Yemisi Izuora
France oil major Total expects its upstream production this year to surpass a previous growth forecast of 6 per cent after its oil output surged by 14 per cent year on year in the first quarter, it said Thursday.
Total’s Q1 results reflected both higher oil prices and a production surge resulting from the launch of newly developed projects, the purchase of Denmark’s Maersk Oil, and the company’s takeover of the Al-Shaheen oilfield offshore Qatar last July.
The company recorded a 58 per cent increase in adjusted operating profit in the upstream and a 30 per cent decrease in the same metric for the downstream compared with a year earlier.
Its upstream production growth was slightly short of its target for the full year, at 5 per cent rather than 6 per cent but it highlighted its signing of two new 40-year offshore concessions with Abu Dhabi toward the end of the quarter, which should bring the company 80,000-90,000 b/d of oil production, with potential to increase both oil and gas output at the Umm Shaif concession.
It has set a target of increasing upstream production by 5 per cent per year on average during 2016-22.
Further projects due on stream this year include the Kaombo and Egina oilfields, offshore Angola and Nigeria, respectively, and the Icthys LNG project in Australia.
Chief executive Patrick Pouyanne played down reports that Libyan authorities were obstructing Total’s purchase of a 16.33 per cent stake in the Waha field from US upstream company Marathon Oil in March, saying the major had advised the authorities well in advance the deal was complete, and Total would “give them all the comfort they are legitimately requiring to reassure them of our willingness to develop the Waha field in the national interest of Libya.”
Total produced 1.48 million b/d of liquids in the first quarter, while its gas production slipped by 3 per cent on the year to 6.66 MMcf/d, making for total production of 2.70 million b/d of oil equivalent, a quarterly record.
Upstream output was also boosted by the Moho Nord deepwater oilfield in the Republic of the Congo, which came on stream in March 2017. Two projects started producing in the first quarter, Fort Hills in Canada and Timimoun in Algeria, although Total said “very weak” Canadian bitumen prices, reflecting pipeline constraints, had depressed the amount it received for its oil production compared to the Brent benchmark; across its portfolio, it achieved an average liquids price of $60.30/b.
Total also credited improved security in Libya and Nigeria for 1 percentage point in its overall 5 per cent production increase.
In the downstream Total’s European refining indicator was down 34% from a year earlier at $25.60/mt due to costlier feedstock and weaker demand, although it said margins had recovered in April, to around $30/mt.
Total’s refining volumes fell 4 per cent on a year earlier to 1.83 million b/d due to the first major shutdown of one of two distillation units at its Satorp joint venture in Saudi Arabia, as well as “difficulties” with the revamp of its Antwerp refinery, it said. The work at Satorp has raised the facility’s capacity to 440,000 b/d, from 400,000 b/d.
Total’s balance sheet was weighed down by $3.7 billion of acquisitions in the first quarter, including stakes in the Iara and Lapa subsalt fields offshore Brazil, the $1.45 billion Abu Dhabi deal, and the stake in Libya’s Waha field, though these were offset by sales of stakes in the Martin Linge field offshore Norway and Fort Hills, as well as Italian retail business TotalErg.
Pouyanne said he would stick to previous guidance of $15 billion-$17 billion of net investment annually over the next three years, with this year’s figure likely to be over $16 billion.
He added that despite recent investments in electricity provisions in Western Europe “we don’t have any ambition to become a utility.”
In terms of deal-making, Pouyanne said that with oil prices rising, the emphasis would be on selling rather than buying assets. “At this level of price, we can be again counter-cyclical in the other way, which is to sell when prices are better. It’s part of the restructuring of the portfolio with the permanent objective of lowering the breakeven,” he said, dismissing reports Total wanted to buy Australia’s Santos Petroleum, or Papua New Guinea-based Oil Search.
The company’s net debt-to-capital employed, or gearing ratio, crept up to 15.1 per cent at the end of the quarter, from 11.9 per cent at the end of last year, well below most of its rivals, although it noted its debt service costs were on the increase due to rising dollar interest rates. Pouyanne restated a commitment to keep gearing below 20 per cent.