CNBC Interview with Total CEO Patrick Pouyanne from the World Economic Forum 2018

Following are excerpts from a CNBC interview with Patrick Pouyanne, Total CEO and CNBC's Geoff Cutmore from the World Economic Forum 2018.

GC: Patrick, I want to start by just picking up from some of the comments that the French President made while he was here, and he talked about France is back. Business in France is back. Confidence in France is back. Is that how it feels to you?

PP: I think it's the way that the rest of the world is looking to us. I mean, I think something has changed since President Macron was elected. It's that the image of the country is renewed. I mean, sort of, refreshing the image of France, thanks, first, I think, to some of the reforms that he led, and frankly the two large reforms he's done on the labor law and the fiscal law, even more important. You know, in France today, you don't tax capital like work. You know, it's big news, you know, and it's important, you know, 30% flat tax on capital, this is a big change, a big dynamic, and more, on the international scene , where I think he's trying to-, to have a, sort of, leading role. France is one of the countries of the Permanent Council of the United Nations, and we need to have that role, and I think he's-, I think he's well expressing the pride of the French people. So, yes, France is back, it's a good thematic, I think, and we see why he came to-, to Davos, and we are proud of that.

GC: Does it make any difference to the way that you project your business, though, to the rest of the world, as a French company? Does it make any difference, at home, to the way you operate?

PP: You know, I think basically we are-, Total is a global company, in many countries in the world. Of course, when you deal with oil and gas, you deal with other countries' sovereign rights, so it's better to have a-, to be backed somewhere, even if I am a pure, privately owned company, you know, a listed company, a publicly listed company, and the French state does not have any stake in Total, but we are, in this business, backed by the country image. So, of course, it's better to go to the Middle East today, when I went to Abu Dhabi with President Macron, a strong image, it helps me in my business in some way, so it's more positive. And I think, also, it's in the mood, you know, confidence. People-, it's important, all that, and this is what we want from political leaders, to give trust, confidence. So, today, yes, it's fine, and within the country, I think we have some new ways, and it's better to run our French business with these new rules of the game than before. Having said that, for Total, most of our revenues and earnings are coming from abroad.

GC: We've had, while we've been here, commentary from the Russian Energy Minister. We've also heard from the Saudi Oil Minister, and the messages are that these two powerful producers seem to be on the same page, with an agreement that potentially could run through now to 2019. That must be tremendous news to your ears, given how much we've seen the headline oil price rise.

PP: I agree, but, you know, this historic agreement came back to the Vienna Agreement, in November '16, where, for the first time in the history of oil, the non-OPEC countries and Russia has decided to join its efforts with Saudi Arabia, so, it was an historic move. And despite all the comments from companies, but, you know, companies like us, we are all selfish, we don't want to have a reduction of our production, you know. But, in fact, the two countries are very aligned, and, you know, there was the historic visit of King Salman to Moscow, just to-, I think it was a way to say, 'This pact is a real pact.' For both countries, I think they'd be clear, which are-, a lot of our economies are relying upon oil and gas, you know, from both of these countries. It's much better to run Russia and Saudi Arabia at $60 than at $40, so-, and so, I think they have a fundamental, same alignment, because they need a better price. And, frankly, this discipline has worked, and it works, and the OPEC/non-OPEC agreement is respected, very compliant. So, the market has reacted. But, let's be clear, I think if the market has also reacted, it's because of demand. Low price has generated a very high growth demand. The demand for oil in the last three years has increased by 5%, twice quicker than the previous three years. So, we have a strong demand, because it was a low price. So, the big question for me-, I have two questions, today, in this market. I am convinced that this agreement will stay in place. I am convinced. It's in their interest, and it works, so why-, but you will have two counter parameters. One will be, will the demand continue to grow the same pace at $70? Or … Is it not too high? Because we observe, when the price raised, was raised in 2005/6, that the demand began to go down, and, you know, in India, Indonesia, price is vital for demand. And the second parameter will be, what will be the US shale oil impact, reaction? Because, obviously, even if it takes a few months, I'm convinced that my friends of US companies are just trying to find all the rigs. They have an issue today, which is to find the people, you know, because a lot of people have left the industry-,

GC: Mm.

PP: And-, but we will see, again, a big increased of the shale oil production next year, I am convinced. It takes a little time. So, I think the-, it will be wrong to think that $70 is there for the full year. I think there is volatility, and we-, I wouldn't be surprised some weakness by March, April, you know, this winter demand is a low seasonal demand-,

GC: Mm.

PP: Production will continue to grow, so we could see some weakness. Having said that, it's clear, OPEC/non-OPEC policy has had some real success, and so we'll see if it could happen, but I-, we can trust Mr. Novak and Mr. Al-Falih about what they said. I think it's fundamentally what the two countries want to follow as a roadmap for-, for the next year.

GC: This-, this period, this cycle, if you like, for the energy companies, has been one that has been punishing in the early part, but generally getting a whole lot better, as the price has risen. Companies have fallen back, I think, on opex, and they've reduced capex. How do you feel now about this environment, given you're so confident on the agreement? Is this a time for a business like Total to ramp up capex?

