French oil major on track for $5 billion divestments

Total beat forecasts on Thursday by keeping net adjusted fourth-quarter profit steady at $3.2 billion despite low oil prices and fulfilled a pledge to boost dividends, lifting the French energy firm’s shares.

The stock rose about 3 per cent before easing off its highs as the company bucked a trend in the industry which has seen profits tumble in the last three months of 2019. Analysts had expected Total’s net profit to slip to $2.7 billion.

“This performance is better than that of our rivals in terms of resisting low oil prices,” CEO Patrick Pouyanne told journalists, adding Total was rewarding investors with a 6 per cent increase in the final dividend for 2019 to 0.68 euros per share.

“Taking into account the strong visibility on cash flow, the group will continue to increase the dividend with the guidance of 5 per cent to 6 per cent per year,” the company said in its statement.

Total bought back $1.75 billion in shares in 2019 and plans to buy back $2 billion more in 2020.

Pouyanne said the group had reported solid results including debt-adjusted cash flow (DACF) of $7.4 billion, up more than 20 per cent from a year earlier.

“While some peers buckled last week to a synchronised slowdown in their commodity prices and margins, Total has bucked that trend with flat year-on-year net income,” Bernstein analysts wrote, adding that net income and net operating income were both ahead of forecasts.

The analysts, which rate the stock “outperform”, said liquefied natural gas (LNG) margins “also beat our expectations as the company proved immune to low spot gas prices despite market concerns”.

LNG prices have been under pressure as new projects have kept the market well supplied, while oil prices have tumbled to around $55 per barrel from last year’s peak in April of almost $75.

Rivals have seen fourth-quarter profits slide on lower prices. BP reported a 26 per cent drop on Tuesday while Royal Dutch Shell last month said its profits had halved.

Total’s oil and gas production grew by 9 per cent in 2019 thanks to project start-ups and ramp-ups, while its LNG business doubled, boosting cash flow.

“One of the reasons our results resisted the low oil environment was because of the strong LNG output which grew 50 per cent,” Pouyanne said.

He said exceptional production growth was unlikely to continue in the years to come and output growth for 2020 was seen at 2 per cent to 4 per cent, a more typical level in the industry.

The chief executive said Total was expanding in the low carbon energy business and was on track to meet its goal of producing 25 gigawatts (GW) of renewable electricity by 2025, helped by solar projects in Qatar and India.

Total, which kept its capital expenditure target steady for 2020 at $18 billion, said it was on track to achieve its target of $5 billion in divestments during 2019 and 2020.

Total said it had sold its 27.5 per cent interest in Fosmax LNG, which operates France’s Fos Cavaou LNG terminal, to Engie unit Elengy for about $260 million.

Total is on track to achieve its divestment target with transactions worth $3 billion so far, Jefferies analysts said.

Exxon Mobil Corp and the Papua New Guinea government must return to the negotiating table so that a $13 billion expansion of gas production can proceed, the head of French oil major Total, a partner in the plan, said on Thursday.

The plan, which would double liquified natural gas (LNG) exports from the South Pacific nation, hinges on agreements to develop two new gas fields, but PNG walked away from talks with Exxon on one of those fields last week.

The other agreement, with Total, was sealed last September. It is intended that gas from the two fields would be processed at an expansion of the existing Exxon-operated PNG LNG plant in Port Moresby.

“Our project is joint with that of Exxon,” Total CEO Patrick Pouyanne told reporters after Total reported full-year results on Thursday. “There is a need for an agreement and the PNG government is aware of that.

“We have an agreement; they need to find an agreement. All of that needs negotiation, I don’t think negotiations should be done through media.”

LNG expansion is crucial for the impoverished nation, but the government has said that Exxon refused to budge on the financial terms for the P’nyang field and failed to come up with an offer it could accept.

Exxon has expressed disappointment at the breakdown of talks but has said it hopes to work towards an outcome that would be beneficial to all stakeholders.

Reuters