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Total lines up green rebrand but sticks with target to grow oil, gas output

Highlights

Plans name change to TotalEnergies

Expects stable output in 2021 as OPEC+ cuts ease

Sees refining margins remaining 'fragile'

London — French energy major Total unveiled a name change Feb. 9 to underscore its pivot to cleaner energy, but pledged to maintain a previous target of growing its oil and gas production in the near term to fund its green investment drive.

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Reporting stronger than expected fourth-quarter earnings, Total said it still targets growing its oil and gas production to reach 3.3 million to 3.4 million boe/d in 2025, despite an acceleration in spending on renewable and low-carbon energy.

Europe's No. 3 energy major has outpaced bigger rivals BP and Shell in recent years with a slew of new projects, boosting its oil and gas output by 40% over 2014-2019 to more than 3 million boe/d. But last year output slipped 5% on OPEC+ output cuts, and this year Total said it expects its production to be flat compared with 2020, when it pumped an average of 2.87 million boe/d.

Unlike BP, the company has no plans to shrink its oil production volumes in the coming years and is prioritizing lower-cost, shorter-cycle upstream projects. Citing the ongoing market uncertainties, Total said it expects net investments of $12 billion in 2021, down from nearly $13 billion in 2020, but up from previous guidance of less than"$12 billion. It said a fifth, or $2.4 billion, of the spending, will go to its emerging solar, wind power, and electricity division this year.

"We recognize the world has changed dramatically. There is no going back from here," Total CEO Patrick Pouyanne said in earnings presentation "Europe is in the way on the green deal, and this is becoming a global effort with other major markets moving in the same direction, including the US, China, Japan, Korea, and India, and that's also why we need to think long term."

Underlining plans to accelerate its transformation into an integrated energy company, Total said it plans to change its name to TotalEnergies to reflect its ambition to transition to carbon neutrality.

It said it plans to propose the new name to its shareholders at its annual general meeting May 28.

Like many of its European rivals, Total has signaled a major boost in spending on renewable energy in the coming years as part of its strategy to shift to cleaner, lower-carbon fuels.

The company, which has said it expects global oil demand to peak in the 2030s, last September announced plans to grow its overall energy production by a third in the next decade, with half the growth coming from LNG and half from electricity, mainly renewables.

With a shift in focus to cleaner, low-carbon energy, however, it said it expects its oil product sales will be reduced by almost 30% in the same timeframe. The company expects its energy sales mix to be 50% gases, 30% oil products, 5% biofuels and 15% electrons by 2030, compared with 55% oil products, 40% gas and 5% electrons in 2019.

Asked why he thinks energy majors such as Total have seen their share prices fail to recover in 2020 despite firming prices, Pouyanne said it reflects investor concerns over the sustainability of their business model.

"I think we need to convince the market that you can be somewhere (between) black and green ... I'm proud to be black and green, because if I don't have the black part, which is delivering cash flows, I don't have the green part," he said.

DOWNSTREAM PAIN

In the near term, Total said the global oil market outlook remains "uncertain" and dependent on the recovery of global demand, which is affected by the pandemic.

Total said it continues to see profitable growth in LNG, with sales expected to increase by 10% in 2021 compared with 2020, notably due to the ramp up of Cameron LNG in the US. Last year, its LNG sales rose by 12%, thanks to the startup of three trains at Yamal LNG in Russia and Ichthys LNG in Australia, and an increase in trading activity.

Downstream, Total said it sees European refining margins remaining "fragile," with low demand for jet fuel weighing on the recovery of distillates.

"However, thanks to the resilience of marketing and services, the group expects downstream to contribute more than $5 billion of cash flow in 2021, assuming refining margins of $25/mt," Total said.

Total, Europe's biggest refiner, saw its average refining margin recover to positive territory during the fourth quarter after turning negative for the first time in more than a decade, when demand for fuels collapsed due to coronavirus lockdowns.

Total's variable cost margin for its European refineries averaged $4.60/mt, or about 63 cents/b, in the fourth quarter, compared with minus $2.70/mt in the previous quarter and down from $30.20/mt in the year-earlier period, it said.

Refinery throughput volumes fell by 16% in the quarter compared to 1.26 million b/d in the previous year, as fuel demand remained depressed due to the pandemic, which led to the economic shutdown of its Donges refinery due to weak margins. Throughputs rose, however, from 1.21 million b/d in the previous quarter.

EARNINGS BEAT

Total said its production shrank 9% year on year in the fourth quarter, averaging 2.84 million b/d of oil equivalent in the period. Returning barrels from Libya and an expected unwinding of OPEC+ output cuts should offset the impact of field declines and asserts sales this year, it said.

Total reported adjusted net earnings of $1.3 billion for the quarter, 59% lower than the year-ago period but up from $848 million in Q3, helped by stronger oil prices. The Q4 result beat consensus forecasts of $1.13 billion by about 15%, according to S&P Global Market Intelligence.

"In a quarter of volatile results and disappointing cash flow for the supermajors, Total delivers a good set of numbers," Jefferies said in a note.

For the year, Total posted an adjusted net income of $4.06 billion, down 66% on 2019. It was upbeat on its resistance during the pandemic, however, citing 26% lower capex, $1.1 billion in cost savings, and an organic cash breakeven of $26/b.