Total Retreats From European Oil Processing and Sales on Demand

Total SA is backing out of European oil processing and sales as home demand shrinks for the region’s third-biggest oil company and gains in faster growing economies.

“Growth is no longer in the OECD in terms of oil products but definitely in emerging markets,” Philippe Boisseau, head of marketing and services, told a presentation today in London, referring to the developed-country grouping. Lubricants are a “booming high margin business” in emerging economies, he said.

Total has vowed to boost profitability in the refining and petrochemicals businesses by reducing operations in Europe by a fifth through 2017 and expanding in Asia and the Middle East. The company this month unveiled a plan to shut a steam cracker unit at the Carling petrochemicals plant in eastern France, while it has acquired gas stations in Egypt and Pakistan.

The explorer doesn’t plan to spin off marketing operations in the near term, Chief Executive Officer Christophe de Margerie said. Reducing European refining and chemicals will be carried out “smoothly and smartly,” without any big announcements.

Total plans to cut the proportion of investment in western and eastern European marketing and services over four years and raise it in Africa, Asia and the Middle East, according to the presentation to investors today. Total spending will decline.

Oil-product demand will drop 5 percent in the OECD by 2020 from 2010 and grow 25 percent in other nations, Total said. Lubricant growth in non-OECD countries will jump 40 percent, compared with a 5 percent expansion inside the grouping.

Operating Income

Total plans net operating income of $2 billion by 2017 from $1.3 billion last year, Boisseau said. It expects to have 5,400 retail stations in Africa and the Middle East in 2017, from 4,400 last year and seeks a doubling of lubricant sales.

The company failed to sell its Lindsey refinery in the U.K. and fought with the French government in 2010 over plans to shutter a plant at Dunkirk. Strikes protesting against the closing led to nationwide fuel shortages and forced the explorer to guarantee not to shut another French plant for five years.

Total won’t close a European refinery in the next two years even as capacity may be cut, Chief Financial Officer Patrick de la Chevardiere told reporters. It pledged to raise its target for return on average capital employed to 13 percent from 9.5 percent now for the combined refining and chemicals division.

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