Total SA, Europe’s third-largest energy company, is spending too much on low-profit oil and gas projects as it pursues expansion, Bank of America Corp. said.
“Total’s management team has an unhealthy obsession for growth that is leading the company to spend huge sums of money on low-profitability projects,” Matthew Yates, an analyst at Bank of America in London, wrote in a report published today. “Poor execution has the potential to destroy a lot of value.”
Total Chief Executive Officer Christophe de Margerie has pledged to step up the search for oil and gas while at the same time buying and selling assets to boost output and curb exposure to European refining. The strategy has seen Total move into so-called frontier nations including French Guiana and Kenya, while continuing to invest in large production projects in Kazakhstan, Canada and Australia, where high costs have weighed on returns.
The transition to more expensive, complex projects at the Paris-based explorer, which plans to spend about $95 billion through 2015, is “going to be one of the most profound in the sector over the coming year,” the bank said. De Margerie will give an update on strategy at a London investor day on Sept. 24.
Anastasia Zhivulina, a spokeswoman for Total, couldn’t immediately comment on the Bank of America report.
Total rose 0.1 to 40.865 euros as of 4:20 p.m. in Paris trading. The shares have climbed 13 percent since the company raised its quarterly dividend on July 27.
Concerns that Total can’t afford the higher payout could be eased by an announcement at the investor day to sell more assets, Theepan Jothilingam, an analyst at Nomura International Plc, said in a report this week. “The absence of new news may imply the shares have run too far too fast.”
Total is counting on the start of about 30 projects through 2015 after production setbacks this year.
Total’s crude output fell 2 percent in the second quarter after a U.K. North Sea gas leak prompted the shutdown of the Elgin and Franklin platforms in March, while production in Nigeria and Yemen was also disrupted. The company expects volumes to rise by an average of 2.5 percent a year from 2012 to 2015.
Europe’s largest oil companies are Royal Dutch Shell Plc and BP Plc.