Total, which last month won the mandate to lead development of the biggest slice of Abu Dhabi’s prime onshore oilfields, reported a sharp drop in fourth-quarter profit as oil prices tumbled, and said it would slash costs to try to preserve margins.
Overall fourth-quarter profit for the Paris-based oil and gas company fell 17 per cent to US$2.8 billion, with profit for the full year down 10 per cent at $12.8bn.
The decline in oil prices was reflected in the upstream part of the business. Revenue for that segment declined 48 per cent in the fourth quarter, from about $2.8bn in the year earlier quarter to $1.6bn. That was offset some by a more than doubling profit in the refining and chemicals segment, from $441 million to $956m.
Total also saw a decline in production, largely due to the loss of the original Abu Dhabi onshore oil concession – known as Adco – when it expired at the beginning of last year. Total said oil and gas production in the fourth quarter was down 2 per cent at 2.2 million barrels of oil equivalent per day, with gains from projects such as its CLOV offshore operation in Angola not sufficient to make up for a 6 per cent decline attributable to the loss of Adco.
Winning the new Adco concession gives Total access to about 2.2 billion barrels over 40 years. This will help to drive an increase in production in the coming year, when it plans eight field start-ups – three of which have already begun – and expects upstream output to grow by 8 per cent.
The French company also said it would take a $6.5bn writedown on its balance sheet for the fourth quarter for North American oil sands and shale assets, recognising that their value was impaired by the gloomy outlook for oil and gas prices.
Total said it would look for bigger cost cuts this year than previously announced, raising the target by $400m to $1.2bn, including the loss of another 2,000 jobs worldwide by 2017.
Patrick Pouyanne, who took over as Total’s chief executive after the death of its previous long-serving chief, Christophe de Margerie, in a Moscow plane crash last year, said that cost cutting in all segments would be accelerated, as well as the company’s asset sales programme, although he added that growth remained the long-term aim.
“As the first international company to enter the new Adco concession in Abu Dhabi, Total demonstrates its ability to access resources under good conditions,” Mr Pouyanne said. “The group is focused for the short term on generating cash flow and reducing its break-even point, and for the medium term confirms its growth strategy.”
Analysts have reckoned that Total paid a relatively high price – about $2bn – to acquire the Adco rights and will earn a relatively modest royalty of $2.85 a barrel, plus whatever improvements it can make through incentives in the contract. But they are low risk, onshore assets in a stable part of the world.
Barclays analyst Lydia Rainforth estimates that Adco earnings would add about $165m, or 2 per cent, to earnings this year.
“Clearly the volume impact is more significant than the value impact from this concession award,” Ms Rainforth said, “but in the current oil price environment every little helps.”
amcauley@thenational.ae
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