Total chief signals shift from US dry shale gas

Gas switch: Total chief says dry gas cost/profit ratio 'does not work'

Total will halt making new investment in dry shale gas in the United States while gas prices remain low, chief executive Christophe de Margerie has said.

The French oil major has joint ventures with Chesapeake Energy in the Utica shale area of eastern Ohio and the Barnett gas shale area in Texas.

"It is not great because we have invested on the basis of gas prices that were far higher than today," de Margerie said in an interview with French daily Le Monde on France's current national debate on its energy future.

The French giant shelled out $2.25 billion for a 25% slice of Chesapeake Energy's Barnett Shale assets in January 2010.

"Our investment in Texas shows a serious loss which, of course, does not question Total's results or development," he said. The Total chief said the company had invested in Texas on the basis of gas at more than $6 per British thermal unit, but that "today we are at $3.2 (per btu). It does not work".

"It is clear that we [should] soft-pedal. I see no point in investing ... where there is no profitability," de Margerie said of the dry shale gas market. “The fields are still there, the permits are still valid and production will restart when gas prices return to above cost levels,” he added.

The situation in the Utica area was different because it was based on more profitable gas rich with condensates, he said.

Much of the industry is cutting back on dry gas activity in the US and shifting capital to areas offering more valuable liquids-rich gas output, as North American markets remain oversupplied, partly because of the shale gas production revolution.

De Margerie said that Total would continue to invest in countries it considers more promising in the shale gas sector, including China, Poland and Denmark where it intends to spud a shale exploration well this year.

In 2010, Denmark awarded Total two shale gas exploration licenses in partnership with the Danish North Sea Fund. Total also has several joint exploration licences in Poland. And it reached a preliminary agreement last March on a joint venture with Chinese group Sinopec to hunt for shale gas.

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