Feb. 12 (Bloomberg) -- Total SA, Europe’s third-largest oil company, reported fourth-quarter earnings that beat analyst estimates and pledged to maintain investment spending at a similar level to last year to revive production growth.

Profit excluding changes in inventories and the value of Total’s stake in Sanofi-Aventis SA fell 6.5 percent to 2.9 billion euros ($3.7 billion) from 3.1 billion euros a year earlier, the Paris-based company said today in a statement. That was higher than the 2.6 billion-euro median estimate of 12 analysts surveyed by Bloomberg News.

“The downstream business is performing very well,” Jason Kenney, an Edinburgh-based analyst at ING Wholesale Banking, said in a telephone interview. “Dividends are attractive and they have a good list of projects to sustain earnings going forward.”

Chief Executive Officer Christophe de Margerie has pledged to maintain investment and cut costs by renegotiating contracts with suppliers given the drop in crude prices. “Oil prices are not high enough to ensure growth over the long term,” he said, warning of possible production capacity shortages.

Total rose 0.5 percent to 40.30 euros in Paris. The stock slipped 32 percent last year.

Investment Flat

Planned investment in 2009 will be $18 billion, three- quarters of which will be earmarked for exploration and production. That compares with $18.3 billion spent last year. Total sees a 15 percent decline this year in the cost of major components such as gas turbines and offshore pipes compared with 2008.

Total proposed a 10 percent increase in its 2008 dividend to 2.28 euros a share and said it would be “maintaining” its dividend policy.

Total is counting on production growth in the next decade from deep-water fields in Africa, heavy-oil ventures in Canada and liquefied natural-gas projects.

Five projects are expected to start up this year including the Akpo oilfield off the coast of Nigeria, Yemen LNG, the Tahiti project in the Gulf of Mexico and Angola’s Tombua-Landana field and Qatargas 2. The company’s share of these projects will add as much as 200,000 barrels of oil equivalent a day in production.

Output Growth

De Margerie predicted that output growth will rise this year, without giving a specific target.

Production fell 4 percent in the fourth quarter to 2.35 million barrels of oil equivalent a day and dropped 2 percent over the year. Total’s reserve replacement ratio was 112 percent and remained at 12 years.

Oil prices averaged 34 percent less in the fourth quarter than in the same period in 2007 after falling from a record $147.27 a barrel on July 11 on lower demand for fuels. Crude traded at $35.99 a barrel today.

Total reported a fourth-quarter net loss of 794 million euros, compared with profit of 3.6 billion euros a year earlier taking into account a 3.1 billion euros drop in after-tax value of inventories, the company said.

Royal Dutch Shell Plc, Europe’s largest oil company, last month posted its first quarterly loss in 10 years after lower oil prices reduced earnings from exploration and production and the value of inventories fell. BP Plc reported its first quarterly loss in seven years.

Total plans to continue to “progressively” sell its stake in drugmaker Sanofi Aventis. It completed asset sales in the fourth quarter of 732 million euros, mostly of Sanofi shares.

Oil Sands

Total’s Joslyn and Surmont heavy-oil ventures in Canada are among the “building blocks” for boosting output from 2016, the company said in September. The oil sands will provide Total with almost 300,000 barrels a day of production capacity by 2020. Total has offered to buy Canadian oil-sands explorer UTS Energy Corp., which has rejected the bid as “inadequate.” The company reiterated today that oil sands need crude prices at $80 a barrel for investment.

Total is “reevaluating costs, technologies, structure and timing of Canadian projects,” the company said in a presentation today, adding that plans for its upgrader are “unchanged.”

Total, which is also Europe’s biggest oil refiner, said its refinery maintenance schedule this year will be similar to 2008.

It had six refinery shutdowns in 2008, down from 10 in 2007. In the fourth quarter of last year, there were partial shutdowns at the Feyzin and Antwerp plants, the company said.

Oil-Processing Capacity

The company used 91 percent of its oil-processing capacity in 2008, up from 89 percent a year earlier, Total said in the statement.

The company said Jan. 15 fourth-quarter profit from producing gasoline, diesel and other fuels increased as crude prices dropped. Refining margins climbed to $41.40 a ton from $30.10 a ton a year earlier.

A drop in U.S. demand for gasoline could become a concern and has spurred Total to alter output at its refineries to meet growing demand for diesel, the CEO said.

“The goal is not to reduce refining overall so we are trying to adapt the system to meet consumer demand,” de Margerie said. “We continue to believe refining will remain part of our growth strategy.”

Of the 36 analysts tracked by Bloomberg who cover Total, 29 recommend buying the shares, five advise holding the stock and two say “sell.”

To contact the reporters on this story: Tara Patel in Paris at tpatel2@bloomberg.net;

Last Updated: February 12, 2009 12:11 EST