Total Cuts Investments, Costs Further to Lift Profitability
September 22 2016 - 1:20PM
Dow Jones News
PARIS—French oil major Total SA on Thursday said it would
further cut investment and costs on its operations to retain
profitability as it continues to counter the oil-price
collapse.
Patrick Pouyanné , Total's chief executive, Thursday told
investors and analysts he will pursue the strategy that has kept
the company in the black for most of the time since oil price
collapsed in the second half of 2014: cut investment, lift
operating efficiency and boost oil and gas output.
"In the short term, we will continue to be disciplined on capex
and on cost-saving and focus on raising production," he told
investors. "We focus on cash flow."
Even though the Total strategy to deal with an oil barrel worth
less than half what it was two and half years ago is far from
original, the French company has been more successful than most of
its peers to carry it out. The company managed to keep booking
billion-dollar profits in 2014 and 2015.
During his presentation, Mr. Pouyanné said the company plans to
cut its investment to between $15 billion and $17 billion a year in
2017, down from an expected $18 billion to $19 billion this year
and set up a target to cut costs by more than $4 billion in 2018,
up from more than $2.4 billion expected this year and more than $3
billion targeted in 2017.
The Thursday announcement isn't a surprise, as most analysts
expected a change in capex and cost-saving upgrade. The news,
however, will raise investor interest in the shares of Total which
haven't performed significantly better than its peers despite
outperforming them, said brokerage Macquarie earlier this week.
Shares of Total ended 3.7% higher on Thursday, while the CAC-40
blue chip index was 2.3%.
The reduction of investment on its oil and gas fields and the
more aggressive cost-cutting in the next two years will allow the
company to cover all capital expenditure, resource renewal, cash
dividend with its cash flow from operations with an oil price at
$55 a barrel of Brent crude in 2017, the company said.
The company would generate enough cash flow to pay its expenses
and dividend with a price of Brent oil at between $40 and $45 in
2020, Mr. Pouyanne said.
Despite increased cost-savings and lower investment, Total said
it would lift output by 5% a year until 2020 and by between 1% and
2% a year thereafter. To achieve this, the company counts mainly on
the projects it has invested in before the oil price collapsed and
it started cutting on investment.
"We have 10 sizable projects under construction," Mr. Pouyanné
said.
The company will focus on giant projects where production costs
are low and where efficiency gains are easier to find, he said,
while reducing its exposure to costly assets such as oil sands or
mature declining fields.
In the medium term, Mr. Pouyanné , who expects the price of oil
to inch up later as the imbalances between demand and supply widen,
said the company will add to its strategy a focus on
customer-oriented businesses, such as power utilities, that have
thinner margins but represent more stable income flow.
The company will also speed up its investment in renewable
energy to anticipate the impact on the energy markets of the
political decisions to limit global warming. The company has
recently bought French battery maker Saft and Belgian utility
Lempiris as part of this strategy.
Total is serious about its foray into the renewable business.
Mr. Pouyanné told investors and analysts: "We don't do that for the
climate or for communications, we do it for profit."
Write to Inti Landauro at inti.landauro@wsj.com
(END) Dow Jones Newswires
September 22, 2016 13:05 ET (17:05 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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