Oil-for-Food Probe Complicates Total SA Succession

By Michael Williams and David Gauthier-Villars
October 23, 2006
The Wall Street Journal
Original Source: http://online.wsj.com/article/SB116156206293700423.html

PARIS -- A French probe of Total SA's incoming chief executive casts a cloud over the oil company just as it faces tough negotiations involving complex international energy deals.
Christophe de Margerie, 55 years old, is scheduled to succeed CEO Thierry Desmarest in February, with Mr. Desmarest staying on as chairman. The two have worked side by side since the 1990s, when Total, based in Paris, turned itself from a midtier player into an international titan through a formula of mergers and bold exploration-and-production deals that Mr. de Margerie helped engineer in the Middle East.
But Friday, Total said Mr. de Margerie had been placed under investigation in connection with a two-year-long French probe into violations of the United Nations-sponsored oil-for-food program for Iraq. A U.N. investigation found the program to be riddled with corruption, with the regime of Saddam Hussein extracting kickbacks from traders in exchange for access to oil.
Mr. de Margerie spent 48 hours in police custody before being released last week, according to a Total spokeswoman. The manager then faced another 20 hours of questioning by a judge, as part of the formal notification process for an individual under investigation, the spokeswoman said.
An official at the Paris courthouse said Mr. de Margerie was suspected of complicity in the abuse of company funds and corruption of foreign civil servants. Neither the court official nor Total would offer further details.
A lawyer for Mr. de Margerie, Emmanuel Rosenfeld, said the case lacked any basis. In its statement, Total said it confirms that at no time did the group circumvent the U.N. embargo against Iraq and strictly adhered to the rules of the oil-for-food program. The Total spokeswoman added that the probe wouldn't affect Total's succession plans.
Total rose 50 Eur
opean cents to ¬ 53.70 ($67.76) in Paris Friday, and its American depositary shares rose nine cents to $67.77 on the New York Stock Exchange.
A review last year of the U.N.'s oil-for-food program in Iraq, conducted by an independent panel headed by former F
ederal Reserve Chairman Paul Volcker, derided management of the program as corrupt and inefficient. The report found that mismanagement and criminality allowed the Hussein regime to wring $10.2 billion out of the system through a combination of smuggling and illicit kickbacks and surcharges.
U.S. authorities have shown heightened interest in international allegations of corruption related to foreign companies whose securities trade in the U.S. American authorities slapped Norwegian oil company Statoil with a big fine this month as part of a Norwegian probe of alleged bribery in Iran.
It is unclear whether the U.S. Justice Department or the Securities and Exchange Commission are cooperating with French authorities or looking into the Total case. A Total spokeswoman said she was unaware of any request for information about the case from U.S. authorities.
Under the leadership of Mr. Desmarest and Mr. de Margerie, Total has emerged as one of the top half-dozen publicly traded oil companies by market capitalization. In oil production, Total says it is No. 1 among the international majors in Africa and one of the top players in the Middle East, home to the world's largest reserves of oil.
The three-year run-up in oil prices has led to a profit windfall for major oil companies. But higher prices also have emboldened oil-rich countries in Latin America, the Middle East and the former Soviet Union to impose far-higher taxes and less-attractive deals on Western majors seeking access to fresh oil and gas reserves.
In Russia, for instance, the Kremlin has called into question contracts Total and others signed in the 1990s. Recently, Russia decided to bar foreign majors from joining in development of the huge Shtokman natural-gas field in the Barents Sea -- a megadeal in which Total had been short-listed as a potential partner.
Total also risked the ire of the U.S. by agreeing to develop oil fields in Iran.