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Interview with Patrick Pouyanné, CEO of Total from the World Economic Forum 2017

Following are excerpts from a CNBC interview with Patrick Pouyanné, CEO of Total, from the World Economic Forum 2017 with Steve Sedgwick

SS: Patrick great to see you again. Look the world is seemingly a different place 12 months on, the oil price has pretty much doubled. Does that make your job a lot easier?

PP: For sure it is easier at 55 dollar then 28 dollar. . I don't know if the word is easier. I begin to believe that the oil price is maybe a leading indicator of the mood of the world. But you know when you compare the situation one year ago, price collapse to 28 dollar a barrel, and the atmosphere in Davos was not very optimistic. This year is 55 but I remind you two years ago it was 100. So still some gap to do. People are more positive. And at the same time the status of the world did not improve a lot you know, in the one year many events in the Middle East, Brexit, many difficulties appear around the world so, but people are more positive.

SS: Well that's interesting because we've seen the markets recover, we've seen the oil price recover and yet we've seen a whole host of quite damning political events for many in 2016 as well. But you think despite those political events the world is actually a more positive place and perhaps a safer place?

PP: Safer, no. Not safer. There are many uncertainties. I would say what characterize the world for me today is a lot of uncertainty which is not good for business. There is an economist who was saying at the beginning of the century you have a difference between risks and uncertainty, risk you can manage, you can quantify risks. Uncertainty you don't know. And today what I face is many uncertainty- we are waiting to see what the foreign policy of Donald Trump will be, clearly Brexit and there is huge uncertainty over the future of Europe and how you deal with such a country outside of the European union, plus of course in the Middle East Iran is back because of the agreement last year- it involved many difficulties around. So there is much uncertainty.

SS: All right, well you've mentioned three very important areas as well- Mr. Trump, Iran and Europe's cohesion. Let's start off with Mr. Trump as well. How's it going to be for you, do you think actually he's going to change the way that oil companies are going to do business in the US and elsewhere, do you think there's going to be any meteoric changes at all?

PP:I think clearly, on energy, there are plenty of specialist of energy in this government, he has strong feeling that energy is one of the advantage of the U.S. economy already today in fact. So he's willing to not put too much regulations in order to help the investment in energy so it's good for energy companies, at least for oil and gas companies, so it's positive I think from these companies' point of view. We'll see then what he will do exactly- because you know there is a difference between what you say and when you are in power. We will see.

SS: You say oil and gas companies, the oil companies are becoming more and more gas and oil companies and so the push to cleaner hydrocarbons, to renewables as well, the big investments that you at Total have been in making in green energy, in solar, in storage as well. Do you think a lot of that is actually going to be more difficult to carry on with large levels of investment because of Mr. Trump?

PP: Not for gas, you know gas is one the big advantage of the U.S. economy, the shale gas revolution is at the heart of this rejuvenation of the US manufacturing industry, it is energy which is at the core of the capacity of the US to grow their manufacturing industry, to develop jobs. By the way we have invested in gas in the US this year, we have extended our position in Texas, in the Barnett. We just announced a deal with a (company name not clear) a gas company that wants to export energy. So for me US gas is working well. Renewables, we are also shown some progress- I suspect maybe the fiscal incentives which have been planned for renewables maybe will diminish but we will see.

SS: That's quite damning in what is arguably the world's largest consumer of energy.

PP: Yeah but OK in the meantime renewables have made progress so again it's a matter- I think there will be some debate between the congress, the President so we will see what the outcome will be of all that. But I'm positive, I think the U.S. economy is already strong. So I don't know if Mr. Trump will be able to do it stronger but it seems that it is his vision but we will see what he is doing exactly.

SS: It's no secret that Exxon Mobil and Total, and Total backed by a lot of other companies have a difference of opinion of a way to approach climate change and approach sustainability and what the remedy might be for oil and gas companies. How do you think Rex Tillerson might be as Secretary of State and what does it mean do you think for relations with other players including Russia?

PP: There are many questions there. Climate change, Russia you know. I think first, I think the testimony from Rex Tillerson was quite clear- he believes in climate change, then there is the question of what is the strategy of Exxon now that he is no longer in charge. The difference was more between Exxon and Total: Should we involve the company in this green energy business to prepare for the future, that is a strategy decision, we believe that it is a matter of market, not just climate change, if we want to find new growth we can continue in oil and gas but at a certain point demand could peak so we prefer to prepare for the future and invest some of our money in renewable energy storage. Having said that, in twenty years we still remain an oil and gas company. But having also a foot in renewables.

SS: And the second point, Mr. Tillerson knows Russia very well, you know Russia very well. There seems to be from Mr. Trump language of a rapprochement with Mr. Putin as well. Do you think it can benefit Total and the whole oil and gas industry?