PP: No, it's a time to-, to-, not to lose memory, you know? We just-, I think I was very clear. We were spending a huge amount of capex for two reasons. We were at $25, $28 billion per year for Total. Today we are $13, $15 billion. What reasons? One, the costs were inflated, you know, and the costs have decreased. So, part of the capex decrease is part simply of the deflation of the costs of the industry. Less projects, lower cost. But, the other part is that we probably were overspending, compared to our possibilities, I will say. And so, for me, we have landed in a-, from a Total point of view, when I see the strength of the balance sheet, we have landed in a capex program, $15 billion. You can do a lot of things for $15 billion, and it's good to be obliged to-, to be more selective in the projects you-, you will allocate capital to, you know? And, so, no, I still continue to manage the company with a $50 rule , I would say, to select the investments. Of course, we look to variations, but I look also to $40, to $60, I will not lose my memory. You know, I became CEO at the time when the price went down from $100 to $50. I can tell you, it was not so easy to weather the storm. We've done it with success, but we need to keep the fundamentals, and the fundamental is that in this business, I do not control the price. I am not the price maker, you know. I invest billions, without being price maker. The things I can control is the cost of my operations, which assets do I select, and what is the cost of my opex business. This is what I control. So, the lesson will be in my memory for long, as long as I am CEO of Total, it's, we need to be excellent at what we control. And then, if we have surplus, it's good, we will see with the allocation of capital. By the way, the shareholders also should be rewarded for all what-, for the surplus of money. So, let's avoid to have the same, I would say, disease that we had in the past.

GC: So, that cost discipline is critical, to keep the shareholders very much invested in the company.

PP: Yeah, I think it's important, it's fundamental to keep the company in a safe …. You know, we are in a big-, it's a-, volatility is part of this business, the commodity business. So, we've seen $120, $30, then we've seen $50, then $70. This volatility is huge. So, we need to keep that in mind. I know-, we know why you have cycles. You have cycles because people lost their memory. That's why. Psychologically. Because, of course, I'm sure that my teams will tell me, 'Look, it's $70, we can do a little more.' So, the question is to keep a certain discipline and, you know, in Total, what we've done in 2017, we have made quite a lot of M&A operations, to buy the assets at a low cycle, in order to get some value when the prices are better. So, I am quite happy, because we are executing that strategy, so, let's keep that in mind.

GC: A couple of points I want to just ask you about before we let you go, and the first one is, I know that you have to operate in difficult parts of the world. You have a business in Iran, that I think you're pretty pleased with, at the moment, and yet, tonight, we listened to the Lebanese Prime Minister, when asked which part of the world is he most worried about, that could cause problems, he cited Iran, and said, 'That's politically where I feel that the most risks lie at the moment.' How hard does that make doing business for you?

PP: Well, you know, we are not naïve. We know that the geopolitical risks are quite important. You know, the thematic of Davos is, how can we progress in a fractured world? We are in tro… we see that there are many geopolitical risks, in Iran, in Iraq, in-, in the Gulf, the war between Qatar, Saudi Arabia, in Lebanon. So, this world is not easy, that's clear, and when we signed a contract in Iran, we knew that, so there is no-, no surprise, but it's a matter, you know, there are some opportunities. Iran is a big country, one of the largest gas reserves, a very large oil reserve. We are an oil and gas company. So, we'll try to find a way to take benefit from that, with a project which is, in fact, a domestic project, a gas project. A gas project for domestic use, not for export, so we don't increase export revenues, we are dedicating that to developing the economy of Iran, which was part of the philosophy of the JCPOA, if I understand correctly, what the alliance wanted to do. So, having said that, we continue to progress on it. We'll have to award some contracts in the coming months. Of course, we are listening, you know, I am spending my time to listen, and tomorrow, I will listen carefully to what Donald Trump will say, and I will be happy to-, to-, to listen. So, I think there is a big debate about the JCPOA, the way that-, should we-, is it an instrument to help Iran to evolve towards more freedom, I would say, for people? And this is the big bet by the Obama administration, and the European. If they have a better economy, aspiration to freedom, and then maybe a country will evolve. But that's a political bet. It's not my job. My job is to check if we can do that business with good conditions, and, of course, being fully compliant with all the international rules. So, again, nothing-, nothing is-, you know, I don't choose. I don't choose where oil and gas is in that world. There are plenty of oil and gas in the Middle East, in Russia. There is also plenty of oil and gas in the US, let's be clear-,

GC: Mm.

PP: In the North Sea. So, we are going where we can find opportunities, but, of course, we will manage this project, taking in to account all what is happening around us.

GC: And let me just finish on-, on Mexico. You opened your first gas station, just a few days ago, in Mexico. The plan is to roll out 250. You're looking at other investments there. But, this is a country that's going to have a presidential election in the middle of the year, and there are candidates that some people are not very comfortable with. The gentleman, Mr. Obrador, has been described, perhaps, as a-, as a Maduro-like character-,

PP: Yes-,

GC: Does that fill you with fear, that there is this uncertainty in Mexico?

PP: You know, we have the debate in all the countries today. Like in France, it's-, each elections becomes today a sort of choice, not between left and right, which is not the divide, but between the people who want to take benefit from this global world, from the new technology, from artificial intelligence, who are open to the world, open to trade, and the people who are more populist, who are extremist, for some of them, so, I don't-, and this is a debate we have seen in many countries. The question for the Mexican people, like I would say to the French people, is which camp do you prefer? And I think the previous-, the actual Mexican President has done a lot for his country. The growth in Mexico is more than 2.5% for several years, despite the drop of the oil price. There was a big opening-, a huge revolution, which was the opening of the oil and gas sector, so, of course we-, we have been there, we are exploring, we want to develop a retail network. Let's be clear, it's not big investments for Total this time, so, we can manoeuver. But this is the advantage, to have a very large company, like the one I'm-, I'm leading today. It's, you know, the way we manage all the geopolitical risk is to spread it through the-, through the balance sheet. I have $150 billion, so, I will have $200, $300 million in Mexico. Even if it changed, I would not-, I'd prefer the policy to be, of course, stable, but it will not be so dramatic for Total, and I could have said the same answer for Iran. So, yes, we take some risks, but we-, we are large enough to absorb these risks, and I think our investors do-, do understand that-, that way to work.

GC: Patrick, thank you so much for giving me your time this evening.

PP: Thank you very much.

GC: Good talking with you. Good. Good.