CHALLENGES , JUNE , 1999

The strike threatens Philippe Jaffre

ELF on the verge of mutiny

The salaries cannot stand his methods, the shareholders doubt of his strategy : ruling ELF, Philippe Jaffre is really alone. The affairs around the oil holding, and a good stroke by TOTAL make it worse.

On April, 17, the pressure is high amongst the strikers at the ELF research center in Pau, In front of the dark building of bricks and smoked glass, the rebels gather. They refuse the withdrawal of 1,320 jobs in Exploration-Production. They burn figures of their president, Philippe Jaffre. On the very same day, Philippe Jaffre enjoys the Philippines. Manila, exactly. This is the first step of the raid ELF Authentic Adventure. No reason for a cancellation of this trip, scheduled for a long time. Why should he worry about such a local conflict ? Only 3,800 people are concerned, while ELF has about 85,000 salaries.

And what about the influence of Pau, the Bearn capital where the holding took root on December, 19, 1951, with the Lacq discovery ? Philippe Jaffre only goes for numbers. When a McKinsey audit (N. B. :challenged by the Unions) pretends that the work done in Pau -seismic interpretations, conception of oil installations, drilling...- is more expensive by 10 to 40 % than done by the concurrence, he decides the cut. No care for politicians, who within a few weeks of the European ballot, challenge his project. If 72 % of French still think that ELF is a public company, Philippe Jaffre only cares about the stock market. Ruling the privately owned holding for now five years, a former tax inspector installed by Edouard Balladur (a right-wing prime minister under the late president François Mitterrand) in August 1993, he is proud of his results : 3.5 billions FF ($ 250 millions) in 1998. The stock value grew by 2.5 in six years. More interested in the shareholders than in the African leaders, Philippe Jaffre prefers New-York to Libreville. He is poorly rated in Africa, where the Gabon president Omar Bongo called him " high and dull ".

Philippe Jaffre however made a mistake on March 19, when he first announced in London his downsizing project to a financial audience. Getting rid of " low value salaries " he said, which widened the gap between the supporter of shareholder value and his staff. Such an arrogance, the daily list of scandals, the success of TOTAL who outclassed ELF with the purchase of PETROFINA, is too much. At the board of Directors, even his friends such as Jacques Friedmann (Insurance AXA-UAP), Michel Pebereau (bank, BNP), Andre Levy-Lang (bank, PARIBAS), question his way. Sure about the matter, Philippe Jaffre neglects the manner.

An " ultra capitalist foreign to the industrial world " says Claude Henry, from the Union CFTC, " Lucifer Jaffre " used to be welcome when he came. " We needed a guy to clean the Le Floch maffia (Loik Le Floch-Prigent, former head of the holding, is implied in several scandals involving ELF). A guy who could prepare the privatization " said some salaries. Philippe Jaffre swept away the former team, claimed damages against his predecessor, and broke with the expansion policy. He spared a 9 billions francs reserve ($1.5 billions), sold more than FF 22 billions ($ 3.5 billions) of alleged " poor " assets (the US Texas Gulf, the biotechnology of SANOFI), more than FF 16 billions ($ 2.5 billions) of non-strategic shares in the bank BNP and the Generale des Eaux, canceled oil exploration in the former USSR. " Jaffre takes the bad work his predecessor would not do " says Jean-Jacques Limage, a financial analyst, " the other made that years ago ".

In five years, ELF production costs dropped from $4.4 to $2.4, through a 20% downsizing and drastic changes in the work methods. The refineries costs dropped by 36 %. Breaking with the old habits, Philippe Jaffre put the house right. " To find and exploit oil, ELF had to build her own tools " says a striker. " It is a traditional trouble here that the best technical solution is favored, even if it is the most expensive " he admits. The president had to fight over the X-Mines (one of the best rated high school in France), who by tradition hold ELF.

Philippe Jaffre took the gloves off with them. Struggling over the costs of the Xerox, harassing a manager who forgot to put off his computer, attending several meetings on the simple outsourcing of a handful of drivers to a private company, the head turned to a " despot of the minuscule " says a close collaborator. " He enjoys wedging you " adds another, harassed by incessant emails. Provocative, Philippe Jaffre once thought of charging the admission to the water pool of the ELF tower. While the salaries cram after the sale of eleven floors to the bank Societe Generale, he keeps two full floors for his personal use and staff ! The former friends of Loik Le Floch-Prigent now organize the resistance. Says a manager " Jaffre underestimate their strength, especially to the press ". The legitimacy of the president crumbles.

