Total: Undervalued Oil Giant With Secure 5% Dividend Yield
- Total's stock price has declined by double-digits this year, due to the ongoing collapse in oil prices.
- Total is also suffering from exposure to deteriorating economic conditions in Europe, and the death of the company's Chief Executive Officer.
- However, Total's underlying business remains strong, evident from its high returns on capital and resilient profits during this difficult time.
- Total is now a cheap and undervalued stock with a solid 5% dividend yield that pays investors well to wait for business conditions to turn around.
- Total kept the damage limited as its profit fell at a slower rate than the oil price.
- No real surprises here as one simply can’t expect a lower oil price to lead to higher revenues and profits.
- I’d be interested in Total if it dips again, unless I don’t like the strategy of the newly-appointed CEO.
Total: The Strategy Set By Christophe De Margerie To Continue
- TOT reported another solid quarter.
- The new CEO repeated the strategic targets of the group.
- After a period of heavy investment, TOT’s new projects should deliver a significant boost in both production and cash flow and in turn free cash flow.
Total: Story Remains One Of The Most Compelling In The European Sector
- 2014 was the low point for Total in terms of production and cash flow.
- The company is set to start a transformational period of three years where it will deliver significant growth in both production and cash flow.
- An elevated yield and urgency on part of management to improve results make TOT a compelling investment opportunity.
- Total is rumored to have hired Scotiabank to explore a sale of its 17% stake in the Tahiti oil field.
- This is unexpected, although Total had said before it is looking to divest more assets, so I shouldn’t be too surprised.
- The investment thesis doesn’t change for now, unless Total receives much more/less than anticipated.
Update: Total Starts Plan B In Its Exploration Efforts
- Total has convinced Murphy Oil’s Kevin McLachlan to join the company as VP Exploration.
- As the past few years were disastrous for the exploration division, something had to be done and a shake up isn’t really a surprise.
- The investment thesis remains unchanged, but I might change my opinion should Total buy some interesting projects to expand its portfolio.
- Total is in talks with Rubis to sell its 50% stake in the SARA refinery on Martinique.
- This could have been expected, as Total is looking to raise $10B by selling assets next year.
- As Total is a large conglomerate, the investment thesis would not be impacted by the sale of half a small refinery.
Update: Total Will Not Meet Its 2017 Production Target
- Total’s updated guidance is pointing in the direction of a 7% lower production rate, but it reiterates the free cash flow guidance.
- This was unexpected, as I was actually counting on the production increase towards 3 million barrels per day.
- The investment thesis should remain unchanged as long as the company will generate $15B per year in free cash flow.
- Total has received an offer to sell its adhesive subsidiary for $2.25B.
- This shouldn't come as a surprise, as Total has previously announced it was looking to divest some assets.
- The investment thesis doesn't change for now, but I'll have to have a closer look at the lower production expectations.
- French oil major Total has recently updated its cash flow and production outlook through 2017, which wasn't encouraging.
- The company's turnaround has been hit by project delays and asset sales.
- Is it time to give up on this company?
- Morgan Stanley analysts suggest that Total is the global “top pick” as it offers an attractive combination of free cash flow growth and dividend yield.
- The company described 2012-14 as a transition phase that will lead to a better phase during 2015-17 in which the company’s free cash flows are projected to increase.
- As a part of its transition phase, the company introduced a $15 billion to $20 billion asset sale program throughout 2012-14 anticipating an enhancement in free cash flows.
- The upstream projects would offer highly competitive returns and strengthen Total’s position as an industry leader in deep offshore and LNG.
- To enhance its operating cash flows, Total is also working on reducing its capital expenditures and cutting its operating costs.
- TOT has underperformed the wider European oil sector in the last few months.
- Weak cash flow numbers reported in 1H14 played a major role in this underperformance.
- However, 2Q14 was the low point for TOT both in terms of cash flow and production, and both are expected to improve from here on.
First Half Of 2014: Total S.A. Leading The Oil Giants
- Total's 2014 record is better than its peers.
- The dividend yield is attractive, and I believe distributions will grow.
- The company's mid-term outlook is promising.
