Total May Sell Assets to Pay for Higher Project Costs, BoA Says

Total SA, Europe’s third-largest oil company, may have to sell assets to pay for projects designed to raise production in coming years, according to Bank of America Merrill Lynch.

“We are cautious on the profitability of Total’s project pipeline and believe extra disposals may be needed to offset capex inflation,” analysts including Hootan Yazhari and Fiona Maclean wrote in a report published today. The bank added the company to its “least preferred” list.

Total hasn’t made a decision on whether to sell its French natural-gas network TIGF, Chief Executive Officer Christophe de Margerie said Aug. 31. The company has announced sales of non-strategic assets without specifying them.

Total has quickened the pace of acquisitions and disposals in recent years as part of a policy to “actively manage” its asset portfolio in a bid to boost output. The Paris-based company is also pushing harder to drill more exploration wells and add to its reserves.

De Margerie will come under scrutiny for his strategy on Sept. 24 at the company’s annual investor day.

After a “modest” 3.5 percent dividend increase for the second quarter, this month’s presentation is expected to turn to medium-term production growth, steps to cut downstream costs and portfolio management, according to the bank report.

Elgin Field

Total’s crude output fell 2 percent in the second quarter because of the shutdown of the Elgin field in the North Sea after a leak, as well as incidents in Nigeria and Yemen. Elgin and the nearby Franklin fields have been shut since March 25.

The company expects output to rise by an average of 2.5 percent a year from 2012 to 2015. Production growth in the medium term is “guided to be around 4 percent in 2013-15,” Bank of America said.

Total has been criticized in France because of the perceived environmental risks of its exploration off the coast of French Guiana. The company will also have to pay about 150 million euros ($192 million) in a new French tax on oil inventories. This comes in addition to a three-month reduction in retail gasoline prices as part of a government-led effort to fulfill President Francois Hollande’s campaign promise to ease the burden of consumer spending on energy.

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