Cours " Global business environment" MMUI Jakarta 2011

1. OIL AND GAS BUSINESS ENVIRONMENT :
TOTAL EXPLORATION AND EXPLOITATION
CHALLANGES
(Eropean Business Environment Final Assignment)
1. Alicia Irzanova
2. Novi Natalia
3. Stephanie Suwandi

2. I. INTRODUCTION
Demand for oil
There’s no doubt that demand for fuel in the future will keep increasing. Until now,
even there are several alternative sources of energy, fuel is still the most favorable,
one of the reasons is the affordable price than others. Thus, many researches provide
us with the same forecast, i.e. the increasing demand for fuel in the future. In the
International Energy Outlook 2010 projections, total world consumption of
marketed energy increases by 49% from 2007 to 2035. Even in different economic
growth scenarios (high, normal, or low), demand for fuel is expected to increase in
the future. Or in more extreme words, we can say that there is no limit for fuel
demand.
Source: World Energy Demand and Economic Outlook 2010 (http://www.eia.doe.gov/oiaf/ieo/world.html)
In the other hand, supply for fuel is limited. Research result shows that the fuel
production is expected to increase until it reaches its highest point in around 20th
century and then the fuel production will be decreased (called by “peak oil” – the
point when the maximum rate of petroleum extraction is reached, after which the
rate of production enters terminal decline). So, when the demand and supply for fuel
meet in the market, they create an increasing trend in oil price.
Source: http://leest1.wordpress.com/

3. II. CONCEPTUAL FRAMEWORK
The global business environment can be defined as the environment in different
sovereign countries, with factors exogenous to the home environment of the
organization, influencing decision making on resource use and capabilities.
The environment comprises several sectors; those are industry, raw materials,
human resources, financial resources, market, technology, economic conditions,
government, socio-cultural, and international. Cultural challenges stem from
differences in language, concepts of time and sociability, and communication styles.
From the economic point of view, the managements need to know need to know the
country’s level of economic development and impact of fluctuations in exchange
rate. The managements also have to deal with the challenges that come from the vast
differences in legal and regulatory environments.
Being effective in carrying out international business transactions often requires not
only the willingness of the manager to accept the challenges of different language,
foods, climates and so forth, but also a knowledge of the salient differences between
the home and host country. (Daft, 2007)
III. COMPANY PROFILE – TOTAL
Total S.A. (TOTAL) is a multinational company which is based in France and listed
as one of the top 10 oil producers. Now, Total operates on many exploration blocks,
on five continents, in more than 130 countries, as an operator or as a partner.
Total engages in all aspects of the petroleum industry, including upstream
operations (oil and gas exploration, development and production, LNG) and
downstream operations (refining, marketing, trading and shipping of crude oil and
petroleum products). It also produces base chemicals (petrochemicals and fertilizers)
and specialty chemicals for the industrial and consumer markets.
In addition, Total has interests in the coal and power generation sectors, also in
solar-photovoltaic power, both in upstream and downstream activities. The topic of
this paper will be limited to Total’s upstream business segments and how Total
deals with the global business environment.

4. IV. ISSUES IN GLOBAL BUSINESS ENVIRONMENT
In upstream business, mainly there are two activities; are exploration and
exploitation. Here, we will discuss global business environment aspects that affect
the activities one by one.
1. EXPLORATION
Oil and gas exploration is the search by petroleum geologists and geophysicists
for oil and natural gas deposits beneath the earth’s surface.
Environmental factors that affect exploration activity:
1.1. Physical and Geological Aspects
Below is the world mapping of proven oil reserves.
Source: BP Statistical Review of World Energy June 2010 (http://energyforumonline.com)
Actually, there are more oil reservoirs than what have been mentioned above
in the graph, such as oil reservoir in the arctic, but because of reservoir
characteristics and limitations in petroleum exchange technologies, only a
fraction of this oil can be brought to surface (producible) that is considered
to be reserves.
Based on world mapping of oil reserve, it is clear that oil reserves are
scattered to all over the world, and so Total, in order to expand its business,
should explore and operate on more drilling rigs which most of its are
outside France, country of Total’s headquarters. Inevitably, Total has to deal
with local regulations and local culture in every country where Total
operates drilling rigs.

