To put matters in perspective, that is roughly 50 percent more than the size of U.S. reserves. Let us pause a moment to consider the impact of the ongoing shale revolution in North America, and extrapolate this for China, with even more production volume.

International oil and gas majors have already begun laying the groundwork for the Chinese chapter of shale development. Both ConocoPhillips (NYSE: COP) and Royal Dutch Shell Co. (NYSE: RDS.A) have agreements in place with Sinopec and CNPC concerning exploration and development of shale blocks. 


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