There is no shortage of opinions in the oil market, with energy analysts providing a bounty of predictions about whether Opec and non-Opec nations will stitch a deal together by the end of the month, but it is another matter to take the pulse of the chief executives whose jobs depend on the outcome.
The mad dash of shuttle diplomacy is underway in earnest: meetings in Doha during a summit of gas exporting countries, Opec and non-Opec technical strategists will convene again in Vienna and behind the scenes ministers from Algeria, Qatar and Venezuela are pushing to find a consensus.
I spoke one-on-one with two of Europe’s leading energy CEOs, Total’s Patrick Pouyanne of France and ENI’s Claudio Descalzi of Italy, about how they view this effort by the major producers.
But, perhaps more importantly, what actions they have been forced to take since prices plummeted to $27 (Dh99) a barrel back in January.
Pouyanne took over the reins of Total after the untimely death of Christophe de Margerie when a snowplough hit his private jet on a runway in Moscow.
He was thrust into the job in the midst of a price collapse and quickly moved into action.
Two years into the job, he has built a reputation as “Patrick the cost-killer” having cut his operating cost per barrel by 50 per cent since taking over. Total will cut $4 billion of operating expenses through 2018.
Cost at $5 per barrel
“Frankly you could criticise us, at $100 a barrel we were somewhat inefficient.”
But he told me the team of nearly 100,000 employees jumped on board in the new price reality. “Because we had no choice, we brought down our costs down to $5 barrel.”
As an oil chief executive, the tall and burly Pouyanne said he is watching the negotiations closely and admitted he was surprised by the initial decision in Algiers, during the International Energy Forum. “It is a big event; it’s the first time in the history of oil and gas that Russia is discussing with Opec,” he said.
He is encouraged that a deal can get delivered because the major Gulf producers along with Russia are moving in the same direction and they represent about a third of global output.
“The market is expecting them to confirm it,” he added.
ENI’s chief executive is less confident that all 20 producers will all get past the finish-line in Vienna with the same goal in mind. In fact, he is hoping for the best but planning for the worst.
“I’m not waiting for Opec because it is something I cannot control; I have to work on what I can control. I can control cost, efficiency, aspiration and time to market,” said Descalzi.
It’s not been an easy 2016 for the Italian chief executive. His performance in the latest quarter missed market expectations by seven-fold, but he said with confidence the worst is behind the group. Like Pouyanne, he has also cut costs at an aggressive pace and can make money at anything above $27 a barrel.
ENI struck big gas discoveries off the Nile Delta of Egypt, in a field described by Descalzi as a “super giant”. This will allow the country not only to meet its domestic needs, but potentially be a viable exporter over time.
Meanwhile, the 20 producers that are exploring cuts are hoping to begin a market rebalancing that will eventually get prices to a stabilise between $55-$60 a barrel.
Demand growth has been steady but it is clear that more crude will be on the way in the future from Opec countries such as Libya, Nigeria and Venezuela who had their own setbacks. Non-Opec producer Kazakhstan, for example, recently opened its giant Kashagan field on the Caspian Sea after years of delays and cost overruns.
Momentum
Behind the scenes, Opec’s Secretary General Mohammad Barkindo is keen to sustain momentum for an agreement, something he has been pursuing since taking over that position last summer.
He was encouraged when prices rose $10 a barrel after the so-called “Algiers Accord” was agreed upon, but he is well aware talk alone will not deliver the desired results.
Barkindo is asking producers to set aside their differences and “join hands in restoring balance to this market on a sustainable basis”.
“Failure to do that will be risking increasing volatility in the market, which is injurious to the global economy,” he said during our interview.
It is particularly damaging for oil exporters. Revenues for Opec producers are down for the third year in a row and expected to come in at $341 billion dollars according to the US Energy Information Administration. As Pouyanne candidly suggested, “At $40 a barrel, life is difficult for everybody.”
— The writer is Emerging Markets Editor at CNNMoney.
