When Royal Dutch Shell wanted to buy a stake last year in a promising exploration block off South Africa, Total, the asset’s main shareholder, used its right to stymie the deal and acquired the share itself, only to sell it on to Qatar Petroleum.
The rapid turn of events caught some of those involved by surprise, according to company sources close to the transaction, whose details have not previously been reported.
For Total, it was part of a wider quest to tighten ties with Qatar Petroleum (QP) in an effort to secure a stake in the Gulf country’s planned expansion of its liquefied natural gas (LNG) facilities, already the world’s largest and one of the most lucrative projects in the energy sector.
The race for a role in the project has drawn in several of the world’s largest energy companies, including Exxon Mobil and Shell, which have also offered QP stakes in some of their most prized ventures.
Energy companies see natural gas, the least polluting hydrocarbon, as a key fuel in the transition to a lower-carbon economy. Liquefying the gas allows its transportation to consumer countries such as India, China and Japan and demand for LNG is expected to soar in coming decades.
Qatar’s LNG production facilities, in which Total already holds a stake along with Shell, Exxon and ConocoPhillips, offer investors access to vast resources at among the cheapest production costs.
“That’s a big, chunky piece of gas reserves. If you can buy into or somehow get involved in these projects, that might help (companies) on the reserves side,” said Jason Feer, head of business intelligence at LNG shipbroker and consultancy Poten & Partners.
QP wants to expand its LNG production to around 110 million tonnes per annum from today’s 77 mtpa over the next five years by building four new production facilities, known as trains.
The company is expected to announce its partners in the coming months, industry sources said.
The terms for the new production have not yet been revealed. They are likely to be less attractive than those for the original LNG facilities, but still among the most competitive in the world, Feer said.
“The returns on the expansion will be less merely because the risk from the earlier trains is largely gone ... There’s no reason for the Qataris to give a better deal.”
QP’s overseas investments are part of a strategy under chief executive Saad Al Kaabi, who is also Qatar’s energy minister, to expand its global operations.
Kaabi has made no secret of his intentions.
“We are looking for a lot of things (in our partners) including asset swaps, things that will help me in my international expansion,” Kaabi told Reuters in 2018.
“If I don’t get good deals, nobody will come.”
The overseas investments and cooperation with foreign companies have also helped Qatar defy an embargo imposed by a number of neighbouring countries led by Saudi Arabia in 2017 over allegations that Doha supports terrorism. Qatar denies the charges.
Exxon, the world’s largest publicly traded oil major and the largest investor in Qatar LNG, has bolstered its global network with QP in recent months with a number of high-profile joint ventures.
Those include a $10 billion joint investment in the Golden Pass LNG project on the U.S. Gulf Coast and a stake in Exxon’s gas development off Mozambique, which is set to be one of the world’s largest LNG projects in the next decade. Both firms also acquired exploration blocks off Brazil, Argentina and Cyprus.
Shell, the largest foreign investor in Qatar, has recently applied to join the board of the U.S.-Qatari Business Council, industry sources said.
In 2014, Shell sold a 23-per-cent interest in a large project offshore Brazil to Qatar Petroleum International, then the country’s foreign investment fund. The two companies also jointly won exploration rights in Mexico last year.
Rivals that are not part of the existing LNG production, including Chevron and Italy’s Eni, also hope to win a foothold in the expansion.
Eni CEO Claudio Descalzi has visited Doha several times this year, company sources said, and Eni sold to QP stakes in a number of projects in Mozambique, Mexico, Morocco and Kenya.
Chevron last month teamed up with QP to build an $8 billion petrochemicals complex in Qatar.
A key requirement for QP is that partner companies remain heavily invested in any joint project, according to an executive at one oil major who spoke on condition of anonymity.
“Kaabi made it very clear that they can do the expansion on their own, so what the IOCs (international oil companies) can bring in is the international aspect. QP are leveraging the expansion to achieve their international aspirations,” he said.
International investments have become “an arm of foreign policy” for Qatar, the executive said.
Existing shareholders often have the right of first refusal for stakes being sold by another partner in oil and gas fields.
But Total’s blocking the sale of Canadian Natural Resources’ 25-per-cent stake in the 11B/12B block to Shell was particularly telling since the French firm’s Anglo-Dutch rival is the world’s largest LNG trader and a big competitor in Qatar.
In February this year, Total announced it had made a major gas discovery in the Brulpadda well within block 11B/12B, paving the way towards developing South Africa’s first offshore field.
Shell and Canadian Natural Resources declined to comment.
Since the sale of the stake in South Africa to QP, Total has signed several other joint investment deals with the Doha-based company.
In Guyana, where vast resources have been discovered in recent years, Total sold to QP 40% of its 25% stake in the Orinduik block in July. Within days, the field’s partners announced a huge discovery and plans to develop a production facility there.
On Tuesday, Total also announced a deal to transfer to QP rights in several blocks in Namibia.
“We have an 80-year-long presence in Qatar and we believe this long-term relationship has been fruitful for both Qatar Petroleum and Total,” Total said in a statement to Reuters.
“Qatar Petroleum has been very active and successful in recent years to develop its international presence. We were already partners in Congo and we have extended this partnership in South Africa, Kenya, Namibia and Guyana,” it said.
“This has been a very successful cooperation and we are glad that Qatar Petroleum made its first international discovery with us, on the Brulpadda prospect in South Africa earlier this year.”
Earlier this year, Total sold a stake in a development in Kenya to QP.
The French company’s chief financial officer, Patrick de La Chevardiere, showed how high the stakes are when saying last October that the company would be “disappointed if we are not part of Qatar’s LNG expansion”.