Total beats earnings forecast despite prolonged fall in oil prices

French energy company Total reported a better than expected net profit for the first quarter as high output and strong performance in refining and chemicals helped limit the impact of a prolonged fall in oil prices.

Net adjusted profit fell 37 per cent to US$1.6 billion but beat the $1.2bn expected by analysts polled by Reuters.

Weak oil prices have hurt the industry, with US major Exxon Mobil this week losing its Standard & Poor’s top credit rating for the first time in almost 70 years.

Total said hydrocarbons production rose by 4 per cent to 2.47 million barrels of oil equivalent per day compared with the same quarter last year, a level in the quarter last seen 10 years ago.

Three start-up productions from its Angola LNG, Bolivian Incahuasi gasfield and Kashagan oilfield in Kazakhstan will enable grow production at 4 per cent this year, Total said.

Total said in its downstream segment, although refining margins were down compared with 2015, the business had held up well and remained strong at the beginning of the second quarter.

“Refining & Chemicals improved its results compared to 2015 despite the decrease in refining margins to $35 per tonne, thanks to a record high utilisation rate of 94 percent and favourable petrochemicals margins,” the Total chief executive Patrick Pouyanne said.

The company proposed to maintain its dividend unchanged at €0.61 per share, payable through cash and a scrip scheme.

Like its peers hurt by prolonged low prices and market oversupply, Total said it was cutting costs and aimed to spend less than the $19bn it had planned for investments in 2016.

The company said it had the lowest technical cost among oil majors in the upstream division at $23 per barrel of oil equivalent (boe) compared with peers at $26 to $44 boe.

Its upstream division generated a net operating income of $498 million in the first quarter.

Total said it aimed to reduce its cash break-even point to $40 per barrel compared with $45 announced in February.

“Operating costs are decreasing as planned with the objective of achieving $900m in savings during the year,” Total said, adding it was selling off $900m of assets including the Fuka gas pipeline network in the North Sea.

The results, which Total dubbed “a solid result in line with our annual objectives”, was welcomed on the Paris bourse where its share pride rose 1.95 in late morning trading to €44.59.

“The Upstream portfolio benefited from the lowest technical costs among the majors. The Downstream achieved a solid result in line with our annual objectives,” Mr Pouyanne said while analysts at RBC Capital Markets also said the results were “solid”.

Total is looking to hike production of hydrocarbons to counter a near 40 per cent fall in oil prices across the opening quarter and a drop of 60 per cent over two years.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”