One Man, One Vote

The financial press have a certain fetish about Total’s CEO Patrick Pouyanne. Here’s another gushing article:

Patrick Pouyanne pounced after Occidental Corp trumped Chevron’s $33 billion bid for Anadarko in April with an offer that includes raising financing by selling some of Anadarko’s operations worth up to $15 billion.

By keeping those in the know to a minimum, the French CEO was able to stay flexible in negotiations, take a swift decision and ensure there were no leaks until the binding deal worth $8.8 billion was announced on Sunday, a Total source said.

“Pouyanne proceeded in the same way he did with previous deals: a restricted task force, no bankers and no external counsel,” another source, close to the deal, told Reuters.

Throwing out the rulebook that expects CEOs to be surrounded by investment bankers and other advisers when dealmaking has become a trademark for the 55-year-old CEO and chairman of Total, who took the helm of the French energy major in 2014.

He has surprised investors with his acquisitions, such as buying Maersk’s oil and gas business in 2017 and Engie’s upstream LNG operations in 2018, setting one deal in motion after an unsolicited phone call with the controlling shareholder.

Shouldn’t we perhaps wait a little to see how rushing headlong into major deals while consulting almost nobody plays out over the long term? Look at this bit again:

a restricted task force, no bankers and no external counsel

You’d not hear this from fawning financial journalists, but Pouyanne has a reputation for yelling at anyone who doesn’t tell him what he wants to hear and demanding absolute obedience from all those around him (he’s a product of a grande ecole, after all). And here he is doing multi-billion dollar acquisitions in record time without involving bankers or outsiders. What could possibly go wrong?

For all the praise heaped on him, thus far Pouyanne is reaping the rewards of projects sanctioned by his predecessor. He has put considerable personal investment into Total’s Uganda project but that’s not exactly going according to plan:

French oil and gas major Total’s chief executive said on Thursday that the firm’s Ugandan Lake Albert oil project will be a personal priority this year after setbacks led to a delay on a final investment decision (FID) in 2018.

The project, which was expected to have been cleared last year, has been delayed due to disagreements over field development strategy, tax disputes and a lack of infrastructure such as a refinery or export pipeline.

Indeed, it has all the hallmarks of a development someone jumped into feet-first without carrying out proper due diligence and ensuring the right legal structures were in place. I don’t know if Total’s acquisition of Anadarko’s African assets is a genius move or not, but financial journalists should be asking questions over how decisions get made in that company, not blowing smoke up the CEO’s arse.

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13 thoughts on “One Man, One Vote

  1. An oilfield in a corrupt landlocked poverty stricken country with high unemployment, a government with no experience in negotiating licences, no refinery and no means of selling the oil. Not forgetting a Chinese JV partner.
    What could possibly go right?

  2. As someone who has lived and worked in Uganda, including in the area of this oil investment, let me just say that I almost fell off my chair just now when I read that any company, let alone Total, were even considering for a moment to contemplate the very idea of setting up an oil operation there.

    Never start a land war in Asia, the old saying goes. I reckon you can add never set up a derrick in Uganda to that as well.

  3. This throwaway comment seems to be somewhat illustrative of a problem. no?
    a lack of infrastructure such as a refinery or export pipeline.

    I dunno how it appears to the big brains in the oil industry but to me it would seem fairly important that you have a way to ship the oil to would-be customers before you finish building the oil-well

  4. Sounds familiar.

    See The Register’s coverage of the Autonomy trial for the aftermath of a similar clusterfuck. Briefly, Hewlett Packard bought a British company Autonomy for $11bn and within a year had written it down by $8.8bn. HPE (as it now is) is suing the ex-boss of Autonomy for $5bn.

    For me the high point was HP’s CEO at the time admitting that he hadn’t read the draft due diligence report or the latest financials before forcing the sale through.

  5. I don’t want to say anything nice about a French oil company or about a CEO’s style — but some quotes in the Reuters article suggest that the CEO’s behavior was not quite as dumb as it first seems.

    “… But Total was also able to act swiftly because it has long had its eye on those African operations.

    “Total was already familiar with Anadarko’s portfolio. At some point, they took a closer look at Anadarko’s assets, particularly in Africa. …

    A banking source said this deal was not the first time Total had held talks without bankers in the room. The source said it made sense in this case because Total did not need financing and wanted to make a quick decision. “

    I wonder who got the best of the deal? Certainly, Oxy needed to raise cash in a hurry.

  6. a restricted task force, no bankers and no external counsel

    I also did a double take when I saw that. I’ve been on the edge of a number of large deals carrying out technical due diligence usually under the umbrella of management consultants who had a wider emit.

    Whist I have little time for lawyers and bankers a people there is no denting their value in large deals. All the ones I met were all sharp as tacks and nothing got past them. Most of the deals were about large financing loans and seeing them in operation made me a bit more relaxed that my pension might be involved somewhere down the line.

    The husband or one of Mrs BiND’s friends used to be a direct report to Fred The Shred and left well before the crash, from your and his descriptions it could be the same person.

  7. “Throwing out the rulebook that expects CEOs to be surrounded by investment bankers and other advisers when dealmaking has become a trademark for the 55-year-old CEO and chairman of Total, who took the helm of the French energy major in 2014.”

    I thought the rulebook said not to let the CEO do dealmaking, no matter how many investment bankers are around him.

    The outcomes are usually, at best, poor, when you let them think they are there for deal-making.

  8. ” Pouyanne has a reputation for yelling at anyone who doesn’t tell him what he wants to hear and demanding absolute obedience from all those around him ”

    This is the worst possible profile for a CEO, and quite common. It also matches that of Joseph Cassano, who ran the division of AIG that lost the thick end of $100bn.

    Funny how quite a few people find the profile of people who behave this way attractive.

  9. francisT

    “I dunno how it appears to the big brains in the oil industry but to me it would seem fairly important that you have a way to ship the oil to would-be customers before you finish building the oil-well”

    The ‘big brains’, as you call them at the top of the oil industry are all entirely focused on climbing a corporate ladder and obtaining power. They have exactly zero interest, or aptitude in, the logistics of the oil industry.

    The success of the oil industry is largely despite them, not because of them.

  10. Much business “success” and failure at that level is blind luck.

    Also, compare Bayer/Monsanto. Riddled with consultants and investment wankers, the market hated the idea, no one considered Monsantos incalculable liabilities, but they went ahead and a successful and ancient company is on the brink.

  11. There have been a number of retrospective studies of mergers in the oil industry and in other major industries. The general conclusion appears to be that acquisitions generally destroy value for the shareholders of the acquiring company — acquirers tend to over-pay.

    Ed Capen in 1971 demonstrated the “Winner’s Curse” from analysis of bidding for oil leases in the Gulf of Mexico. Simple concept — the winner in a competitive bidding situation is the one who submits the highest bid — higher than anyone else considered the property to be worth. Given the wisdom of crowds, it probably means that the winner over-paid.

    One of the messages from that observation is — Avoid Acquisitions Through Competitive Bidding, whenever possible. Just maybe, Total might have got those African properties at a better price through doing a fast negotiated deal. On the other hand, Oxy probably left money on the table by selling directly instead of selling through competitive bidding. Even the French sometimes get lucky.

  12. “Avoid Acquisitions Through Competitive Bidding”

    I’m a big fan of the Peter Thiel quote; “Competition is for losers”

  13. I discover that the French for “to be a loose cannon” is “être totalement imprévisible.” Which explains why French is the language of diplomacy.

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