PP: It's not only the oil and gas industry, it's more a matter of world stability. Clearly Russia is a big player, by the way each time you have a new U.S. President- George W. Bush, Barack Obama, now Mr. Trump, first year they all began to engage in a positive dialogue with Russia. We will see if it happens. I hope so, because frankly we cannot have a [inaudible] it's important for Europe too to find a way to stabilize all of that. It's not so easy because the U.S. also like to have a big problem [inaudible] in front of them. But of course I am an investor in Russia so if it is more stable it is better for me but I think also it is better for the world.

SS: if the US is looking for closer relations with Russia. There is concern that it actually doesn't want to continue closer relations with Iran as well. You've made investments looking at developing South Pars as well. Do you fear for those investments? I spoke to one of your peers a while back who said he was concerned about investing in Iran precisely because of what sanctions could come from the U.S.

PP: Let's be clear about Iran. There is a sanctions system existing in the U.S. we have to obey to that. There is no way for Total, or any other company, to escape from that. Having said that, and I've been very transparent with the Obama administration about all the moves- we made them aware of what we were doing, we respect what we have singed, we respect the agreements, if the sanctions framework is changing we will have to adapt ourselves. So I will just observe what will be done by the Trump administration about Iran. But you know it is a world where you cannot have many enemies- China, Russia, Iran you have to select things. So we will work and again it is an opportunity for us- you know for Total if you are an oil and gas company you have to go to where there is oil and gas- there is oil and gas in Russia, there is oil and gas in Iran. Having said that I'm perfectly aware there are some risks, it is a matter then of what is the size of the risk compared to the size of the company, and investing 1 or 2 billion in Iran when we have 150bn USD of assets is not a big risk and it could be a big reward for our shareholders.

SS: Where is the biggest risk for Total in 2017?

PP: The biggest risk? Again, for me it is more the uncertainty internationally, it's very difficult today to tell you what will happen and I suspect it will take some months. Because I suspect that it's not only if President Trump came to office next Friday, you still have the full administration to put in place before we understand the full policies so it will take time. We are entering into 6 months, 9 months of uncertainty and it's not good for business because what business wants is predictability you know, if you are to invest, if you want to take decisions in energy you invest for 20 years, you need to have clear frameworks so that is the main risk for us.

SS: Are you getting a clear framework from Europe as well? We mentioned Brexit, we mentioned the concerns about cohesion within the EU as well. France has got a very big election which is already dividing the population as well, you have of course have had some political experience as well. What do you think about Europe in 2017? Are you worried that we're going to see more of the same that we saw of Renzi and Brexit?

PP: I hope no. But I think that clearly for the European leaders it will be a very important year. we'll have new leadership coming; elections in France, in Germany, in the Netherlands and I think clearly, by the way, the position of Mr. Trump is provocative vis a vis Europe but maybe we need to be provocative and I hope for the leaders in Europe, we wake up and we build again the project. Clearly we have a problem today. We have a problem of leadership by the way. It's a question of leadership. We need leaders. I hope the new leaders in Europe will be able to offer a vision to European citizens in order to move the project forward.

SS: Don't we have a leader in Europe, don't we have Frau Merkel?

PP: Well yes [inaudible] Merkel but maybe we will have the next French President as well

SS: ...isnt that your former boss Mr. Fillon.

Total: Yeah. And I think he can be a leader for Europe. But again, it's not a choice for me, let me be very clear. I am chairman and CEO of Total, I make no politics in that. As I have said in France, I vote for Total, which is more important for me.

SS: Tell us a bit more about Total in 2017 as well. Do you feel slightly less pressure though because of this oil price move, because actually you're renewables division I think from the latest numbers actually some of the profits coming from that as well. It's looking better as well. Do you feel less pressure in 2017 than perhaps at any stage in the last couple of years?

Total: For sure, but we have less pressure because we've made huge efforts. All the teams of Total worked hard. We have lowered our break even under 50 dollars per barrel and in terms of cash break even with a profit of sales we're now under 40 dollars a barrel so yes we made big efforts and so over the last two years where we had a lot of CapEx because we had lots of projects or projects to be delivered, we have no higher production and or financials banking [inaudible] strong. So for me 2017 is a new era. We were under pressure. Now we can be more offensive. We have, I would say, a very good status in the company. And our objective is to benefit from still a low price because there is low cost so we want to sanction projects and we want to make new deals to have access to resources like the one we have done in Brazil in December and in Uganda with Turo [inaudible]. So Total has gone through these difficult two years in good shape. And I'm very happy now we can be more offensive.

SS: Are you calling time on CapEx cuts?