Solitary by choice, Philippe Jaffre then made another wrong move. He neglected the power of a close team around him. No way to question Jacques Puechal, X-Mines and Mr Chemistry within ELF, or Jean-François Dehecq, head of the Health branch and a friend of Jacques Chirac. Says Jean Conan, Head of an association of salaries-shareholders " He only recruited financiers, instead of a solid head needed by the Exploration-Production ". Genevieve Gomez, a banker who had to clean the financial shares, was fired and replaced by Bernadette de Bonrepos. Although prompt to point the too close friends of Le Floch, Philippe Jaffre now hired his own friend Patrick Suet, a former colleague under Edouard Balladur, as an assistant.

He could not find a successor to J. Halfon, the charismatic head of Exploration-Production, when he died tragically a few years ago. Looking for retirement, his successor François Isoard only carried on the ordinary business. A technician, the present head of the Exploration-Production Jean-Luc Vermeulen, devoid of any experience in the social domain, now has to cope with the downsizing plan more crude because of the hesitations of his predecessor. Committed to the negotiations, his assistant Andre Thebault lacks any credit because of his long last opposition to the horizontal and deep water drilling, now the jewels of the company.

The twenty-seven higher managers, fed up with stock-options, would never openly criticize their head, himself the best paid in France according to Forbes. This is not however sufficient, nor the capital increases devoted to the salaries, to close the concerns about the strategy. TOTAL successes materialized the trouble. Thierry Desmarest, head of the challenger, twice overcame Philippe Jaffre. Once in 1997, when TOTAL signed in Iran, against the official embargo. This was bitter to ELF Exploration-Production engineers who pushed for. Says one " He lacked strength that time ", even if later ELF finally reached an agreement with Teheran. Then in 1998, TOTAL caught the Belgian PETROFINA. " This is the first time TOTAL overcomes ELF in production " claimed an engineer. Jacques Puechal questioned the interest to the holding, but the president image is hurt. In 1994 and 1996, Philippe Jaffre did sold the 5% share ELF had in the Belgian company, then regarded as a financial arrangement of his predecessor.

Monolithic in his will of breaking with the Le Floch period, closed in a stereotypic speech to the shareholders, Philippe Jaffre is now regarded by the salaries as an industrial dwarf. Says Peppino Terpolilli, from the Union CGT " He spares the cash to buy ELF own shares, instead of putting it in the acquisition of mining domain ". The objectives, growing the reserves to about 30 % more through the Angolan discoveries, jumping to within the ten best in the world before 2005, seem then out of reach. The salaries suspect the worse, while their president pretend not to be on the trail of BP, renowned for her way of making stock value through the outsourcing of most of her activities.

In this context, the rumors run over a possible raid from TOTAL -may be against SHELL trial. Some salaries even favor the hypothesis ! " Incredible " say some. The idea may even be favored amongst the board of Directors : " Why not, if Jaffre agrees to the merge between the two banks BNP and Societe Generale ? ". The doubt is now everywhere. When in the middle of April, the banner " ELF, the humane energy was taken off the main amphitheater, most saw it as a symbol.

How Jaffre lost any credit

1993 (August) : Edouard Balladur, Prime Minister, throws Philippe Jaffre up to the head of ELF. His stressing methods make him unpopular.

1995 (April) : Philippe Jaffre claims damages in the ELF-Biderman file (Biderman allegedly benefited of loans from Loik Le Floch-Prigent, with ELF money, and paid back through Le Floch’s wife ; the case is still in court). The suit begins a merciless fight with Le Floch, who still counts many friends within the holding.

1995 (May) : Jacques Chirac is elected as President of the French Republic (against Edouard Balladur, among others). Jaffre as a friend of Balladur is in troubles. He might be replaced, the name of Jean-François Dehecq, head of SANOFI and a friend of Chirac, is often quoted. Jaffre finally saves his seat.

1998 (October) : Thierry Desmarest, head of TOTAL, wins over Jaffre in the buying of PETROFINA from the Belgian Albert Frere. TOTAL wins over ELF, Jaffre is now seen as a loser and a poor strategist.

1999 (April) : Jaffre is now in a storm headed by the Unions against his downsizing project. Some within the board of Directors question his politics.

The computer strike

" No way ". Three blue-dressed hostesses helplessly try and put in a computer the name of the visitor. More and more now queue in the hall of the ELF tower. The girls, as other, now endure the strike against the downsizing project.

This is unheard of in France. A strike now not only French, but impeding through the Internet and Intranet work all over the world. Geologists or engineers cannot access their databases, 4 to 5,000 overseas workers are blocked. The cause : the management planned the outsourcing of the whole computer system. Discussions would even be fairly advanced with IBM and Cap Gemini.