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Total Third-Quarter Profit Declines as Refining Margins Drop

Total SA (FP), Europe’s second-largest oil producer, reported a 19 percent decline in third-quarter profit as refining margins in Europe dropped.

Profit, excluding changes in inventories, fell to 2.72 billion euros ($3.7 billion) from 3.36 billion euros a year earlier, the Courbevoie, France-based company said. That was in line with the 2.73 billion-euro average estimate of nine analysts surveyed by Bloomberg. The dividend remained unchanged.

Production advanced 1 percent to 2.3 million barrels of oil equivalent a day after Total resumed output at the North Sea Elgin platform and the Ibewa field in Nigeria. New fields were started in Kazakhstan and Norway.

“The refining environment remains very difficult right now,” Chief Financial Officer Patrick de la Chevardiere said on a conference call. “Margins are extremely weak, we still have an endemic problem of overcapacity” in Europe.

Total fell as much as 2.5 percent before closing 0.1 percent higher at 45.265 euros. The shares have gained 16 percent this year.

Total has pledged to boost production to reach 2.6 million barrels of oil equivalent a day in 2015 and about 3 million barrels a day two years later. The French company has also promised to explore more aggressively for new deposits and start up almost twice the number of projects in the next three years than the previous three.

“The group is improving the outlook for sustainable post-2017 production growth under terms consistent with its strict return criteria while confirming its commitment to reduce near-term investment,” Chief Executive Officer Christophe de Margerie said in the statement.

Raise Payout

Total will pay an interim dividend of 59 euro cents a share, according to today’s statement. The explorer failed to raise the payout this quarter as some asset sales haven’t yet been completed, de la Chevardiere said. Total “has room” to do so in the future.

Benchmark Brent crude oil prices averaged $109.65 a barrel in the third quarter, just 23 cents more than the same period last year. Total’s refining margin, a generic measure of profitability, shrank to the lowest level in almost five years to $10.60 a metric ton compared with $51 a ton a year earlier, according to an Oct. 15 posting on its website.

Total wrote down the value of U.S. assets for about $500 million due to a lower natural gas prices and another $200 million for Syrian assets that the company “has little chance of recovering,” according to de la Chevardiere.

Kashagan in Kazakhstan, the world’s biggest crude discovery in 40 years, produced its first oil in September before being shut due to problems with leaks. Total has a 16.81 percent stake.

Platform Shut

The Elgin platform was shut for almost a year following a natural-gas leak in March 2012. Output resumed March 9 at about half capacity, and will return to prior levels by 2015 with the addition of new wells.

De Margerie had promised output growth of 2 percent to 3 percent this year, a target de la Chevardiere declined to reiterate today.

“We are expecting an increase in 2013,” he said, adding that the magnitude will depend on Kashagan and Angola liquefied natural gas output.

The drop in third-quarter results was due in part to a 42 percent fall in adjusted net operating income from refining and chemicals as well as an increase in spending on exploration.

New Deposits

Total spent $400 million more in the most recent quarter on exploration compared with the same period last year due to a more “aggressive” push to uncover new deposits, de la Chevardiere said. “We haven’t yet found the giant field we are looking for.”

Total and partners won an auction earlier this month for the Libra field, Brazil’s biggest crude discovery holding that has as much as 12 billion barrels of recoverable resources.

“The bulk of the investment and production will come after 2020 when we expect the Libra field to be an important part of sustaining our future production growth,” de la Chevardiere said.

As Total develops so-called mega-projects, de Margerie is also carrying out a series of asset sales to help pay for them.

About $15 billion of assets will have been sold by the end of the year as part of a target for $15 billion to $20 billion from 2012 to 2014, de la Chevardiere said today. The sale of a stake in the offshore Nigerian Usan field along with one in its Congo operations should be completed by the end of the year for a total of $3.5 billion.

He also confirmed a pledge that spending will peak this year. Total expects capital expenditure to fall to $24 billion to $25 billion in 2015 to 2017 compared with $28 billion to $29 billion this year.

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

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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