- We pitch two companies from the oil and gas sector, Chevron and Total, against one another in the latest installment of our Head-To-Head series.
- The article focuses on the relative strengths and weaknesses of Chevron and Total based on business performance and sustainability/dividends/forecasts.
- It ends with discussion of the current valuations of the two companies, and details whether Chevron represents good relative value at current price levels.
Total SA's Ambitious Goals Are A Good News/Bad News Proposition
- Total SA has ambitious goals to increase production, trim spending, improve the downstream ops, and generate substantially better returns in the coming years.
- Total starts this plan with good reserves, solid production costs, and meaningful technical expertise, but a heavy reliance on complex projects does increase execution risks.
- A DCF-based valuation isn't so compelling, but Total scores more favorably on EV/EBITDA.
Total: Increasing Production Volumes And Cutting Costs
- Production volumes are expected to increase by 4% Y/Y.
- Capex at the same time is expected to fall by approximately 8% in 2014.
- Launched a new cost cutting program throughout the company.
Why Total Is Likely To Continue Outperforming Exxon And Chevron
- While capital expenses have greatly escalated for the oil companies in the last few years, Total seems to be better positioned than Exxon and Chevron.
- As Total provides detailed figures for its projected 30% increase in oil production by 2017 and its recent record is on track, it is likely to accomplish its goal.
- Based on Total's projection, we calculated that its earnings per share will increase by about 30% in 2017, which means a compounded annual return of 12% till 2017.
- Given the above and the great difficulties Exxon and Chevron are having in replenishing their oil reserves, Total is likely to continue outperforming Exxon and Chevron.
Total Is A Solid Income Investment After Year-End Results
Jul. 12, 2014, 8:25 AM
- The problem facing Canada isn't the Keystone pipeline or Pres. Obama or environmentalists - it's the oil sands, and they've got to be cleaned up and the head-in-the-sand denials chased way or the country will be stuck with a "baby seal hunt" image, Diane Francis writes in the Financial Post.
- The columnist thinks she knows the right person to lead the clean-up: Jeff Immelt - "an American leader with stature in Washington, on Wall Street, in the oil patch and in Silicon Valley" - who said this week that GE will help companies clean up the oil sands.
- The only way to stop the environmental excuses, Immelt believes, is for the industry to collaborate and voluntarily establish lower emissions targets that would make the oil sands competitive with any other fuel source in the world - without such a promise to provide cleaner energy, "all bets are off."
- Some related companies: XOM, IMO, SU, RDS.A, RDS.B. ENB, TRP, CNQ, CVE, CVX, COP, BP, KMP, WPZ, TOT, STO, CEO, SNP, PTR, HUSKF, ATHOF, COSWF.
Jul. 10, 2014, 7:17 PM
- Big oil companies are in the early stages of a new cycle of profitability, and the best stocks to play the wave are Chevron (CVX), ConocoPhillips (COP) and Total (TOT), Citigroup analysts say.
- Most companies took rising energy prices as justification for increasingly marginal investment, the firm says. but the winners in this cycle "will be those that can reverse this trend, better aligning their business with the needs of customers for cheaper energy," the Citi team says.
- CVX is a leader in new oil sources in the Gulf of Mexico, COP's main growth driver is U.S. shale, and TOT has slowed high-cost developments, making the three Citi's “best value-adjusted opportunities” in the sector.
Jul. 10, 2014, 8:27 AM
- A Cnooc (CEO) subsidiary signs a ~$1.6B deal to build equipment for the Yamal liquefied natural gas project in the Russian Arctic.
- Russian gas producer Novatek is developing the $27B project with Total (TOT) and Sinopec (SNP); the first production unit, with annual capacity of 5.5M metric tons, is due to be launched in 2017.
Jul. 9, 2014, 6:13 PM
- Sinopec (SNP) reportedly may shelve development of its Northern Lights oil sands lease in Alberta or sell the property entirely, as Chinese companies begin to rethink future investment prospects in Canada.
- Cnooc's (CEO) interest in cutting costs in its Canada operations, numerous delays in granting a visa and work permit for Cnooc's new CEO, and unforeseen difficulties in bringing technical staff to Canada from China are said to have raised concerns at SNP and PetroChina (PTR).
