On Friday, April 5th, Total SA (TOT) announced that "it had has signed a final agreement to sell its TIGF regional gas pipeline network to a group led by Italy's Snam (SNMRF.PK) in a deal valuing the business at €2.4B. The sale is part of Total's strategy to sell €20B worth of assets by 2015 as it looks to strengthen its cash flow and fund its capital investment". In the wake of the company's positive news regarding the sale of its TIGF regional gas pipeline, I wanted to examine several catalysts behind my decision to consider going long when it comes to Total SA's stock.
Overview: Based in Paris, France, Total SA and together with its subsidiaries, "operates as an integrated oil and gas company worldwide. The company operates in three segments: Upstream, Downstream, and Chemicals". (Yahoo! Finance) Shares of TOT, which currently possess a market cap of $108.99 billion, a P/E ratio of 7.90 and a PEG ratio of 1.70, settled at $48.28/share by the end of Thursday's trading session. One of the things to point out for growth investors is the fact that shares of TOT are actually 8.16% lower since January 1st of this year.
For those of you who may be considering a position in Total SA from an income perspective, shares of TOT currently yield 5.70%($2.74) and possess a payout ratio of 40.00%.
TOT data by YCharts
There are three near-term catalysts to consider when it comes to Total SA and they are the company's recent sale of its TIGF regional gas pipeline to Snam (and a number of other partners), the company's recent strategy session with Gazprom (OGZPY.PK) regarding the profit potential of the Shtokman natural gas field and the company's launch of a 2.3-petaflop supercomputer aimed at finding oil 15 times faster than it previous could with older systems.
TIGF Agreement: The sale of its TIGF regional gas pipeline to Snam (GIC, a Singaporean sovereign fund, and French state-controlled power utility Electricite de France SA) should come as no surprise as executives have implemented a plan to sell roughly €20B worth of assets by 2015, which was noted in the transcript of company's most recent earnings-related conference call.
From an investment perspective, the proceeds of such types of asset sales will allow for Total SA to use the funds in an effort to invest in the future growth of its company, through more lucrative types of investments. Total SA's website recently noted that, "TIGF provides gas transmission and storage services in 15 departments in southwestern France. It manages a network of about 5,000 kilometers of pipeline that carries 13% of the total volume of gas transported in France and operates 22% of the country's gas storage capacity. With almost 500 employees, TIGF generated revenues of over €350 million in 2011".
Although some would say the performance of TIGF project was pretty good, its sale may be part of a growing trend among larger oil and gas firms to pursue more lucrative projects. According to Sophie Sassard, "Large oil and gas firms have been shedding low-margin transportation, storage, and refining and distribution units to focus on their riskier and more lucrative exploration and production, or "upstream," activities".
Gazprom (GZPFY.PK) Discussions: When it comes to the Shtokman natural gas field (located deep in the Russian arctic), there are many questions surrounding the projects ability to become profitable and in an attempt to answer such questions executives from Total SA recently met with executives from Gazprom in an effort to answer this particular question. On April 4th it was announced that both sides would make a seemingly final push to determine if and when a profit could be made. Total SA's CEO Christophe de Margerie noted that "both sides are seeing whether other technologies can be used to make the field cheaper. If preliminary results are satisfying we will set up a schedule, if not we will abandon it".
The Shtokman project actually leaves investors with two very compelling scenarios. On one hand, if both sides can manage to turn a profit, the gas fields would open and nearly 3.9 trillion cubic meters of Natural Gas would be up for the taking. If, on the other hand, the both companies deem the project unprofitable, resources would subsequently be considered wasted and as a result shares could be headed toward significant sell-off.
Finding Oil Faster: What if I told you that for operating costs of $77.55 million over the next four years, Silicon Graphics International (SGI) would assist in building the world's 9th largest supercomputer that would be capable of finding oil up to 15 times faster that of the company's present technology? I'm sure you'd be as impressed as Total SA was when the announced such news on March 22nd. In collaboration with Silicon Graphics International, Total SA announced that its 2.3-petaflop supercomputer named Pangea, helped analyze seismic data from Total SA's Kaombo project in Angola in a matter of just nine days, versus the four-and-a-half months its took the company's prior system. As a result of the supercomputers capability the company is raising its exploration budget to $2.8 billion this year, a 12 percent increase from last year. In my opinion, the supercomputer can essentially cut significant costs associated with the exploratory stages of a project and has the potentially to positively affect net income as both costs and expenses are minimized.
Conclusion: When it comes to those who may be looking to establish a position in Total SA, I'd continue keep a watchful eye on all three of the above mentioned near-term catalysts as each individual catalyst could impact the company's earning one way or another.