5. 1.2. Geopolitical Aspects
From above map of proved reserve, we also can see that the amount of oil in
oil reserves is not equally distributed among regions or continents. Most of
them are in the Middle East. Since oil is such an important resource for
people and industries, many countries would like to have power in countries
that have big oil reserves. This power struggling surely has impact on
political conditions of countries which are known for its big oil reserves.
In facing the geopolitical aspects, Total tends to minimize its operation in
regions that have unstable political condition.
However, every country must have its political upheavals, including
countries where Total operates its drilling rigs. This political condition and
how Total deals with it create certain impact on Total’s business.
Here are several cases related to political condition in certain country which
Total has ever to deal with.

6. Case One : Bolivia
(Source : http://www.energy-pedia.com/article )
The Nationalization of Oil Companies Policy
Just before the May 1, 2006 decree, Morales met with Chavez and Castro in
Havana to sign a socialist trade agreement that made Morales a member of
the Bolivarian Alternative for the Americas. The three are now calling it the
"Axis of Good," a pact originally signed by Chavez and Castro last year.
This socialist trade agreement seemed had a significant impact of Morales
policy to nationalize all the foreign oil companies in Bolivia. Since, Chavez
was the one who started the policy to nationalize all the foreign companies in
order to have more significant control to all the foreign companies in
Venezuela.
In May 2006, Morales announced that he was going to nationalize all the oil
companies giving the oil companies propositions such as, reimbursement of
all the operation cost as in the return the government would get 82% of the
revenues leaving the oil companies with the rest of 18% revenues. All the
oil companies were given 180 days to state their action weather they would
take the proposition or leave the country.

7. While foreign companies said that they hope for cooperation, Repsol YPF
has said it would act to protect its investments and take legal action if
necessary. Petrobras had made similar threats and frozen investments.
The nationalization policy was a big worry for all the foreign oil companies,
because it would not just have given the full control over their oil drilling
activities and productions but also significantly cut down companies’
revenues.
But since there were no more what so called easy oil and the increasing
demand for oil every year, in order to keep up with the oil demand, Total SA
in October 2006 decided to make a statement by signing the agreement with
Bolivian government in order to keep operating in its blocks.
Case Two : Libya
(Source : http://lytimes.blogspot.com)

8. The War for Human Right or the War for the Black Gold
Oil reserves in Libya are the largest in Africa and the ninth largest in the
world with 41.5 billion barrels (6.60×109 m3) as of 2007. Oil production was
1.8 million barrels per day (290×103 m3/d) as of 2006, giving Libya 63 years
of reserves at current production rates if no new reserves are to be found.
Libya is considered a highly attractive oil area due to its low cost of oil
production (as low as $1 per barrel at some fields), and proximity to
European markets. Libya would like to increase production from 1.8 Mbbl/d
(290×103 m3/d) in 2006 to 3 Mbbl/d (480×103 m3/d) by 2010–13 but with
existing oil fields undergoing a 7–8% decline rate, Libya's challenge is
maintaining production at mature fields, while finding and developing new
oil fields.
Most of Libya remains unexplored as a result of past sanctions and
disagreements with foreign oil companies. Cumulative production through
2009 was 27 Gbbl. Given the stated number, this would be 65% of reserves.
(Source : Wikipedia).
The Middle East revolution started in Tunisia, Egypt and then latest in Libya
is strongly believed not just the matter of bringing down the dictatorial
leaders and the concern of human rights but the most of it, it’s about the oil.
"Operation Libya" is believed as the part of the broader military agenda in
the Middle East and Central Asia which consists in gaining control and
corporate ownership over more than sixty percent of the world's reserves of
oil and natural gas, including oil and gas pipeline routes.
All the nations such as America, French, England, and Italy involve in
“helping” Libya people fight against their dictatorial leader, in order to
provide better political situation in that country but certainly this is not going
to be a free help for Libya people. Any new government that will be formed
after Qaddafi being deposed will have to ”payback” for the helping hands, in
this case with the part of any Libya oil fields.