- SNP owns a 50% stake in Northern Lights, while Total (TOT) holds the remaining 50%; the lease is estimated to hold ~1.08B barrels of recoverable bitumen.
Jul. 8, 2014, 8:18 AM
- Total (TOT) will give itself until the end of this year to strike oil at a big new field somewhere in the world before considering whether to change direction and cut its exploration budget, CEO Christophe de Margerie tells Reuters in an interview.
- "If we have to change, we'll do it, but there won't be a revolution where we stop everything and start over," the CEO says, adding that TOT had yet to drill so far in countries such as Angola, South Africa and Bulgaria.
- In any event, de Margerie expects TOT's exploration budget to drop next year from the $2.9B set for this year, which was a ~12% increase from 2012.
Jul. 7, 2014, 11:49 AM
- Total (TOT -1.7%) CEO Christophe de Margerie said over the weekend that weak oil refining conditions weighed on the company's Q2 profit, as they did in Q1.
- The CEO said TOT is working to make its refining business more efficient and more profitable by creating synergies with its petrochemicals business, but there are no plans to close or sell refineries.
- de Margerie also said he would prefer that more euros were used in oil trading instead of dollars, after the U.S. Department of Justice recently imposed a ~$9B fine and a year-long ban on the dollar-clearing functions of French bank BNP Paribas - of which he is a board member - over violations of U.S. sanctions.
Jul. 3, 2014, 8:37 AM
- Total (TOT) says it will develop the Edradour gas field in the U.K.'s West of Shetland area, after negotiating lower costs with contractors and buying a 60% stake in the neighboring Glenlivet field.
- Edradour and Glenlivit, which will add 65M boe of reserves, will be tied to the Laggan-Tormore hub to process gas from fields in the North Atlantic, with a capacity of 90K boe/day; TOT says the project, due to start up this year, will help it become the U.K.’s biggest producer in 2015.
- TOT owns 75% of Edradour, with partner Dong Energy holding the rest.
Jul. 2, 2014, 10:22 AM
- UGI Corp. (UGI +0.2%) says its French subsidiary has reached a preliminary deal to acquire Total's (TOT -0.8%) liquefied petroleum gas unit in France for €400M-€450M ($547M-$615M).
- UGI, which is the general partner of retail propane distributor AmeriGas Partners (APU -0.1%), has been seeking growth through international expansion; TOT is trying to sell non-core or mature assets as part of a program to improve its cash flow and profitability.
- UGI expects the deal to boost EPS in the first full year.
Jul. 2, 2014, 9:58 AM
- Rebels blocking Libyan oil production say they are reopening Es Sider and Ras Lanuf, the country’s largest and third-largest export facilities with combined capacity of 560K bbl/day, in a gesture of support for the newly elected parliament.
- Libya is now producing ~320K bbl/day, ~20% of its output before Qaddafi was overthrown in 2011; reopening the two terminals would increase Libya’s crude export capacity almost five-fold.
- August Brent futures (BNO) fell as much as 0.7% to $111.54, the lowest intraday level in almost three weeks; the restart at the two ports probably would send Brent down to $110/bbl, Commerzbank says.
- Energy companies with a significant presence in Libya include Total (TOT), Statoil (STO), ConocoPhillips (COP), Marathon Oil (MRO), Hess (HES), Occidental Petroleum (OXY) and Repsol (REPYF, REPYY).
- ETFs: USO, OIL, UCO, SCO, DTO, DBO, CRUD, USL, UWTI, DNO, DWTI, SZO, OLO, OLEM, TWTI
Jul. 2, 2014, 8:39 AM
- Total (TOT) is in talks with PetroChina (PTR) to sell its 22.4% stake in the 200K bbl/day West Pacific Petrochemical refinery in the northeastern Chinese port city of Dalian, Reuters reports.
- Industry officials familiar with WEPEC's operations say the French firm has decided to divest the refinery stake due to years of losses the plant incurred, and due to lack of access to the local Chinese market.
Jun. 17, 2014, 6:56 PM
- Enbridge (ENB) gained approval for its Northern Gateway pipeline, but now the real work begins, since it first must nail down oil shipping contracts that meet the 200-plus conditions attached to the project.
