Per a media report, the TOTAL S.A. (TOT) management has decided to cut 2015 capital investment in response to falling oil prices. TOTAL will reduce its capital expenditure by 10% from 2014 levels. The company also plans to lower its exploration budget by 30% from 2014 levels to less than $2 billion in 2015.
In 2014, TOTAL invested nearly $26 billion for developing and acquiring projects across the world. These investments were made to further strengthen the company’s position in the global oil and gas space. The capital outlay plans looked good then with Brent crude touching nearly $115 per barrel in Jun 2014.
The oil and gas story took a turn for the worse in the latter half of the year with prices obstinately trickling down. Crude price is presently hovering near the high forties. The pundits further predict the price of oil to hit the $40 per barrel mark making the future more and more uncertain for the major oil and gas companies.
Oil and gas majors are thus taking a cautious stance to safeguard their profitability. TOTAL presently has nearly 98,799 employees and the management is planning to cut down on investment without asking any of its employees to leave.
TOTAL will also delay its earlier announced projects given the softness in prices. The company will postpone its two costly oil sands developments in Canada and will try to sell assets worth $10 billion by 2017, which are less profitable and do not feature in its long-term plans.
We note that other operators in this space have also begun to lower their capital expenditure for 2015. ConocoPhillips (COP) cut its 2015 capital budget by 20% to $13.5 billion. Continental Resources (CLR) slashed its 2015 capital expenditure to $2.7 billion from an earlier projection of $4.6 billion. Per a report from the Norwegian consultancy, Rystad Energy, falling oil prices will put nearly $150 billion worth of oil and gas projects on hold in 2015.
An industry major, ExxonMobil (XOM) might see lower profits due to the oil carnage. The company is yet to announce its 2015 capex budget.
TOTAL currently has a Zacks Rank #5 (Strong Sell).
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