Total Quarterly Profit Beats Estimates, Helped by Refining

Total 1Q Adjusted Net Beats Estimates
  • Company plans to limit capex to less than $19 billion in 2016
  • Total maintains interim dividend; says cost cuts on target

Total SA posted first-quarter profit that beat analysts’ estimates as cost cuts, rising production and resilient refining earnings helped the French company offset the slump in crude prices.

Adjusted net income fell 37 percent from a year earlier to $1.64 billion, the company based in Courbevoie near Paris said in a statement Wednesday. Analysts had expected a profit of $1.25 billion, according to the average of 10 estimates compiled by Bloomberg.

The company’s refining and chemicals division improved its results “thanks to a record-high utilization rate of 94 percent and favorable petrochemicals margins,” Chief Executive Officer Patrick Pouyanne said in the statement. “The upstream portfolio benefited from the lowest technical costs among the majors.”

The French explorer joins BP Plc and Norway’s Statoil ASA in posting better-than-expected results after cutting costs and spending to counter the plunge in oil prices. Total has said the savings will allow it to fund shareholder payouts in 2017 from the cash it generates pumping, refining and selling oil at a crude price of about $60 a barrel, without the need to borrow.

“Results are strong across the board and the outlook statement broadly consistent with prior guidance,” Jefferies International Ltd. analysts Marc Kofler and Jason Gammel wrote in a note. “We still believe Total represents one of the best ways to play a recovery in commodity prices.”

The shares rose as much as 2.3 percent in Paris and were trading 1.7 percent higher at 44.48 euros at 10:49 a.m.

Cost Cuts

Total maintained its plan to cut costs by $2.4 billion this year compared with 2014 and to deepen these savings to more than $3 billion by 2017. The French company also plans to raise $4 billion in 2016 through disposals, part of a plan to sell $10 billion of assets from 2015 to 2017. It intends to buy $2 billion euros of assets this year.

So-called organic investments in 2016 will be less than the $19 billion target set at the start of the year, down from $23 billion in 2015, the company said in the statement.

“Operating costs are decreasing as planned with the objective of achieving $900 million in savings during the year,” Pouyanne said. Total sold $900 million of assets in the first quarter including the FUKA gas pipeline network in the North Sea, he said.

Oil and gas production increased by 4 percent in the first quarter from a year earlier to 2.48 million barrels of oil equivalent a day as projects in the U.K. and Argentina started, the company said. Total plans to boost output by another 4 percent this year, helped by the start of the Kashagan project in Kazakhstan by year-end.

Net income fell 40 percent to $1.61 billion from a year earlier, the company said. Sales dropped 22 percent to $32.8 billion. Total is maintaining its interim dividend at 61 euro cents (69 U.S. cents) a share, according to the statement.

Refining Margins

Adjusted net operating income at the refining and chemicals division rose 3 percent from a year earlier to $1.13 billion, the company said. While benchmark Brent crude’s decline below $28 a barrel in January cut earnings from production, it made crude cheaper for refineries. Refining and trading also also helped BP report a surprise first-quarter profit Tuesday.

“Improved availability and high throughputs likely explain most of the beat” at Total’s refining and chemicals business, Jefferies said. “Total has also referenced petrochemical margins remaining high due to strong demand for polymers and lower feedstock prices.”

Refining and petrochemical margins remain strong and the downstream business is on track to meet a target of generating about $7 billion of cash flow in 2016, Total said in the statement. Partial maintenance is planned at Antwerp and Lindsey refineries as part of their modernization projects, as well as on the coker at Port Arthur, the company added.

Oil has rallied since January, with Brent rising above $45 as U.S. crude production slows and major producers including Saudi Arabia study a possible cap on output to ease the global supply glut. The increase in prices had pushed up shares of Total by more than 7 percent this year after a 3 percent decline in 2015.

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