Total’s Quarterly Profit Drops as Refining Margins Narrow

Total SA (FP), Europe’s third-largest oil producer, reported a 19 percent decline in fourth-quarter profit as refining margins in the region narrowed and output dropped. The company raised its dividend.

Profit excluding changes in inventories dropped to 2.47 billion euros ($3.4 billion) from 3.04 billion euros a year earlier, the Courbevoie, France-based company said today in a statement. That compared with a 2.57 billion-euro average estimate of 11 analysts surveyed by Bloomberg.

Total follows Royal Dutch Shell Plc (RDSA) and BP Plc (BP/), Europe’s largest oil and gas companies, in reporting lower earnings as the cost of drilling rises, prices stagnate and refining profits slump. As the biggest refiner in western Europe, where it operates eight plants, Total has borne the brunt of lower crude-processing margins amid falling consumption.

“The significant deterioration of European refining margins was partially offset by a more favorable environment for petrochemicals,” Chief Executive Officer Christophe de Margerie said in the statement.

The company said capital spending this year would drop to $26 billion as oil and gas developments were completed and the company seeks to cut costs. A strong balance sheet allows Total to increase returns to shareholders, the company said.

Total raised the quarterly dividend to 61 cents a share from 59 cents. The stock closed 1 percent higher at 44 euros in Paris.

“The intensive investment phase that we embarked on to transform our production profile by 2017 reached a peak of $28 billion in 2013,” de Margerie said.

Oil Deposits

Total kept targets through 2017, planning to start new projects to increase production to 2.6 million barrels a day in 2015 and about 3 million barrels a day two years later. It also has promised to explore more aggressively for new oil and gas deposits, while reducing its European refining and petrochemicals business by 20 percent from 2012 to 2017.

The company earned $10.10 for every metric ton of crude it refined into fuels in Europe, compared with $33.90 a year earlier. Oil and gas production shrank 0.5 percent to 2.28 million barrels a day in the quarter, Total said. Production was unchanged for the full year, meaning Total missed De Margerie’s forecast for 2 percent to 3 percent growth. It is expecting output to be unchanged in 2014 as ramp ups of new projects make up for a loss of 140,000 barrels of day from a concession in Abu Dhabi.

Abu Dhabi

Total, which is bidding for the new concession in Abu Dhabi slated to begin Jan. 1, 2015, is counting on 70,000 barrels a day for that year, de Margerie said.

Brent crude prices averaged $109.35 a barrel in the fourth quarter, 0.7 percent lower than a year earlier.

Total has a 16.8 percent stake in Kazakhstan’s Kashagan project, the world’s biggest crude discovery in 40 years, which produced its first oil in September before being shut because of gas leaks. The French producer has also grappled with security problems in Yemen and Nigeria.

As Total develops so-called mega-projects, de Margerie is selling assets to help pay for them. The company has targeted $15 billion to $20 billion in asset sales from 2012 to 2014, including stakes in Nigeria’s offshore Usan field, Congolese operations and an Angolan oil deposit.

The explorer reached $14 billion at the end of January and could surpass $20 billion by the end of 2014, Chief Financial Officer Patrick de la Chevardiere said at an analyst conference in London. Asset sales could reach a total of $25 million by an unspecified date, de Margerie said at the press conference.

“The asset base will be more solid,” de la Chevardiere said today at a press conference. “Total will really be a big oil company” when output reaches 3 million barrels a day.

The explorer is keeping the exploration budget steady at $2.8 billion and planning to drill 60 wells, more than 15 of which will be “high impact” designed to make big discoveries.

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

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