From Mideast to Argentina, Total Bets on Cheap Oil, Gas

As the world witnesses spectacular growth in oil and gas production from the US shale deposits, the boss of French energy giant Total paradoxically says this is one area where he does not want to expand.

Instead, chief executive Patrick Pouyanne told Reuters he can find an edge over rivals by going after cheaper reserves elsewhere, including from shale in Argentina and deepwater wells in the Gulf of Mexico, as well as through new gas technology.

"Shale oil is too expensive," said Pouyanne, who has clinched strategic deals for Total in Brazil, the United Arab Emirates, Qatar and Iran since taking over as CEO at the end of 2015.

Low production costs and relatively short development times have made shale attractive during one of the worst downturns in the oil industry's history. But the problem lies with asset prices, Pouyanne said in an interview.

The cost of buying land to exploit shale deposits below the surface has rocketed, as has the purchase price of companies which already hold development rights.

Pouyanne therefore remains reluctant to expand beyond Total's current gas fields in the Barnett and Utica shale formations in Texas and Ohio respectively.

Total has cut costs throughout the downturn, leading to a surge in first quarter adjusted net profit to $2.6 billion, up 56% on the same period of 2016.

Now Total, which is France's largest company, is cautiously returning to new projects. This year it gave its first go-ahead since 2014 to develop Argentina's Vaca Muerta gas project, one of very few exploited shale deposits outside North America and where land costs are significantly lower. The first phase will cost around $500 million.

 Deepwater production costs fell sharply in the wake of the oil price crash, as project cancellations forced service companies to cut their prices.

Pouyanne's formula is to concentrate on fields that will still be competitive after global oil demand has finally peaked and begun declining.

"Let's concentrate on low cost oil. Don't tell me I need to invest in the highest technology barrels because low cost oil is the answer to volatility and peak oil," he said.