Total to curb spending on projects including US shale gas

By TARA PATEL and NIDAA BAKHSH
Bloomberg

Total will reduce spending, cut jobs and curtail exploration this year after the crash in crude prices lowered fourth-quarter profit 17%.

Net income excluding changes in inventories fell to $2.8 billion from $3.39 billion a year earlier, the Courbevoie, France-based company said Thursday. That beat the $2.55 billion average of 11 analysts’ estimates compiled by Bloomberg.

Taking into account impairments of $6.5 billion on Canadian oil sands, US unconventional gas projects and European refining, Total reported a net loss of $5.66 billion.

Total is the last of the big oil companies to report earnings after crude prices slumped to about $50/bbl from more than $100 seven months ago. Producers from ExxonMobil to Chevron posted lower profit. Firings, spending cuts and drilling delays have been announced.

“We need to react but not overreact because we want to stay the course,” CEO Patrick Pouyanne said in an interview with Bloomberg TV. “We need to cool down the oil industry. The idea is to get stronger during this period of low oil prices.”

Europe’s second-biggest oil company kept its dividend unchanged from the third quarter at 61 euro cents/share and offered investors the option of taking the payout in shares discounted by 10% in a bid to conserve cash.

The company will boost cost-saving measures including cutting 2,000 jobs at its gas-station division this year.

Asset Sales

“We have to be profitable no matter what the price per barrel is,” Pouyanne said at a press conference in Paris. The explorer has reduced its break-even point by $40/bbl from $110 and said moves to cut costs and quicken the pace of asset sales this year will result in $8 billion in cash generation.

The shares rose 1.6% to 47.68 euros in Paris at 3:53 p.m.

“We like the company’s response for the 2015 trough oil price year,” Sanford C. Bernstein analyst Oswald Clint said in a note, referring to the spending cuts. Total’s downstream supported weaker upstream earnings.

Total will cut investment to $23 billion to $24 billion from last year’s $26 billion and slash the budget for exploration by 30% to less than $1.9 billion.

‘Under Pressure’

“The exploration teams will be put under pressure, they will be forced to make choices,” Pouyanne said at the press conference. Spending last year on hunting for new reserves was $2.8 billion for 60 wells, about the same as the previous year, and part of a push by Total to make big discoveries.

In the absence of any large finds, the effort proved disappointing, and Pouyanne promised Thursday that a new exploration strategy would be announced in September.

The lower investment budget will be achieved “in brownfield developments and stopping certain projects that have become less profitable,” the company said. Spending will be cut by $200 million to $300 million at mature fields in the North Sea, where jobs could also be eliminated and some assets sold.

Spending will stop on US shale gas projects. Total needs oil at $90/bbl to justify spending on shale, oil sands, and ultra-deepwater exploration, Pouyanne said at a press conference in London later Thursday.

A cost-cutting plan will be increased by 50% to $1.2 billion this year. It will include a hiring freeze in the upstream as well as the refining and petrochemicals divisions, a reduction of 2,000 jobs in the marketing and services business as well as a pledge to lower by 15% “corporate staff” through 2017.

Increased Output

Production slid 2% in the quarter from a year earlier to 2.23 million bpd of oil equivalent. Output fell 7% over the year.

The company is expecting to raise output this year by 8% to 2.32 million bpd including volumes from a recently signed concession in Abu Dhabi that Pouyanne called a “blockbuster” for the oil company.

Total plans to start eight projects in 2015 including the Siberian gas venture Termokarstovoye in Russia in the second quarter, Laggan-Tormore off the Shetland Islands in the third quarter -- about a year behind schedule -- and the Gladstone LNG project in Australia.

Total has said it would reach a target of $15 billion to $20 billion for asset sales from 2012 to 2014 and plans another $10 billion through 2017 including $5 billion this year. Among planned disposals is the sale of a 20% stake in Nigeria’s offshore Usan field.

Refining Restructuring

Total last month reported a fourth-quarter European refining margin of $27.50/ton compared with $29.90 the previous quarter and $10.10 a year earlier.

Ongoing European restructuring will include a 20% capacity reduction from 2011 to 2017, Total said Thursday. A crude distillation unit producing 5 million tpy will be shut at the Lindsey refinery in the UK, while the company has sold its 16.7% stake in the PCK Raffinerie GmbH in Schwedt in Germany to OAO Rosneft.

Pouyanne said Thursday he will unveil a reorganization of French refining and chemicals installations in coming months that won’t lead to the shutdown of any sites or job losses.

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