TOTAL S.A. (TOT) is a company headquartered in France which is engaged in the exploration and production of oil and gas, refining, petrochemicals, and the distribution of energy in various forms to the end customer.

On September 24, 2019, it held its 2019 Investor Day at which time it provided an update on its strategy for profitable and sustainable growth, the status of the $8.8B acquisition of assets from Occidental Petroleum Corporation, and the planned sale in 2019 - 2020 of $5B in non-core assets which only break even at high oil and gas prices.

Summary

  • TOTAL S.A. held its 2019 Investor Day September 24th at which time it provided an update on its strategy for profitable and sustainable growth.
  • The company has one of the lowest price/barrel breakeven levels amongst its peer group.
  • TOT has announced the planned sale in 2019 - 2020 of $5B in non-core assets which only break even at high oil and gas prices.
  • TOT has provided an update on the status of the $8.8B acquisition of assets from Occidental Petroleum Corporation.
  • Plans are to accelerate dividend growth by boosting the dividend payout by 5% - 6% annually in the coming years which is an increase from a previous plan for 3% growth.
  • Depending on the country in which you file your tax returns, a 30% tax may be applied to TOT’s dividend….even if the TOT ADRs are held in a tax advantageous account.

Introduction

TOTAL S.A. (TOT), headquartered in Paris, France, has produced oil and gas for almost a century. It currently employs more than 104,000 people and is one of the world’s largest energy companies with a presence in more than 130 countries on five continents. Activities include the exploration and production of oil and gas, refining, petrochemicals, and the distribution of energy in various forms to the end customer.

A comprehensive overview of TOT can be found in its 2018 Fact Book.

Although I have been long 1000 American Depositary Receipts (ADRs) since late 2011, I have never previously written an article about TOT. I now take this opportunity to briefly look at TOT given that it held its 2019 Investor Day on September 24, 2019 at which time senior management provided a comprehensive overview of multiple initiatives to improve the overall performance of the company so as to enhance shareholder value.

2019 Investor Day

Should you be interested in learning more about the implementation of TOT’s strategy for profitable and sustainable growth which takes into account the evolution of energy markets, I encourage you to review the following highly informative investor presentations presented at TOT’s 2019 Investor Day.

TOT - Strategy and Outlook Presentation September 24 2019

TOT - Sustainably Growing Petrochemicals Presentation September 24 2019

In addition, the key messages delivered at the 2019 Investor Day can be found here.

TOT focuses on projects with a low breakeven and if you look at page 14 of the Strategy and Outlook presentation you will see that over that past few years TOT has dramatically lowered its cash breakeven to below $30/barrel from ~$100/barrel as recently as 2014. This has been achieved through:

  • Constant discipline on CAPEX and OPEX;
  • Enhancing operational efficiency of all assets;
  • Portfolio upgrade.

In May 2019, TOT announced that it had reached a binding agreement with Occidental Petroleum Corporation (OXY) to acquire Anadarko Petroleum Corporation’s (APC) assets in Africa (Algeria, Ghana, Mozambique, South Africa) for a consideration of $8.8B in the event of a successful completion of OXY’s bid to acquire APC; OXY announced the completion of its APC acquisitions in August 2019.

During TOT’s Investor Day, management provided the investment community with an update on the planned purchase of Anadarko Petroleum Corp.’s assets in Africa.

An update on TOT’s oil and liquefied natural gas projects in U.S., Mozambique, Nigeria, the Arctic, and Papua New Guinea was also provided at Investor Day.

TOT - Developing a Global and Profitable LNG Portfolio Presentation September 24 2019

TOT’s active portfolio management policy has resulted in multiple acquisitions in gas and electricity. The company is also preparing for the future by focusing on core strengths in the gas and deep offshore segments.

Multiple acquisitions have created some uncertainty in the investment community around the company’s recent growth and M&A strategy. In order to offset some uncertainty, TOT has demonstrated ongoing discipline around the balance sheet and upstream portfolio by announcing the planned sale of $5B in assets over 2019 – 2020.

The assets to be divested will be those that only break even at high oil and gas prices. Examples include the recent disposal of mature assets in the British North Sea. Other divestitures will come from the Exploration and Production segments of the company. In addition, TOT will be reducing its stake in some renewable energy projects.

Competition

TOT’s largest competitors include the following major integrated oil and gas companies:

  • Exxon Mobil Corporation
  • Royal Dutch Shell plc
  • Chevron Corporation
  • PetroChina Company Limited
  • BP plc
  • China Petroleum and Chemical Corporation
  • Equinor ASA
  • Eni SpA

Risk Factors

A comprehensive Risk overview can be found commencing on page 103 of 424 in this document.

Historical Financial Data

I provide selected financial data for the most recent fiscal years where we can see the results of TOT’s efforts to improve the results of its operations.

Source: TOT – 2018 Form 20 – F/A

Q2 and 6 Month Results and Guidance

TOT’s most recent financial results can be found here.

Production growth of ~9% is expected for FY2019. Production growth should improve TOT’s cash flow growth over the next 5 years; TOT anticipates ~5% average volume growth through 2022 which is the highest amongst its peers.

Although this rate of growth is highly aggressive for a major integrated oil and gas company, TOT has in excess of 10 projects under construction and there is also a long list of projects awaiting final investment decisions.

The consensus is that margins should improve as TOT has dramatically reduced its operating costs.  It is already one of the lowest cost operators having reduced operating costs dramatically since 2014 through design simplification, reduced equipment cost, and renegotiation of fiscal terms (refer 2019 Investor Day presentation). The magnitude of the cost reduction should help TOT which lags its peers in upstream margins due to a higher tax burden.

Credit Ratings

Multiple acquisitions in recent years have resulted in an increase in TOT’s net-debt-to-capital ratio to 20.6% as at June 30, 2019 from 16.5% as at June 30, 2018. Despite this increase, TOT’s long-term debt is highly rated although it is lower than that assigned to Exxon, Chevron, Equinor, and Royal Dutch Shell; Moody’s has not rated PetroChina Company Limited as it is the listed arm of state-owned China National Petroleum Corporation.

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Disclosure: I am long TOT.

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