Total beats estimates but profit still tumbles

Total said profit fell 30 per cent in the second quarter, beating analysts’ estimates as deeper cost cuts and rising production helped the French company offset the slump in crude prices and strikes at its domestic refineries.

Adjusted net income was US$2.17 billion in the period, compared with $3.09bn a year earlier, the company based near Paris said on Thursday. Analysts had expected a profit of $1.82bn, according to the average of eight estimates compiled by Bloomberg.

Sales dropped 17 per cent per cent to $37.2bn. Total is maintaining its interim dividend at 61 euro cents a share, it said.

“Efforts to reduce operating costs are continuing to bear fruit and we will surpass the $2.4 billion cost reduction target for this year,” said the chief executive Patrick Pouyanne. “In the downstream, results and cash generation remained strong at the same level compared to the first quarter of 2016.”

He also pointed out that crude prices’ recovery, from 13-year lows under $30 per barrel that they struck at the beginning of the year to an average of $46 per barrel in the second quarter, had helped to improve results.

“Total captured the benefit of this rebound,” said Mr Pouyanne, adding that adjusted net income had climbed by a third from the the first quarter.

Still, two years into the oil price slump, major producers and their suppliers remain under pressure to cut costs and increase cash flow. The rebound in crude is now fading amid slowing demand growth and a surplus of fuels including petrol. BP yesterday posted a 45 per cent drop in adjusted profit for the second quarter, due in part to lower refining margins, while Shell shocked analysts by posting a much worse than expected plunge of 70 per cent today.

Total shares rose at much as 1.2 per cent and traded at €43.08 at 12 midday UAE time, 39 euro cents higher. The stock has risen 3.8 per cent this year.

“The beat was largely driven by the upstream division,” said analysts from Exane BNP Paribas in a note. “We’d expect the shares to perform strongly this morning.”

Adjusted net operating income at Total’s refining and chemicals division fell 25 per cent from a year earlier to $1.02bn, partly due to refinery outages in Europe and the United States, the company said.

In the exploration and production business, adjusted net operating income fell 28 per cent to $1.13bn. Oil and gas production increased by 5 per cent from a year earlier to 2.42 million barrels of oil equivalent a day, the company said. Total reiterated plans to boost output by 4 per cent this year, helped by the restart of the Kashagan project in Kazakhstan in the second half.

The French company maintained its plan to cut costs by more than $3bn by 2017 compared with 2014. So-called organic investments in 2016 will be in the range of $18bn to $19bn, down from $23bn in 2015, the company said.

Total aims to adapt to lower oil prices by cutting spending to a level where it can fund dividends from cash flow at a crude price of about $60 a barrel in 2017. The company is currently borrowing money to make shareholder payouts. The group’s net debt rose to $29.8bn at the end of the first half, up from $25.6bn a year earlier.

Total reiterated a target to “generate” $2bn from asset sales, net of acquisitions such as the battery maker Saft this year. China’s Sinochem and buyout firms such as CVC Capital Partners are interested in buying its specialty chemicals division Atotech for as much as €4bn (Dh16.3bn), people familiar with the matter said last week.

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