Total S.A.: Major Offshore Gas  Discovery In South Africa

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About: TOTAL S.A. (TOT)
by: Fun Trading
Summary

Total S.A. has made a significant gas condensate discovery at the Brulpadda prospect on Block 11B/12B offshore South Africa.

"It could be around 1 billion barrels of total resources of gas and condensate," said Patrick Pouyanné, Total CEO.

TOT is one of the most active oil supermajors and ought to be among the first oil stocks held as a long-term investment.

(Image: Semi-submersible Deepsea Stavanger (2010), managed and owned by Odfjell Drilling)

Investment Thesis

Total S.A (TOT) is one of the most active oil supermajors and ought to be among the first oil stocks held as a long-term investment in any savvy investor's portfolio.

Like Royal Dutch Shell (RDS.A) (RDS.B), the French integrated oil company has a dividend increasing or stable every year since 1982, with an attractive trailing yield of about 4.70% (according to Nasdaq.com). It has been considered a preferred stock for various institutional investors for many decades.

The company released its fourth-quarter results on February 7, 2019, and I will present my key takeaways soon in a separate article.

However, as a preview, Total S.A. revenues (minus excise taxes) came in at $46.312 billion, up 11.8% from $41.442 billion generated in the year-ago quarter. Total S.A. is present worldwide, and its upstream production in K Boep/d is as follows:

(Note: Liquids represent 55.3% of the total output. Production was up 2.6% sequentially.)

According to a study from Rystad, Total S.A. is among the most successful oil and gas companies when it comes to success in exploration.

Source: Rystad

Important Gas Discovery on February 7, 2019

From OffshoreEnergyToday, we learn that:

French oil company Total has made a significant gas condensate discovery at the Brulpadda prospect on Block 11B/12B offshore South Africa.

The Brulpadda discovery is located on Block 11B/12B in the Outeniqua Basin 175 kilometers off the southern coast of South Africa. The block covers an area of 19,000 square kilometers with water depths ranging from 200 to 1,800 meters.

(Source: Africa Energy Corp.)

Note from the company:

Africa Energy holds a 4.9% effective interest in the Exploration Right for Block 11B/12B. The Company owns 49% of the shares in Main Street 1549 Proprietary Limited, which has a 10% participating interest in the block. Total as operator holds a 45% participating interest in Block 11B/12B, while Qatar Petroleum and CNRI hold 25% and 20%, respectively.

The Brulpadda 1AX well encountered "a total of 57 meters of net gas condensate pay over two Lower Cretaceous high-quality reservoirs."

The well was drilled at about 1,400 meters of water and necessitated a semi-submersible harsh-environment rig. As we can see in the map indicated above, the potential for a massive gas reserve is evident.

The contract was awarded to Odfjell's Deepsea Stavanger semisub for a total value of $55 million (including demobilization/mobilization costs and excluding options) with a duration between 60 to 80 days, or ~$786k/d, which is quite high due to the location that is far from the Maria Field in the Norwegian Sea, where the rig operated before for Wintershall Norge. With this discovery, the semisub Deepsea Stavanger contract will undoubtedly be extended.

Patrick Pouyanné, chairman of the Board and chief executive officer of Total, said:

It is gas condensate and light oil. Mainly gas. There are four other prospects on the license that we have to drill; it could be around 1 billion barrels of total resources of gas and condensate

Conclusion and Technical Analysis

Total S.A. is a solid company with a very successful track record in exploration. This new discovery is another example of its constant effort to find oil and gas worldwide.

This new discovery offshore South Africa can be a game-changer for South Africa.

However, Andrew Latham, vice president, global exploration at natural resources consultancy Wood Mackenzie, said:

Even though the well isn’t an oil discovery, if Brulpadda proves to be anywhere near as big as the estimates of up to 1 billion barrels of oil equivalent resources, it will still be a game-changer for South Africa.

South Africa is now an encouraging "hot spot" exploration drilling, alongside Guyana, Brazil, Mexico, the U.S. Gulf of Mexico, Cyprus, and the Barents Sea in Norway. However, the deep water in this part of the world is similar to the North Sea harsh environment which fit perfectly Transocean's (RIG) fleet rigs and expertise.

Technical Analysis

TOT is forming an intermediate ascending wedge pattern, which is not shown by Finviz. The line support is about $54.50 (I recommend buying a little at this level depending on the oil prices), and the line resistance is about $56.25 (I recommend selling about 15% of your portfolio at this level).

This intermediate ascending wedge pattern is closed to its apex (crossing of the line resistance and line support), and it suggests that a final crossing of the pattern (breakout) will happen very soon.

Generally, a rising wedge pattern is considered bearish short term, and we may re-test the $52 support (I recommend buying at this level).

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Disclosure: I am/we are long TOT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.