The dominant tone during the interview with Galp Energía's top official is one of cautious optimism about the future of the Portuguese oil company, which has outperformed its peers in the stock market, has been part of consortia that has made some of the biggest oil and gas finds in the world, and managed to increase its net income last year by 43 percent. Manuel Ferreira de Oliveira is also upbeat about the future of the oil industry itself. He believes crude won't be lacking and that prices will not reach $200 a barrel.
Question. They say that when the economic recovery kicks in oil prices will move above $150 a barrel. What do you think about that?
Answer. I wouldn't dare to make predictions, but I can tell you what I know about the fundamentals of the sector. The industry produces 90 million barrels of crude a day and the market is growing at a rate of one million barrels a year. But in a few years' time the situation will start to stabilize and output won't exceed 95 million barrels in 2030. Why am I saying this if demand from Asia and other regions is increasing? Because beside the fact that growth is at a standstill in Europe and the United States, there are sufficient exploration projects in the world to attend to needs without there being a jump in prices. Unless something untoward happens, we don't expect prices to move above $120 a barrel. That, of course, is a forecast.
Q. Just recently there were widespread fears of falling reserves. Are they growing now?
Unless something untoward happens, prices won't move above $120 a barrel"
A. Yes. Why did reserves come to a standstill? Because finding reserves involves a huge investment. In general a stock of 30 years is enough for the sector and for economic reasons companies don't want reserves for more years than that. If there weren't any unexpected events, the industry would limit exploration to being able to replace what has been consumed. The problem is that at times reserves are difficult to identify.
Q. And also, if reserves rise too much, prices fall.
A. Yes that's right. Reserves start to rise a lot because of large discoveries, in which case exploration tails off. That happened in the 1990s: reserves rose, prices fell and exploration was frozen. When prices started to rise again from 2000, and reserves stagnated, companies picked up the pace of exploration. All of the finds in Brazil, the United States and Canada are the fruit of those efforts.
Q. There is no danger, therefore, of a shortage of crude in the long term?
Our oil reserves are sufficient to supply our refineries for 30 years"
A. When I was at university some 40 years ago, they said there were only reserves for another 40 years. Now there are reserves for longer than that - even though consumption has increased a great deal. The industry has been able to replace what was used up, but that doesn't mean that oil should be wasted. One day it will dry up, of course.
Q. Does the easing of concerns about a shortage of oil and gas have anything to do with growing doubts about renewable sources of energy?
A. That would be a mistake. Renewables will play an important role, but for now we have sufficient reserves of crude to be able to wait until the technology associated with these sources of energy is competitive. What we have to do is use fossil fuels with care, while at the same time invest in projects and R&D in renewables.
Q. What level of reserves does Galp have at the moment?
The three big risks in this sector are economic, political and geological"
A. Our oil reserves are sufficient to supply our refineries for 30 years. We want to get to 300,000 barrels a day by 2020 to meet our projected refining capacity. The situation for gas is the same. Over the next decade we want to be able to produce all of what we sell.
Q. That is not an easy task. Competition for reserves is getting more and more difficult...
A. Right. It is difficult but not so much for companies that have the right technical capabilities to win tenders. We have invested a lot in technology and human capital, and that is why we are involved in the Brazil project, which is very complex. It's 250 kilometers off the coast of Santos in waters over 2,000 meters deep and with pockets of oil at 6,000 meters.
Q. Galp previously was only involved in refining and distribution and now it is in exploration in different parts of the world.
We are the only Portuguese company evenly split between Spain and Portugal"
A. We were always a vertical company but from 2005 we began to focus more on exploration and had the strategic vision, or luck, to participate in some of the largest discoveries in Brazil and Mozambique, where we are involved in a gas project that will start to produce in 2019 and make the country one of the largest producers in the world.
Q. The oil industry has become increasingly risky. Are you afraid that you might face something like what happened to Repsol in Argentina and BP in the Gulf of Mexico?
A. This is a sector in which we live with three big risks: economic, political and geological. We make big investments that don't always work out. We work with natural resources, which obliges us to get on well with their owners, which are states. And we also work in the bowels of the earth, which is another risk because sometimes things go wrong.
Q. Bearing in mind that even giants such as BP take time to recover from incidents, is it not a risk being small in this sector?
A. You shouldn't judge a company by its size but on the returns it obtains from the capital it invests. Galp has done better in the stock market than many of the big players. Smaller companies have their advantages. They are closer to their operations and have more scope to maintain friendly relations with countries in which they operate, perhaps because they are not a threat. We work in Brazil, Angola and Mozambique with a spirit of cooperation with national companies.
Q. In the year 2000, the Italian oil and gas company ENI was Galp's biggest shareholder, and now it is planning its exit. Who will take its place?
A. ENI is about to leave under its own free will. Our company, which has been listed since 2006, has a nucleus of core shareholders in the form of Amorim Energía, a joint venture between the Amorim group and the Angolan company Sonangol, which have a 38-percent stake.
Q. Galp has been present in Spain since the 1980s. How is it faring in the market?
A. We have between 10 and 12 percent of the distribution market in Spain, which makes us the third-biggest operator. Galp's sales volumes in Spain and Portugal are similar. We are the only Portuguese company evenly split between the two countries. We are an Iberian company.
Q. How did you build up your market share? The first years were difficult.
A. We came with the idea of growing organically, but in 2006 our market share was only 4 percent. So between 2007 and 2008 we acquired two large networks from Esso and AgiQ.
Q. How is the crisis in the fuel market affecting you?
A. A great deal. We have suffered a drop in sales of over 5 percent in both countries. But we are committed to both markets and are determined to get through these difficult times with perseverance, even at the cost of earnings. We are optimistic.
Q. Do you have plans for further growth in Spain?
A. We want to continue growing. Crises bring about rationalization movements in networks. There are companies that are not bearing up. And since Galp is determined to stick it out, I believe we'll reach the end of the tunnel with a greater capacity to grow.