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Total deepens spending cuts, lowers output guidance, but insists it is strong

Highlights

Lowers output guidance, but says finances strong

Refinery utilization, product sales 50% below normal

New emissions target in step with Shell

London — Total on Tuesday announced a deepening of capital spending cuts and a likely 5% reduction in its upstream oil and gas output in 2020 from previous guidance, while also highlighting a 50% reduction in its refinery utilization, as it insisted on the underlying strength of the company.

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In a first-quarter results statement, reflecting the global coronavirus and meltdown in markets, Total said it now expects its 2020 oil and gas output to be in a range of 2.95 million-3.0 million b/d of oil equivalent, down from 2019's 3.01 million boe/d and a forecast in February of 2% growth this year.

In Q1, it produced 3.09 million boe/d, up 5% on the year.

The production decrease reflects output curbs by the OPEC+ countries as well as voluntary output cuts in Canada and ongoing difficulties in Libya, it said.

It also deepened cuts to its organic capital expenditure this year to 25%, compared with a 20% cut announced in March, saying net investments would be under $14 billion.

"The group is facing exceptional circumstances: the COVID-19 health crisis, which is affecting the world economy and creating major uncertainties, and the oil market crisis, with the sharp drop in oil prices since March," CEO Patrick Pouyanne said.

However, Pouyanne went on to tell investors the 2014-15 oil price collapse had helped prepare the company for the current crisis, with upstream operating expenditure reduced to $5.40/boe of production last year. "Fundamentally Total is very well positioned to weather the storm," he said.

Total reiterated its goal announced in March to break even at an average oil price of $25/b on an "organic" basis this year, excluding asset deals.

In the downstream segment, Total said its refinery throughput and sales had been running at 50% below normal since mid-March, "with uncertainty about the timing of a return to normal."

In Q1, the company's refinery throughput was down 22% year on year at 1.44 million b/d, including a 57% drop at its French refineries to 255,000 b/d.

It said it had kept offline two of its French refineries, Feyzin and Grandpuits, following maintenance, and forecast overall refinery throughput this year would be around 70%-75% of capacity. However, Pouyanne, said the company's petrochemical business was holding up well, reflecting strong demand for plastics during the coronavirus crisis.

Total's financial results reflected a sharp deterioration in both upstream and downstream profitability, with refining performing not much better than upstream operations. But the company's push into LNG appeared to pay off, with operating profit in the Integrated Gas, Renewables & Power segment rising 54% on the year to $913 million.

Total maintained a stronger balance sheet than its peers, with gearing at 25% at the end of the year, avoiding the need for it to emulate Shell's landmark dividend cut last week. The company's adjusted profit was down 35% from a year earlier at $1.78 billion.

Pouyanne said there was much that remained uncertain on the demand side, but Total's "fundamentals" were strong and reduced US shale production could support a recovery.

"When you don't invest, when investment in Exploration &Production will again be lower than before, the shale oil... will be impacted and quite quickly. It could accelerate the miss in terms of production," he said.

CLIMATE GOALS

Whilst mainly focused on the coronavirus and the turmoil in oil markets, Total's statement moved the company a step further in its emissions reduction goals, promising to achieve net-zero emissions from its own operations and a 60% cut in emissions from the products it sells by 2050, as well as net-zero emissions from products used in Europe by the same date.

The company therefore remains more cautious than BP, which has pledged net-zero emissions from all its operations and products by 2050, but is close to Shell's latest climate goals, set out on April 16.

Pouyanne denied renewables and electricity sector investments could not compete against oil and gas in terms of financial returns, although he acknowledged such a switch would not be quick. "I see these low-carbon energy, low-carbon electricity assets as bringing the group a more stable balance of revenue. It will take time," he said.