Total boosts profit, cash flow and output in 1Q
London, 27 April (Argus) — Total posted strong first-quarter financial results today, boosted by a $20/bl rise in oil prices from a year earlier, reduced investment, asset sale proceeds and its highest quarterly production since 2004.
Total's upstream output was 2.57mn b/d of oil equivalent (boe/d) in January-March, up by 4pc from the same period last year.
The growth was underpinned by a string of major project start-ups last year, including Kashagan in Kazakhstan, Laggan-Tormore in the UK, Surmont phase 2 in Canada and Incahuasi in Bolivia.
The firm also benefited from the restart of the 5.2mn t/yr Angola LNG project in May last year, the acquisition of US independent Chesapeake Energy's 75pc stake in their jointly-held Barnett shale gas venture in Texas, and improved security conditions in Nigeria and Libya.
Total has maintained its target to increase full-year production by more than 4pc compared with last year, helped by the start-up of the second phase of the 140,000 boe/d Moho Nord project in Congo (Brazaville) last month and the firm's entry into a new joint venture for Qatar's 300,000 b/d offshore al-Shaheen field from July. Second-quarter output will be affected by seasonal maintenance and the full implementation of Opec production cuts, Total said.
The strong production growth, combined with higher oil and gas prices, helped Total almost quadruple its underlying upstream profit compared with the first quarter last year, to $1.38bn. But a heavy exceptional depreciation charge related to a cost increase on the Fort Hills oil sands project in Canada pushed the upstream division to an overall loss of $353mn.
Total's refining and chemicals division benefited from higher refining margins in Europe and gains on the $3.2bn sale of French specialty chemicals business Atotech. But the company's refinery throughput in January-March was almost 200,000 b/d lower than a year earlier, at 1.92mn b/d, because of a 50pc capacity reduction at the 110,000 b/d Lindsey refinery in the UK and the end of crude processing at the La Mede plant in France.
Refining and chemicals profit, excluding inventory effects, increased to $3.1bn from $1.1bn a year earlier. Excluding the gains on the Atotech sale and other one off-items, profit was down by 9pc on the year at just over $1bn.
Total's marketing and services segment benefited from strong marketing margins that offset a 2pc year-on-year decline in products sales, caused by the sale of the firm's marketing network in Turkey last year. The segment made a profit of just over $300mn excluding inventory effects, compared with $284mn a year earlier.
Total's overall profit, excluding inventory effects, was $2.79bn in the first quarter, up by 56pc on the year. One-off items added $236mn to profit, with the Atotech sale more than offsetting the Fort Hills depreciation charge.
Total delivered $4.7bn of operating cash flow in the first quarter, up from $1.9bn a year earlier. And the firm kept a tight rein on investment, with organic capital expenditure (capex) falling to just under $3bn from $4.6bn in the first quarter last year.
These factors, combined with the proceeds from the Atotech sale, helped Total generate $3.9bn of free cash flow (FCF) in January-March — the company's highest quarterly FCF since the third quarter 2013. It enabled the firm to reduce its net debt — or total debt minus cash reserves — to $28bn at the end of the first quarter from $32bn at the end of 2016.
"The strength of the balance sheet and relentless pursuit of cost reductions allows the group to launch new projects and acquire resources while fully benefitting from the ongoing deflation in the oil sector," chief executive Patrick Pouyanne said.
Total is sticking to its plan to spend $14bn-15bn in organic capex this year. The firm has not said how much it might spend on top of that on acquisitions, although its previous guidance was for around $2bn on what it classifies as "resource acquisitions". These include planned acquisitions in Brazil and Uganda that were agreed in December last year and January this year, respectively. And Total revealed today that it has agreed to increase its stake in the Apsheron gas project in Azerbaijan to 50pc from 40pc and raise its interest in the Aguada Pichana Este licence in Argentina's Vaca Muerta shale formation to 41pc from 27pc.
The company is confident it can hit its ambitious target to make final investment decisions (FIDs) on 10 upstream projects in 2017-18 without exceeding its organic spending budget. It said today it has made the first of those FIDs, to press ahead with the development of the first phase of the Aguada Pichana Este project.
"The development will benefit from the use of existing facilities, enabling the production of shale gas at a very competitive cost," upstream president Arnaud Breuillac said. Gas production from the project will be treated as the existing 16mn m³/d Aguada Pichana gas plant.