Integrated oil and gas company TOTAL S.A. (TOT) reported fourth-quarter 2014 operating earnings of $1.22 per share (€0.98 per share), surpassing the Zacks Consensus Estimate by 11.9%. Operating earnings were 18% lower than the year-ago earnings of $1.49 per share (€1.09 per share).
Total’s 2014 operating earnings were $5.63 per share (€4.24 per share), down 11% from $6.29 per share (€4.74 per share) reported in 2013. However, earnings were higher than the Zacks Consensus Estimate of $5.50 by 2.4%.
Total Revenue
Total revenues in the reported quarter were $52.51 billion, down 19% from $64.94 billion in the year-ago quarter.
In 2014, total revenues of $236.12 billion were down 6% from $251.7 billion in 2013. Revenue for the year also missed the Zacks Consensus Estimate of $236.14 billion by a whisker.
Production and Reserve
Total hydrocarbon production during the fourth 2014 averaged 2,229 thousand barrels of oil equivalent (kboe) per day, down 2% from year-ago levels. The decline was particularly due to the expiration of ADCO license in the United Arab Emirates apart from normal declines, partly offset by the startup of CLOV in Angola.
In the fourth quarter, liquids production averaged 1,077 thousand barrels (MBbls) per day, down 6% from the prior-year quarter. Liquid production got a beating in the Middle East besides lower volumes in Europe.
Gas production during the quarter was 6,219 thousand cubic feet (Mcf) per day, down 1% year over year. Soft performance from the Middle East, Asia-Pacific, Africa and Europe more than offset the increase in gas production in North and South America.
TOTAL continued with its a exploration & production activities in 2014. The company exited 2014 with a reserve replacement rate of 100%. Hydrocarbon reserves at the end of 2014 were 11,523 thousand Boe (Mboe), in line with last year.
Realized Price
In 2014, the realized price for Brent decreased 9% to $99 per barrel from $108.7 per barrel in 2013. The average realized liquid price dropped 13% to $89.4 per barrel from $103.3 per barrel in 2013.
Realized gas prices in 2014 decreased 8% year over year to $6.57 per Mbtu. Realized hydrocarbon prices in 2014 decreased 11% to $66.2 per barrel of oil equivalent (boe) from $74.8 per boe in 2013.
The decline in commodity prices was due to a drastic drop in global oil prices in the second half of 2014 as falling demand was exacerbated by a supply glut.
Financial Update
Cash and cash equivalents as of Dec 31, 2014 were $25.2 billion compared with $24.3 billion at 2013 end.
The net debt-to-equity ratio was 31.3% at the end of 2014, up from 23.3% at the end of 2013.
TOTAL’s cash flow from operation at the end of 2014 was $25.6 billion, down 10% from $28.51 billion in 2013. The decline was primarily due to a fall in net income.
Net cash flow in 2014 was $1.5 billion compared with $2.6 billion in 2013. The decline was due to lower cash from operations.
Sale and Purchase of Assets
During 2014, TOTAL acquired assets worth $2.54 billion, down 43.2% year over year. The investments included interest in the Elk and Antelope discoveries in Papua New Guinea, additional interest in Novatek and a carry agreement in the Utica basin in the U.S.
In 2014, TOTAL disposed of assets worth $4.65 billion, down 2.1%, comprising the sale interest in Shah Deniz and the associated pipelines in Azerbaijan, block 15/06 in Angola, Gaztransport and Techigaz and Cardinal midstream assets in the U.S.
TOTAL’s net investment in 2014 was $24.1 billion, down 7% from $25.9 billion in 2013 due to lower asset acquisition.
After achieving its 2012–2014 asset sale target, TOTAL has set a goal of divesting assets worth $10 billion in the 2015–2017 time period. The company aims to divest assets worth $5 billion in 2015.
2015 Preview
To cope with the weak oil price situation, TOTAL has undertaken cost reduction initiatives as well as cut its capital expenditure budget for 2015. 2015 capital expenditure will be in the range of $23 billion to $24 billion, down 10% from $26.4 billion in 2014.
TOTAL aims to reduce costs by $1.2 billion in 2015. It had however planned to cut costs by 50% more earlier.
Other Company Releases
Statoil ASA (STO) reported fourth quarter earnings of 18 cents per share, missing the Zacks Consensus Estimate by 52.6%.
ExxonMobil Corp. (XOM) reported fourth quarter earnings of $1.56 per share, ahead of the Zacks Consensus Estimate by 17.3%.
BP plc (BP) reported fourth quarter earnings of 74 cents, short of the Zacks Consensus Estimate by 9.8%.
Our View
The oil and gas story took a turn for the worse in the latter half of 2014 with prices obstinately trickling down. Nearly all the major oil and gas operators including TOTAL have planned to lower capital expenditure to cope with the difficult situation.
TOTAL has plans to start eight new projects in the Upstream segment, with three beginning operations in Jan 2015. The new projects will help to boost the company’s production.
Management at TOTAL also decided to hike its annual dividend by 2.5% to €2.44 per share. The dividend payout ratio will be 58%, if approved by the shareholders of the company.
The decision of management to raise its dividend in these trying times appears to be a well thought out strategy. It would keep investor interest in the stock intact despite falling profitability.
TOTAL currently has a Zacks Rank #5 (Strong Sell).
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