The Business: Total feels no need to deal: “tipped to merge Royal Dutch/Shell out of its misery.”: “But since merger heat began to build around the company, Total's executives have worked hard to dampen it.” (ShellNews.net)

By Richard Orange

12 Sept 04

UNTIL BP's move into Russia, Thierry Desmarest, chief executive of French oil giant Total, had matched the British giant deal-for-deal through the late 1990s frenzy of oil industry mergers. Its takeovers of Belgium's Petrofina and France's Elf were a Gallic mirroring of Lord Browne's acquisitions of US companies Arco and Amoco.

On the face of it, Desmarest is now in the perfect position to catch up with BP. High oil prices are generating surplus cashflows and Total is sitting on a 13% stake in French pharmaceuticals company Sanofi-Adventis that could net it (€12bn $ 14.6bn, £8.2bn) when sold. It also plans to float much of its chemicals business.

So you can excuse speculation that Desmarest might be seeking to gain super-major status. The last year has seen Total linked to UK gas firm BG Group, Canada's Encana, Canadian National Resources, a stake in Roman Abramovich's oil giant Sibneft, and even recently seen it tipped to merge Royal Dutch/Shell out of its misery.

But since merger heat began to build around the company, Total's executives have worked hard to dampen it. Last week's strategy presentation was no exception. Total was not keen on mega-mergers, Desmarest emphasised. He did not see a transaction presenting enough appeal. At any rate, he said, you can't get a bargain with oil at $40-plus per barrel.

While Total has reached advanced negotiations on a Sibneft stake in the past, Yukos's tax problems seem to have put paid to that for now. But is this  protesting too much? Is Total trying to reduce the acquisition risk that has been weighing on its share price? It has no pressing reason to do a deal.

Total's oil fields can still grow production at an enviable rate. The company last week confirmed its target of a 4% average increase a year in oil output until 2008.

Having said that, equalling BP and Shell's multi-billion dollar stakes in Russian oil and gas would be nice. The Russian bailiffs may begin auctioning Yukos's production company Yuganskneftegas as early as next month. Some see signs that the long-stalled reversal of the Yukos-Sibneft merger may happen soon, thrusting a Sibneft stake into the marketplace. Total may be forced to deal.

RICHARD ORANGE