9. Case Three : Burma
The French oil giant Total S.A. (Total) continues to be linked to killings and
forced labor in Burma and continues to mislead policymakers, investors, and
the general public about its impacts in the military-ruled country, according
to the Washington DC-based nongovernmental organization Earth Rights
International (ERI).
In a recent response to ERI’s 106-page report Total Impact: The Human
Rights, Environmental, and Financial Impacts of Total and Chevron’s
Yadana Gas Project in Military-Ruled Burma (Myanmar) (Sept 2009),
Total categorically denied ERI’s evidence of ongoing human rights abuses in
the area of its natural gas pipeline in the country.
A new 35-page report released today by ERI, entitled Total Impact 2.0,
explains in detail how Total failed to refute any of ERI’s fresh evidence of
forced labor, killings, and multi-billion dollar profits funneled to the
Burmese regime through the company’s natural gas pipeline. ERI noted that
“a close reading of Total’s response makes it abundantly clear that the
company hasn’t refuted our research and documentation on the human rights
and financial impacts of their project.”
Total Impact 2.0 is the third report released by ERI in 2009 regarding Total
and Chevron’s impacts in Burma. The 81-page report Getting it Wrong:
Flawed “Corporate Social Responsibility” and Misrepresentations
Surrounding Total and Chevron’s Yadana Gas Pipeline in Military-Ruled
Burma (Myanmar) was released in September 2009 and is an in-depth
exposé of five impact assessments commissioned by the companies from
2002-2008.
A villager quoted in the ERI report summed up the fundamental problem
with CDA’s work in Burma: “We did not say everything we knew clearly to
these foreigners because we had been warned by the soldiers in advance.”
(source : www.laborrights.org).
For Total SA, the cooperation with the Burma’s dictatorial government had
clearly reduced the value of the company. For the Total, it must about
finding the profitable oil fields but certainly it is not all, The Total SA
management must really pay attention to this issue in order to maintain the
company value and image of the company in the world society. It is a big
homework for Total SA.

10. 2. EXPLOITATION
Exploitaion is the process of lifting hydrocarbon from reservoir under the ground
to the surface. Exploitation can be done after the exploration shows a positive
symptons of hydrocarbon existing under a certain area of land. To conclusively
determine the presence or absence of oil or gas, an exploration well is drilled. In
the exploitation phase, Total as well as the other oil companies, has to deal with at
least two issues; technological and environment issue.
2.1 Technological issues
As mentioned in the previous part of this paper, oil reserve in the world is
getting harder to find. The oil and gas society shares a common view about it.
Easy oil was now history, and breaking frontiers to find new oil was “incridibly
dificult”, Bower wrote in his book, Oil (2010).
Total has working areas around the world. Based on the geographycal grouping
as mentioned in Total’s 2010 annual report, the working areas consist of
Russia, North America, South America, Asia Pacific, Middle East, North Sea
(Europe), and Africa.
Total has been presetn in Russia since 1989. Total’s production there was 10
kb/d in 2010 and it represents 1% of Total’s overall production.
In 2010, TOTAL’s production in North America was 65 kboe/d, representing
3% of Total’s overall production. In South America, the production was 179
kboe/d, representing 8% of the overall production.
TOTAL’s production in the Asia-Pacific region was 248 kboe/d,representing
10% of the overall production. In Vietnam, Thailand and Brunei, the Total
made several discoveries. Total also acquired a 24.5% interest in the Arafura
Sea and the Amborip VI blocks in the Arafura Sea, both in Indonesia offshore.
In the Middle East, Total’s production was 527 kboe/d, representing 22% of
the overall production.
In Europe, the production was 580 kboe/d,representing 24% of the overall
production. North Sea represents the second largest producing region for the
Group with 559 kboe/d (23%) of its production.
Total has been in Africa since 1928. The African continent is the biggest
contributor to Total’s production with 756 kboe/d of which West Africa
represents 660 kboe/d of production (respectively 32% and 28% of the Group’s
overall production). Its exploration and production operations are primarily
located in countries bordering the Gulf of Guinea, particularly Angola and
Nigeria, as well as in North Africa.

