TOTAL supported by rising oil and its production

(AOF) – Supported by the increase in oil prices, Total achieved in the third quarter of 2018 adjusted net income up 48% to 3.958 billion dollars. The consensus gave it to 3,751 billion. The French giant's hydrocarbon production reached 2.804 million barrels of oil equivalent per day, up 8.6% thanks to the start-up and ramp-up of new projects. The major quoted Yamal LNG in Russia, Fort Hills in Canada, Kaombo Norte in Angola and Kashagan in Kazakhstan.

On the strength of this performance, Total reported its production forecast for 2018 on Friday. The group expects production growth to be close to 8%, compared with a previously forecast increase of more than 7%.

However, the company has lowered its forecast of net investments, which should be around $ 16 billion this year – against 16 to 17 billion previously forecast.

Unsurprisingly, Total has confirmed its return to shareholders policy. It intends to buy back $ 1.5 billion of shares in 2018. The group had already acquired for billion at the end of September.

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Strengths of value

– Integrated Energy Group, 4th largest oil and gas company in the world and number 2 worldwide in solar energy with Sun Power and liquefied natural gas;

– Three strong geographic zones – Europe, Middle East and Africa – and know-how in four businesses – offshore, LNG, petrochemicals and networks & lubricants, generating € 171 billion;

– Visibility and security of oil production, 5 billion barrels having been acquired between 2016 and 2017;

– Proven hydrocarbon reserves of 11.5 Gboe, compared to a production of 2.57 Mboe / d in 2017;

– Geographically balanced petrochemical production with strong positions in Africa (Nigeria and Angola in particular) and in the North Sea (2nd operator) for oil, in the Middle East for gas;

– In oil production, ability to generate higher margins than competition thanks to control of unit costs, the lowest in the sector at $ 5.4 / boe;

– High margins in refining, Qatari, Korean and Saudi sites offsetting European locations;

– Very good financial situation;

– Return to shareholders by dividend increase and share buybacks (up to $ 5 billion for the 2018-2020 period).

Weaknesses in value

– Sector penalized by the high volatility of crude prices, the high level of stocks and OPEC quota variations;

– Absence of the shale gas sector in the United States, the group being present in Latin America;

– Back to the decline in refining margins in Europe;

– Obligation to leave Iran, imposed by the United States;

– Exposure to geopolitical risks in Africa (30% of the group's production), particularly in Nigeria, the Middle East -Libya and Yemen- and Russia.

How to follow the value

– High sensitivity to the price of a barrel of oil and the dollar, currency of presentation of the accounts;

– Quarterly distribution of dividends;

– 4-point medium-term strategy: lowering of the dead-point in oil activities ($ 7bn expected cash-flow for 2020), positioning along the value chain in gas, capitalization on the satisfaction culture customers (4 million customers a day at petrol stations in 130 countries) and development of low-carbon energy activities ($ 1 billion in cash flow expected for 2020);

– Implementation of the cost reduction plan, raised to $ 5 billion by 2020;

– Continued diversification into gas and renewable energies and integration of Direct Energie;

– 2018 cost savings target of $ 4.2 billion, with a production cost of $ 5.5 / boe, investments between $ 16 and $ 17 billion, a reduction to $ 25 per barrel break point of the group;

– Exploded capital, the largest shareholder being employees with 5% of the capital.

Oil and oil services

The International Energy Agency (IEA) has revised down the growth in oil demand. It now expects world oil demand to grow by 1.4 million barrels per day (MMb / d) in 2018, compared to 1.5 Mb / d previously announced, in particular as a result of higher prices. The IEA has developed three possible scenarios of the evolution of the demand for oil and gas by 2040. In the first, named "business as usual", it predicts a 2.7 ° warming in 2040 and a consumption daily hydrocarbons of about 9 million tonnes of oil equivalent. The second, "Sustainable development scenario" aims to limit global warming to 2 ° C by 2040. The demand for oil would be reduced by 30% compared to the first scenario. The third, "Beyond 2 degrees scenario", offers a 50% chance to reduce warming to 1.75 ° C but requires to halve the expected daily consumption in 2040 by almost two.