Total on Hunt for Deals After Outperforming Rivals
French oil company Total is on the hunt to buy assets from struggling rivals, it said on Thursday, as it reported some of the biggest profits in the industry for last year and raised its dividend.
Chief Executive Patrick Pouyanne said Total was reaping the benefit of cutting costs more quickly than competitors following the start of an oil price rout in 2014, and of focusing on projects with lower production costs.
"We have the second-best net adjusted profit in the year among oil majors although we don't have the same size of production compared with some of them - we are fifth largest in terms of production," he told reporters.
Total said it made an adjusted net profit of $8.2 billion in 2016 and that on a comparable basis Shell made $7.2 billion, BP $2.6 billion and Chevron (CVX) $1.8 billion. Only Exxon Mobil (XOM) made more, with $8.9 billion, Total said.
In the fourth quarter, the French company's net profit rose 16 percent to $2.4 billion, beating analysts' average forecast of $2.3 billion, while the dividend was set at 0.62 euros per share, up from 0.61 euros in the previous three quarters.
"Another resilient set of results from Total, with earnings robust across all segments," Jefferies analysts said in a note.
They have a "hold" rating on the stock, which was up 1.2 percent to 47.4 euros at 1430 GMT.
"We reacted faster than our peers on cutting our costs and we succeeded," Pouyanne said. "We deliberately made the choice to go for projects with very low production costs."
"We did a lot of cost savings. The most spectacular was the average cost of production in exploration and production which was reduced to $5.9 per barrel of oil equivalent (boe), compared with $9.9/boe in 2014 and was the principal reason of our resilience," he said.
Total said it made $2.8 billion of savings in 2016, beating its target of $2.4 billion. It aims to make a further $3.5 billion of savings in 2017 and cut production costs to $5.5/boe.
Pouyanne said the company's downstream business also contributed to the strong performance, with a return on capital employed of over 30 percent, which he said was ahead of the 16-17 percent at peers.
New Projects, Opportunities
Total's solid balance sheet meant it could look for opportunities to pick up assets, the CEO said, adding the company planned to make final investment decisions on about 10 projects within the next 18 months.
Total's solid balance sheet meant it could look for opportunities to pick up assets, the CEO said, adding the company planned to make final investment decisions on about 10 projects within the next 18 months.
"We are in a field of opportunities," Pouyanne said. "After two years of very low prices, there are companies around the world that have good assets but are struggling."
Total expects to invest $16-$17 billion in 2017, including resource acquisitions, compared with $18.3 billion in 2016.
Production is forecast to grow by more than 4 percent, supporting the company's goal to increase output on average by 5 percent per year from 2014 to 2020.
Pouyanne said the global oil market had not yet rebalanced and inventories were about 10 percent above normal. He added oil prices were likely to remain volatile.
A rebalancing of supply and demand would depend on implementation of the deal to cut output agreed by the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers, he said.
Total predicted its breakeven oil price would continue to fall, reaching less than $40 per barrel before the dividend, with cash flow from operations expected to cover investments and the cash portion of the dividend at $50 per barrel.
(Reporting by Bate Felix and Benjamin Mallet)