- ENB needs firm transportation contracts covering at least 60% of the pipeline’s capacity prior to starting construction, and some analysts say the many competing export projects and the sharp growth of oil shipments by rail could make shoring up commercial support for the pipeline difficult, and even delay construction into next decade.
- If built, Northern Gateway would serve as an important link between the Alberta oil sands deposits and energy-thirsty Asian markets, but If TransCanada’s (TRP) Keystone XL and Energy East projects are approved, “Gateway gets shelved for a very, very long time, because [ENB] won’t be able to fill it," says one industry analyst.
- Suncor (SU), Cenovus (CVE), Cnooc (CEO), Total (TOT) and others have signed so-called precedent agreements to ship oil on the pipeline, but legal experts say those agreements aren’t binding, giving producers wiggle room to choose alternatives.
Jun. 12, 2014, 10:35 AM
- Total (TOT +1.1%) says a new deepwater floating processing plant boosted production at its Block 17 offshore Angola to 700K bbl/day of oil, making the block TOT's most prolific production site.
- The Clov field complex, with proven and probable reserves of 500M barrels and production capacity of 160K bbl/day, is the fourth major field development scheme to be brought online in the block; the other three fields in the block - Girassol, Dalia and Pazflor - also are being tapped using FPSOs.
- The output boost from the latest project would bring TOT a step closer to its production goal of 3M bbl/day by 2017, the company's E&P chief says.
- TOT operates the block with a 40% interest, with partners Statoil (STO), Exxon Mobil (XOM) and BP holding stakes between 23.3% and 16.7%.
Jun. 11, 2014, 2:19 PM
- Total (TOT -0.7%) reportedly is in talks to sell its indirect stake in Transportadora del Gas del Norte, Argentina’s second-largest gas pipeline operator.
- Proceeds from the sale would be used to boost oil and natural gas exploration in Argentina, according to Bloomberg.
- TOT's partners in Gasinvest, the holding company that owns 56% of TGN, include Tenaris-controlled (TS) Tecpetrol.
Jun. 10, 2014, 8:28 AM
- Kazakhstan's giant Kashagan oil field will not produce any oil until at least 2016 while workers attempt to complete massive repairs, sources tell WSJ.
- The Kashagan partners - which include Eni (E), Total (TOT), Royal Dutch Shell (RDS.A, RDS.B) and Exxon Mobil (XOM) - reportedly have concluded they must entirely replace two 55-mile pipelines before they can restart production at the troubled project.
- Production was halted indefinitely in October when the pipeline conveying gas rich in highly corrosive and deadly components to the shore sprung multiple leaks; repair work is difficult in the Caspian Sea area, because ice envelopes facilities in the winter and extreme heat radiates across the field in the summer.
Jun. 9, 2014, 3:43 PM
- A changed management model is in store for Kazakhstan's troubled offshore Kashagan field in the next several months, but will not change conditions of the field's production sharing agreement and its shareholding structure, says a spokesman for operating consortium NCOC.
- Exxon Mobil (XOM) exec Stephane de Mahieu has succeeded Total's (TOT) Pierre Offant as NCOC managing director, but NCOC denies last week's report that Exxon Mobil is set to take over as Kashagan's effective operator from Eni (E).
Jun. 6, 2014, 2:53 PM
- Ocean Rig UDW (ORIG +0.8%) says it firmed up a deal with Total (TOT) involving the 12K-ft. drilling depth Ocean Rig Skyros that will keep one of its newest deepwater drillships employed off Angola for six years; the contract is expected to commence in Q3 2015 and has an estimated backlog of $1.3B.
- ORIG made news earlier this week after lining up a contract for the Eirik Raude; Evercore analysts view the deal favorably even though the ~$560K/day rate was a bit below estimates, given expectations for a softening rate environment and the rig's challenging competitive position as a 12-year old, fifth generation semi-submersible.
TOT vs. ETF Alternatives
Total SA is an integrated oil and gas company. It explores and develops oil and gas properties, liquefied natural gas, petrochemicals and specialty chemicals. It is also engaged in trading and shipping of crude oil and petroleum products.
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