Total's Profit Beats Estimates as French Giant Plans GrowthBy
Adjusted net income jumps 56% as oil and gas output rises 4%
Company sanctions shale project in Argentina’s Vaca Muerta
Total SA posted a 56 percent increase in first-quarter profit, beating analyst estimates as crude prices rebounded and the French energy giant continued to cut costs while boosting oil and gas production.
“Good operational performance” and steadily falling production costs are allowing Total to begin new projects and acquire resources, Chief Executive Officer Patrick Pouyanne said in a statement. The company is preparing for growth by starting to develop shale resources in Argentina and expanding in Brazil, he said.
Pouyanne is investing to exploit the decline in the cost of drilling rigs and other equipment caused by the two-year slump in crude, anticipating that the market will swing from a glut to a shortage toward the end of the decade. With crude still trading at about $50 a barrel -- half the level of 2014 -- Total is also curbing expenses to fund operations and the cash portion of its dividend without borrowing.
Adjusted first-quarter net income rose to $2.56 billion from $1.64 billion a year earlier, the company based in Courbevoie near Paris said Thursday. Analysts had expected a profit of $2.44 billion, according to the average of 13 estimates compiled by Bloomberg.
Total maintained its quarterly dividend at 62 euro cents, and kept the option for shareholders to be paid in new stock. Cash flow excluding acquisitions and asset sales was $1.7 billion after investments.
"Total free cash flow gets back to $100-a-barrel levels," Alastair Syme, an oil analyst at Citigroup Inc., said in a note. The last time free cash flow was that high, "the oil price was double the level it was in the first quarter," he said.
Total said it’s given the go-ahead to a project in Argentina’s Vaca Muerta, one of the most promising shale formations outside the U.S. That’s the first of the 10 final investment decisions in new oil and gas production ventures for the coming 18 months that the company flagged in February.
“The costs are low, so it’s the right time to invest,” Pouyanne said Thursday at a conference in Paris. “Our strategy is to take advantage of this market, where you have a lot of weak players.”
Other developments that could be sanctioned in the period include Azerbaijan’s Absheron license, in which Total just increased its stake. Total recently bought interests in the Iara and Lapa fields in Brazil, and boosted its holding in an oil project in Uganda.
In Iran, the company aims to sign a gas-field development contract by summer, before making a final investment decision six months later, assuming international law allows, Pouyanne said.
In Total’s exploration and production business, adjusted net operating income more than tripled to $1.38 billion as output increased 4 percent to 2.57 million barrels of oil equivalent a day. The company reiterated plans to boost volumes by more than 4 percent this year, aided by field startups including Congo’s Moho Nord and the entry into the Al Shaheen concession in Qatar.
Refining and chemicals income fell 9 percent to $1.02 billion. Refining margins “remain favorable going into the second quarter,” the company said. It plans maintenance at facilities at Leuna, Normandy and Antwerp.
Total said this month that, together with a partner, it will invest $450 million in South Korea to increase ethylene production capacity. In March it decided to spend $1.7 billion with other investors to build a chemical plant in Texas.
Profit in the marketing and services division climbed 4 percent to $301 million. It dropped 16 percent in the gas, renewable and power unit to $61 million, hurt by an “unfavorable” solar market.
— With assistance by Javier Blas