French
oil company Total is to sell more assets and cut costs to generate more cash
and is to revamp exploration plans after reducing its oil production target.
Total,
which has struggled with production outages in Libya, Kazakhstan and Nigeria,
on Monday cut its 2017 output goal to 2.8 million barrels of oil equivalent per
day from a previous 3 million.
France’s
biggest company by market value and the West’s fourth biggest oil and gas group
launched a “high-risk, high-reward” drilling strategy two years ago. But this
has had disappointing results as high-cost investments did not lead to large
discoveries.
“We
have more than 15 major projects to fuel the future growth … Two thirds of
those projects are operated by us so that gives us confidence we will achieve
the targets,” chief financial officer Patrick de La Chevardiere said at Total’s
investor day in London on Monday.
Total,
like other big oil companies, has been under pressure from
shareholders to cut
costs and raise dividends as rising costs in the oil industry and weaker oil
prices squeeze profitability.
It
has been selling off businesses, such as its adhesives division Bostik, which
French chemicals group Arkema has offered to buy for 1.74 billion euros (2.24
billion US dollar).
The
company now plans to sell $10 billion worth of assets in 2015-17, having
achieved a target of $15-20 billion of sales in 2012-2014.
Since
2010, Total has generated a total of $30 billion from assets sales, according
to De La Chevardiere. That makes it one of the most ambitious sell-off
programmes in the industry alongside BP’s $50 billion sell-off plan.
De
La Chevardiere declined to comment on what assets the company could sell,
adding that under the previous asset sale plan it had sold both upstream and
downstream businesses.
The
company’s investments would fall to $25 billion in 2017 from a peak of $28
billion in 2013 while operating expenses would fall by $2 billion per year by
2017.
Total
CEO Christophe De Margerie last year said the company aimed for a
“soft-landing” in capital investments.
On
Monday, the group stuck by an earlier target to generate cash of $15 billion in
2017 but cut the target for next year to $7 billion from a previous $10
billion. It had free cash flows of $2.6 billion in 2013.
Total’s
share price was up 0.5 percent at 1115 GMT, after rising as much as 1.4 percent
earlier. The stock was outperforming its peers BP, ENI and Royal Dutch Shell on
Monday and also since the beginning of the year with gains of 13 percent.
DISCOVERY DISAPPOINTMENT
The
company also said it had hired Kevin McLachlan as senior vice president for
exploration. He was formerly with U.S. energy company Murphy Oil, where he held
the same position.
Asked
about Total’s exploration track record, de La Chevardiere said: “When you
follow the fact that we hire somebody from outside, you have the answer. The
new head of exploration is coming from another company. The issue we had was to
make discoveries.”
Total
is part of a consortium developing the giant Kashagan oil project in
Kazakhstan, which has been held up by gas leaks in the field’s pipeline
network. The country has said it expects the field, one of the world’s biggest
oil finds of recent times, to come onstream in 2016.
“We
are discussing repairing the pipelines. It will be done by 2016 … It is a last
chance for us,” de La Chevardiere said.
Total
also did not forecast any output contributions in 2015 from its Angola
liquefied natural gas project, where a string of missteps has led to multiple
delays. The Chevron-led venture expects the shutdown to last until mid 2015.
In
Russia, Total believes its Yamal liquefied natural gas joint venture in the
Arctic can go ahead on time despite international sanctions against Russia over
its role in the Ukraine crisis.
“The
Yamal production is not included in our 2017 production goals. Even though we
could start before that,” De La Chevardiere said.
He
also said he expected Europe’s refining capacity to continue to shrink because
of falling demand and poor refining margins. “We will adapt our production to
the market,” he said adding that the firm could cut capacity or sell
refineries.
CEO
De Margerie told a conference call with investors on Monday that he was
optimistic despite production target cuts.
“Total
is still well positioned as one of the fastest growing global major companies
between now and 2017,” he said.
Businessday
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