France’s Total Beats 3Q Profit Forecasts, CEO To Visit Oil Leaders

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French oil company Total’s new chief will visit oil-rich countries to cement links with their leaders after the sudden death of his predecessor and will go ahead with cost cuts after falling oil prices squeezed third-quarter profits. Europe’s second-largest oil company elevated former refining head Patrick Pouyanne to the top post following the death this month of its charismatic chief executive Christophe de Margerie in a plane crash in Russia.

Pouyanne said he would carry out de Margerie’s plan to reduce capital expenditure and operating costs, aimed at returning more cash to shareholders.

“The recent decrease in the price of Brent highlights the importance of the programmes we launched to reduce costs and control investments to strengthen the resilience of the group,” he said. Third-quarter net adjusted profit fell 2 percent to $3.56 billion, hit by the oil price drop and not quite offset by a sharp increase in refining margins. But it beat the expectations of three analysts for $3.36-$3.37 billion.

“Much of the credit for that goes to the incoming CEO, who has successfully lowered Total’s breakeven point in the (downstream) division via his cost reduction initiatives,” BMO analyst Iain Reid wrote in a note.

Although Total’s much larger exploration and production division would be a harder nut to crack, Pouyanne had a good chance of successfully driving similar reductions across the rest of the business, Reid wrote. Shares in the biggest French company by market value rose as much as 2.2 percent, outperforming a 0.5 percent increase in the European oil and gas sector. 

Pouyanne’s priority though is to build contact with key oil-producing countries and he will also embark on a “mini-roadshow” to meet shareholders in Europe and the United States before the end of the year, Total Chief Financial Officer Patrick de La Chevardiere said in a call with reporters.

“He is going to take up his pilgrim’s staff and meet all the important people in our industry abroad,” he said.

De Margerie, the scion of a family of diplomats, had built close relationships with the leaders of oil and gas producing countries such as Qatar, Saudi Arabia and Russia.

Russia

Russia – which Total has said would become its biggest source of oil and gas output by 2020 – is likely to be top of Pouyanne’s list. It is one of the top foreign investors there with its $27 billion Yamal LNG project with Novatek but its future has been clouded by Western sanctions against Moscow over the crisis in Ukraine.

De La Chevardiere said the partners were looking for new funding from Chinese, Russian and European investors for Yamal after U.S. sanctions made financing in dollars impossible. It expected to close a deal in the second half of 2015. The fall in the rouble against the dollar and the euro cost the group “several tens of million”, he added.

De La Chevardiere also said the impact of lower oil prices would start to be felt more strongly in the fourth quarter. A $10 drop in Brent prices translates into a $1.5 billion drop in net profit over a year, he added. Oil companies have seen billions wiped off their stock market values as crude prices dropped by 25 percent over the past four months to a four-year low of near $85 a barrel due to slowing global demand and ample supplies.

Total’s oil and gas production fell 8 percent compared with the same quarter a year ago, to 2.122 million barrels of oil equivalent per day (boepd), mainly due to the expiry of an exploration concession in Abu Dhabi. Output was up compared with the second quarter however, and de La Chevardiere said production was set to reach 2.2 million boepd by the end of the year and stuck to a 2015 production target of 2.3 million boepd.

The start-up of the CLOV project in Angola, which reached a production plateau of more than 160,000 barrels earlier than expected, he said, boosted production this quarter and should be fully reflected in the fourth quarter. Total’s CFO also said the group was expecting to sign confidentiality agreements with about a dozen prospective buyers for the sale of its 20 percent stake in Nigeria’s Usan field.

Adjusted net profit in the refining and chemicals unit rose 70 percent, only partly offsetting a 10 percent drop in the upstream business and a 16 percent fall in the marketing and services unit – mainly petrol stations. Third-quarter revenue fell 2 percent year-on-year to $60.36 billion, while adjusted cash flow from operations was down 7 percent to $6.74 billion.

The group kept its quarterly dividend at 0.61 euros per share, as in previous quarters this year.

Source

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