11. In 2010, Total has made some agressive progress such second oil discovery on
deep offshore Block 17/06, fourth and fifth oil discoveries on deep offshore
Block 15/06, and Hydrocarbon discovery on the OML 136, Nigeria.
TOTAL will become the first operator in Angola and first operator in deep-
offshore in West Africa with the start-up of Pazflor (production start up is
scheduled in late 2011). In 2011, TOTAL acquired a 33% interest in Blocks 1,
2 and 3A in Uganda for 1.5 G$.
As we see from the data, most of Total’s new blocks are offshore blocks, some
of them are deep sea offshore. For example, some blocks in Myanmar (began
to be developed in 1992) and Thailand (started to be developed 1990 and
1996). Some deep sea blocks in Angola and Gabon are even started the
development in 2010.
Offshore drilling typically refers to the discovery and development of oil and
gas resources which lie underwater. There are many different types of
platforms for offshore drilling activities, from shallow-water steel jackets and
jack-up barges, to floating semisubmersibles and drill ships able to operate in
very deep waters. Typical Shallow shelf oil wells (e.g. North Sea) cost
USD$10 – 30 Million, while deep water wells can cost up to USD$100 million
plus.
This high cost of offshore drilling are strongly related to sophisticated
technology to enable the wells go under the water. Oil and gas scientists has
been developing this technology all the time. In 1993, Dutch oil company,
Shell, had broken a record. Using a rig tied to the seabed by barn-size anchors
in 2,860 feet of water, their geologists had found a giant reservoir called Auger
5,000 feet below the seabed. In 1995, Shell’s new technology enable the oil
and gas nearby Mensa field, which abandoned in 1988 as technically too
difficult, to be extracted from 5,400 feet deep. But just a year after that, in
1996, British oil company, BP succesfully extracted oil from 14,700 feet below
the sea off Nigeria coast.
By operating in deep sea fields, Total has proven its ability to adopt the
offshore drilling technologies. This ability is clearly needed to keep it
existences in oil industry. But this doesn’t mean that Total doesn’t have any
challanges in onshor drilling.
Most of Total’s onshore blocks had been exploited earlier. For example some
blocks in Brunei began to be developed in 1986 and in Venezuela began to be
developed in 1980. However, some of onshore blocks are still found recently,
for example in Iraq (2009).
It means that Total’s onshore fields are encountering natural production
declining caused by oil depletion. Oil depletion occurs in the second half of the
production curve of an oil well, oil field, or the average of total world oil

12. production. It means that Total has to do more effort to keep the production of
those field from lowering.
However, as Shell former President, Hofmeister mentioned in “Why We Hate
the Oil Companies” (2010), technology advances will allow us to increase
yields from existing hydrocarbon sources, extract resources from previously
unreachable or seemingly impossible geologies
Enhanced Oil Recovery (abbreviated EOR) is a generic term for techniques for
increasing the amount of crude oil that can be extracted from an oil field. This
technique usually used for declining fields. Using EOR, 30-60 %, or more, of
the reservoir's original oil can be extracted compared with 20-40% using
primary and secondary recovery.
Enhanced oil recovery is achieved by gas injection, chemical injection,
microbial injection, or thermal recovery (which includes cyclic steam, steam
flooding, and fire flooding).
2.2 Envorinment Issues
Oil companies and society have always been in a complicated relationship. In
one hand, oil companies are needed to supply our energy demand, but in
another hand, oil companies have been accused as the main suspects of
environment damage because of its operations.
Besides natural environmental issue, oil company also have to face social
issue. Most of oil field located in the remote area if not in the offshore. The
presence of oil company employee with full facitlity in the site usually raises a
social gap with local people.
To mitigate this issue, oil companies have at least two actions; implementation
of Health, Savety and Envorinment (HSE), and Corporate Social
Responsibility (CSR). HSE is expected to mitigate technical and operational
risk, while CSR is expected to mitigate social risk.
Total uses some indicators to evaluate its HSE performance such as Injury rate
per million hours worked, Hydrocarbon discharges in effluent and greenhouse
emision. The lower those indicators the better the company’s HSE
performance.
While to mitigate social issues, Total recruited local people where the
operation located. Total employees consist of 20% South American, 32%
Asian, 22% European excluded French, only 9% French and 17% other
ethnics.
Beside recruiting locals, like the other oil companies also do special activity for
is CSR, such as environment preservation, education assistantce, microbusiness
develompment, etc.

13. V. CONCLUSION
Total shares common business environmental and problem with the other oil company.
The objective of oil company is to get a right to operate or to invest in an oil field.
Along with harder it is to find a reserve, oil companies cannot only find the oil reserve
in their origin country. In the exploration phase, Total not only has to perform a better
technology and plan of development to get the right of operating or investing in a field
in another country. Since political matter influence the decision of goverment of the
country, Total also has to understand political relationship between French, as Total’s
origin country, with the country where the field and make a good exploitation policy.
Dealing with limited and declining oil resouce, Total has to at least be able to adopt, if
cannot inovate, the approprieate technology to achieve production target of uneasy
fields.
Being in a high risk industry, Total has to face at least two environmental issue; nature
and social issue. These risk have to be mitigated with a good strategy.
Total can maintain it’s competitiveness by performing a good exploration policy,
technology continious improvement and good risk management.

14. References
Bower, Tom (2009), Oil: Money, Politics and Power in 21st Century, New York :
Grand Central.
Daft, Richard L. (2007), Understanding the Theory and Design of Organizations,
South-Western: Thomson.
Hofmeister, John. (2010), Why We Hate Oil Companies, New York: Palgrave
Macmillan.
Total Factbook Global (2010)