Total cuts 2020 production guidance for second time during pandemic

London — Total lowered its full-year oil and gas production guidance for the second time in three months July 30 as the French oil major struggles to offset the impact of pandemic-related output cuts in OPEC+ countries on its upstream portfolio.

Total said it now expects its 2020 oil and gas output to be in a range of 2.9 million-2.95 million b/d of oil equivalent, bottoming out in the third quarter before improving in the fourth. In May, Total lowered its full-year output guidance to 2.95 million-3.0 million boe/d, down from 3.01 million boe/d in 2019 and a forecast in February of 2% growth this year.

Reporting better-than-expected second-quarter earnings, Total said production in the quarter was 4% lower year on year at 2.85 million boe/d, mainly due to OPEC+ output cuts, voluntary cuts in Canada and disruptions in Libya. Together, the impact of the OPEC+ production cuts in the quarter was about 100,000 boe/d, Total said.

Output will hit a low point during the third quarter before recovering with the help of flows from the start of a second FPSO at the Iara field offshore Brazil, Total said.

Total said its retail fuel sales have now returned to 90% of pre-crisis levels since June, after experiencing 30% average sales declines during the second quarter. The average utilization rate at its European refineries also fell to around 60% in the quarter, it said.

Looking ahead, Total said it expects its fuel sales to remain at "a comparable level" in the coming months.

Total said its gas and electricity business activity has now recovered to 97% of pre-crisis levels.

In LNG, Total said it expects significant deferred liftings in the third quarter of the year, with the oil price collapse to have an impact on long-term LNG contract prices in the second half of the year.

In the second quarter, LNG sales rose 22% year on year to 10.4 million mt due to an increase in trading activity, it said.

Stranded assets

Total's Q2 earnings come a day after the oil major said it is largely writing off its high-cost Canadian oil sands developments, defining them as "stranded" assets and writing down their value by $7 billion.

Total is recording $8.1 billion in total impairments worldwide, with nearly 90% just from the oil sands. The remainder is mostly in Australian LNG.

The company also lowered the oil price at which it would deem assets financially impaired from $50/b of Brent crude to $35 this year, followed by $40 next year, $50 in 2022 and $60 in 2023. It added it expected a supply shortfall and price rebound by 2025, followed by a peak in oil demand in 2030, leading to a long-term price of $50/b.

Like most of its European oil major peers, Total is targeting net-zero emissions from its operations by 2050 and has been on the forefront of the sector's push into renewable energy and low-carbon power investments.

Earlier in the week, Total agreed to sell off its 108,000 b/d Lindsey refinery in the UK as coronavirus adds to the uncertainty over long-term demand for fuel. This year, Total is planning to spend close to $2 billion, or nearly 15% of its 2020 capex on low-carbon electricity projects.

Trading boost

During the second quarter, Total narrowly avoided posting an underlying earnings loss for the period largely due to stronger oil trading results.

Total said its adjusted net income for the quarter fell 96% year on year to $126 million, down from $2.89 billion the year before but above consensus forecasts for a Q2 loss of $620 million.

Due to the impact of sharply lower oil and gas prices, Total reported $3.6 billion of cash flow, down 49% on year-ago levels.

"These results are driven in particular by the outperformance of trading activities, once again demonstrating the relevance of Total's integrated model, and by the effectiveness of the action plan put in place from the start of the crisis, notably the discipline on spend," CEO Patrick Pouyanne said in a statement.

Total, Europe's biggest refiner, also confirmed that its average refining margin slumped to the lowest level in six years during the second quarter, when demand for fuels collapsed due to coronavirus lockdowns while oil prices began to recover.

Total's "variable cost margin" for its European refineries in the second quarter fell to $14.30/mt, or about $1.95/b, down from $26.30/mt in the previous quarter and $27.60/mt in the year-earlier period.