- Oil major extends belt-tightening measures to protect dividend
- French producer cuts 2016-17 spending plans, delays projects
Total SA scaled back the expansion strategy it pursued during the past decade of high oil prices, announcing a fresh round of investment cutbacks and project delays while reducing production targets.
The measures, laid out by the French energy company on Wednesday before an investor day in London, signal that the belt-tightening among global oil producers to protect dividends will extend into 2017 and hurt future growth.
“We are preparing the group to face low oil prices for a long time,” Total Chief Financial Officer Patrick de la Chevardiere told reporters. “We don’t want to be the first group to cut the dividend.”
The oil company, Europe’s largest after Royal Dutch Shell Plc, expects to produce 2.6 million barrels of oil equivalent a day in 2017 compared with a previous forecast of 2.8 million barrels a day. Growth will slow to 1 percent to 2 percent a year starting in 2019 from the current 6 percent to 7 percent.
The company said the measures will allow it to fund shareholder payouts in 2017 from the cash it generates pumping, refining and selling oil, without the need to take on debt, even with crude at $60 a barrel. Martijn Rats, an analyst at Morgan Stanley in London, said before the announcement that “investors had increasingly become wary on whether the company’s dividend was sustainable” following oil’s slump.
To protect the dividend, Total will reduce investment in 2016 to between $20 billion and $21 billion from as much as $24 billion this year and a peak of $28 billion in 2013. The company plans to spend $17 billion to $19 billion in 2017, down from a previous target of $20 billion.
Total doesn’t expect to approve any new projects over the next two years. It also announced project delays in Australia, Norway and Italy and said it will increase cost savings from operations by 50 percent by 2017 to $3 billion, up from a previous target of $2 billion.
The shares rose as much as 2.4 percent, the most in a week, to 40.705 euros in Paris. The stock was up 1.7 percent at 11:57 a.m. local time, paring its decline this year to 5 percent.
Major oil companies including Exxon Mobil Corp. and Shell have told investors they’ll do whatever it takes to maintain dividends without compromising future growth. Total’s announcement signals that growth plans can’t in fact be shielded from spending cuts.
Energy companies including Total have announced cutbacks totaling $180 billion this year, the most since the oil crash of 1986, according to Oslo-based energy consultant Rystad Energy AS. Italy’s Eni SpA is so far the only major producer to reduce its dividend.
Total’s investor day is the first since Patrick Pouyanne became chief executive officer following the death of Christophe de Margerie in a plane accident in Moscow last October. Pouyanne has spent much of the past year battling with the collapse in oil prices, which have plunged to less than $50 from about $100 a year ago.
In a presentation to investors and analysts, the new CEO said more investment would be channeled to the booming refining business, which is benefiting from low oil prices and increased demand in Europe. Total will devote 75 percent of spending to exploration and production, down from 80 percent, and 25 percent to refining and other “downstream” operations.