Oil and gas: what's up in Total? |
| ConocoPhillips is one of the few majors to have announced a drop in its dividend following oil price plunge. - ConocoPhillips |
The
French oil behemoth intends to cut its investments in 2016 by USD2 billion,
from USD 21 to USD19.
Last Thursday, Patrick
Pouyanné, Total CEO, did not hide his satisfaction when presenting the group’s
results for 2015, thus keeping serene in face of oil price severe drop. In
fact, as oil market price lost 45% in average last year (so did gas price by
28%), the French oil giant showed an obvious resilience. Thus its adjusted net
income (excluding stocks and exceptional items) was reduced by 18%, to reach
USD10,5 billion. « Other majors have
recorded sharp decreases amounting to 45-50% », insisted Total CEO.
Moreover, the group net income even increased by 20%, amounting to USD5
billion, as exceptional provisions amounted « only to USD5 billion
(particularly on its Canadian project Fort Hills and Australian one Gladstone
LNG), to be compared with USD7 billion of exceptional provisions in 2014. Analysts
hammered the surprise : last
quarter net result exceeded by 20% the expected one.
No mass job cuts
First of all, Total
benefited from its expense cut program initiated as soon as spring 2014, far
before oil prices plunged severely, falling from USD110 in mid 2014 to somewhat
USD30 today. « We were aware that
oil industry was getting into trouble », explained Patrick Pouyanné.
« But the best we have to do was to
control what was available to us, namely our expenses ». The oil major
indeed progressed farther than expected, by example limiting professional
travels or helicopter use, but also by reviewing new upstream project
design : thus expense cuts reached USD1,5 billion in 2015, instead of the
USD1,2 billion expected. The targeted amount will be set to USD2,4 billion in
2016, « in order to reach the USD3
billion and more targeted by 2017 », announced the group. In September
indeed, the group decided to change from USD2 billion to USD3 billion of
expense cuts.
It’s worth to see that
this huge expense cut program does not involve mass job cuts, conversely
to many other majors (ExxonMobil excepted). Total only limits its recruiting
policy (from 4,500 positions in 2014 to 2,500 in 2015 and 2,800 this year) and
does not replace every retiring employee. Last year, the group staff was thus
reduced by around 2,000 persons, off a total of 100,000 positions. « All the teams must be out on deck for
our objectives. We shall need everybody when the barrel market price shall
recover ! », said Patrick Pouyanné.
Increased production for falling investments
Moreover Total has
benefited from a production increase by 9,4%, amounting to 2,347 Mb/d. A part
of this increase comes from the renewal of a license in Abu Dhabi, which was
cut off during a year. Then the group commissioned 9 new sites (among which
CLOV in Angola or Gladstone LNG in Australia). These projects have thus
balanced the transfers or production stops in Yemen and Lybia. Finally, the
commissioning of Laggan Tormore in North Sea, last week, and of oils fields
located in Argentina, Bolivia or Angola later in 2016 shall allow the
corporation to record a 4% increase this year.
In 2015, the group did
not launch new projects, and only Libra, in Brazil, may be commissioned in late
2016 or early 2017. « The drillings
made this year proved that this site consists in a giant field, like block 17
in Angola », said Patrick Pouyanné. Investments will be reduced to
USD19 billion in 2016 (from USD 21 to USD19, as expected until now), after
reaching a USD23 billion level in 2015. He postpones the Zinia 2 project in
Angola, in the hope to reduce this cost, and postpones sine die the Bonga South
West deep offshore project, operated by Shell in Nigeria. « Our strategy consists in our positioning on
low cost oils », insisted Patrick Pouyanné.
A Birman
discovery
Total took a part in a significant gas discovery in
Shwe Yee Gtun, in the Rakhine basin
located in the waters off the Birman coast, announced in early
January. « It’s a real wonderful discovery : indeed, it’s likely to be a gas
region », commented Patrick Pouyanné, adding that it was one of the
first permits negotiated by Kevin McLahan, the new exploration manager, who was
appointed in September 2014. Even if the potential of the field, operated by
Australia Woodside (40%), together with Total (40%) and the Birman operator
MPRL, needs to be confirmed, this is good news for the French group :
indeed Total has not announced a discovery for years. The project budget has
been decreased, to amount to USD1,5 billion compared with USD1,9 billion in 2015,
« which gives us quite a
margin », commented the CEO. The group has recorded a reserve renewal
rate of 107% in 2015 and of 118% by three years.
An exceptional year coming from refining sector
The downstream
activities (namely refining-chemistry and marketing -services) recorded an
adjusted net income of USD6,5 billion (58% of the total), recording thus a 76%
increase compared with 2014. The group has taken advantage of high refinery
margins, particularly in Europe, together with some asset transfers in Europe too.
« We’ve made €300 million after
taxes in France in 2015, among which €200 million come from
refining-petrochemicals », outlined Patrick Pouyanné. Nevertheless
refining margins were exceptional in 2015 and « their reduction may hinder Total performance this year »,
highlighted Alexandre Andlauer, an Alphavalue analyst. But restructuring works
in La Mède refinery, which again recorded a €100 million loss in 2015, and the
upcoming investments for Donges refinery, will provide new improvement sources.
Patrick Pouyanné’s peace of mind is thus ingrained, although difficulties are
piling up in his environment. He has been appointed CEO in last December.
 |
| Total faces a 18% drop of its results, thus recording the best performance among world oil majors -SIPA |
Although
facing a reduction of its revenues because of oil barrel price steep fall,
Total has confirmed that the group shall pay a dividend. All majors of the
sector are following suit.
Total was no
exception. The group announced that it shall maintain its dividend although its
income decreased because of the fall of oil market price. The payment should be
made in shares with a 10% discount, as it was decided last year. « Around 50% of the shareholders chose this
alternative at the three due dates in 2015 », highlighted Patrick
Pouyanné, the group CEO. « This
option will allow us to divide by two the cash to be paid ».
For oil majors,
seen by the market as capitalisation values, maintaining the dividend is a gold
rule. « Their value is based on this
parameter», said Mathias Pestre-Mazieres, sector manager by Morgan
Stanley. Though the barrel price drop, only a few companies have made exception
to the rule : ENI, with a dividend reduction of 30%, and ConocoPhillips, which
has just announced a 66 % dividend cut. But ExxonMobil, Chevron, Shell and
BP have confirmed that they won’t change theirs.
Impossible choice
How long will it
last ? « That’s the question for the
moment », said Mathias Pestre-Mazieres. « Some companies have exhausted all their possible
leviers». In front of their income sharp reduction,
majors have tried to avoid cash distribution, through investment reduction and
asset transfers. But the most part of them were compelled to take on new debts
to pay their dividend. Total is facing this situation, as the group cashed
USD22,6 billion thanks to its operations and asset transfers, but which has
paid USD26 billion for its investments and dividends. Total is allowed to do so
as its indebtedness rate fell to reach a 28% level. « A healthy financial statement », insisted Patrick Pouyanné.
These financial statements may allow Total to cope with new oil price cuts.
Nevertheless, companies may face an « impossible choice : paying dividend or favoring rating », outlined Mathias Pestre-Mazieres. Standard & Poor’s has
downgraded Shell and put other European companies (among which Total stands)
under watch in early February. « Maybe the
most part of the companies will be downgraded », outlined Patrick
de la Chevardière, Total financial manager, on Thursday, highlighting a
negligible impact on his company.
Going further...
http://www.lesechos.fr/industrie-services/energie-environnement/021689585529-total-durcit-sa-cure-dausterite-apres-une-baisse-de-ses-principaux-resultats-en-20151199462.php
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