PP: No, no, we have what we announce is that we will spend between 15 and 17 billion dollars of CapEx from 2017. I explained to investors it is a sustainable level of CapEx, with that we will be able to continue to grow the company larger more than the market services, or target that [inaudible]. This is what we want to do. So it's not a CapExs it is landing the CapEx to the sustainable level, which is more important.

SS: And in terms of the renewable side of things: You and I were in a debate in Davos talking about the transition, the energy transition, the clean energy transition as well. And there was lot of concern from Christiana Figueres about the speed of transition. Are you happy with Total's investment in renewables. Is it just right? You mentioned 15 to 17 billion dollars.I think your investments, I mean various figures, 500 million dollars a year is the figure that it's often cited?

PP: Yeah. Let's be realistic, energy is a very important matter. I mean we are in the core of the energy, we have invested in renewables we are investing and I believe when we develop a strategy because again we want to remain a major company in the energy field. Renewables we love something. But today, if I only had renewables Total would be unable to distribute any dividends. It's still an infant industry but we need to work on it. So accelerating is tough because as we were discussing in Davos, people want not only clean energy, people want reliable energy, people want cheap energy, so we have to be pragmatic.

SS: Is that the priority with people reliable and cheap, reliable and cheap ahead of clean?

PP I think I suspect yes because its energy is at the core of the development, economic development and when you go to India, when you go to China you think people, of course they want clean, to be able to have clean air but they want also to have access to energy which is more important for many people in the world. So I don't think, so I think yes an energy mix will evolve. You will have less coal, less oil, more gas. More renewables but it takes time. This transition is not because you decide. It's not, there is no magic tool there. It's just a matter of investments and words [inaudible] that people need are serious and pragmatic strategies to prepare the future. So I hear [inaudible] acceleration I suspect we have to be pragmatic and realistic but again it's a serious matter.

SS: There's another great point raised and it's by Oleg Deripaska of Rusal that he thought that some countries and I'll paraphrase in some countries are pretty hypocritical really they're using renewables as cover for increasing coal production and coal usage as well. Do you think there's a great degree of hypocrisy out there from some companies and perhaps some countries especially.

PP: No I don't think, I mean medically I don't think there is some hypocrisy but what Mr. Deripaska pointed is right. What I observe in many countries, because they have a lot of coal, coal is burnt out in China, is burnt out in India, in the US as well, is that and it's cheap to produce coal, much cheaper than gas because gas is complex, you need to liquify it and you need to transport it so what I observe is that you have many countries which try to be genuinely like India, on the road map of two degrees. We have this national production of coal and they invest in solar and wind. One hundred seventy five gigawatts by 2022. And I think the Prime Minister Modi is very dedicated to that. But yes we see a mix of coal and renewables. It's a strange mix but I observe this trend in Germany, I observe this trend in Japan. Japan wants to decrease gas and increase coal with renewables. So there's something there and I think it is one of the for me the main concern about the climate change debate because frankly if we are unable to lower the coal share in the mix, there is no chance we can reach the two degree road map [inaudible] and that requires you to pricing.

SS: We need the carbon pricing. Finally, there's a lot of inequality concerns. There's a lot of concerns about the haves and have nots and if Davos is anything it's a lot of haves, it's a very rich concentration of very wealthy and influential people. Do you think the Davos bubble the Davos echo chamber actually gets the message that there's some real problems out there and they need resolving very quick.

PP: Yeah you're right. Clearly we are in a bubble and we are in part of the bubble. And Total, when you speak about globalization is one of the winners of this globalisation. We have been able to develop a company. I think what is important to know is that yes we discussed about what is happening around us. I'm not sure we fully understand but there is really a willingness and we have been proposed by Davos to sign a compact about responsible leadership. Responsible leadership for me it's very important. I think big companies like us it's not only a matter to distribute salaries to employees, dividends, social orders, taxes to states. It's not enough. By listening to all of these moves but we need to bring something else to the territories from which we work. You know we have the global company for us for example in France first. Then we moved out. We are moving because we are a global company because the cost of labour is lower in other countries. But if we stay, if we leave the territories behind us without taking care, I think we are making a mistake. Normally the states should take care of that but the states are unable and so it's back to what is the responsibility of a global corporation like Total and I think there is a fourth dimension, salaries, dividends, taxes plus something which is to take care also of our own territories. And I think we need to move on that and not only to think it's a matter for all of us. It's not a problem of all of us. It's our problems because I strongly believe globalisation is a good thing for the world. We have major poverty in the world. We have plenty of emerging countries. But all population in all developed countries seem to disagree so why they disagree because they are afraid so we need to answer them. And it's not only a politician story, it's also a matter for the leaders of large corporations like Total. I don't have the magic tool there again but I am convinced that we need to do that and to tell the people we were discussing these type of matters amongst the leaders of the world in Davos so it's not only we are yes, it's a bubble but this bubble is asking itself some questions. And it's important.