Total raises production target as oil rally propels earnings

PARIS (Bloomberg) — Total SA raised its production target for the second time this year, accelerating its emergence from an oil-market slump as rising prices deliver a surge in profit.

While the return of U.S. sanctions on Iran derailed the company’s gas ambitions there, the move also boosted oil prices just as Total reaped the benefits of project startups from Australia to the Arctic, plus a series of acquisitions. Profit climbed 44% last quarter as crude jumped to a three-year high.

“The upstream is well positioned to take advantage of the increase in oil prices,” Total said Thursday in a statement. “The group, however, resolutely continues to implement programs to improve operational efficiency and to reduce its break-even, so as to remain profitable whatever the context.”

Total pumped 2.717 MMbopd and associated gas in the period, setting a record for a second consecutive quarter. The French major boosted its production growth outlook for this year to more than 7%, having targeted more than 6% back in April.

“The consistency of delivery for Total is welcome,” Lydia Rainforth, an analyst at Barclays Plc who has an overweight rating on the stock, wrote in a note. “All divisions are performing slightly better than expected with production-growth guidance lifted.”

Shares Advance

The shares rose as much as 1.8% in Paris, and were up 1.1% at 53.40 euros, taking this year’s gain to 16%. Royal Dutch Shell, whose profit missed estimates, traded down 2.8% in London.

After cutting billions of dollars of costs to survive crude’s collapse, the majors are chasing growth again. Part of the extra cash from rebounding prices is being used to reward shareholders, though companies are still keeping a lid on new-project costs amid concern that global trade tensions and rising OPEC output could weaken the market again.

Total raised its quarterly interim dividend by 3.2%, in line with a promise made in February to increase the payout by about 10% by 2020. It has bought back $600 million of stock so far this year as part of a plan to return as much as $5 billion to shareholders over three years. That’s on top of repurchasing any new stock issued as a so-called scrip dividend.

Profit Miss

Adjusted net income climbed to $3.55 billion in the quarter from $2.47 billion a year earlier. That’s just below the $3.6 billion median estimate of 11 analysts. Cost savings will reach $4.2 billion this year — against a 2014 baseline — slightly exceeding Total’s previous goal.

Income from the upstream division almost doubled as oil and gas production climbed, while downstream earnings dropped.

Total sees the startup of the Ichthys liquefied natural gas project in Australia, the Kaombo field in Angola and the Egina project in Nigeria driving growth this year.

Its gas, renewables and power unit, whose profit doubled in the quarter, will get a boost from the recent acquisitions of Engie SA’s LNG assets and of Direct Energie SA, while Total is also buying two gas-fired power plants in France and Belgium.