Can Total Sustain Its Resilience?TOT) has done well in light of the weakness in the crude oil market as its shares have remained flat so far this year. This is despite the fact that the company’s financials have suffered due to the weakness in the global energy pricing environment, forcing the company to employ greater capital on drilling and explorations while receiving poor returns.
Weakness in the end market
For instance, during the first quarter of 2015, the Brent price averaged $53.9 per barrel, declining 50% compared to $108.2 during the same period last year.
The net equity share of Gabon for operated and non-operated oil production had totaled 43,700 barrels per day (b/d) in the quarter, declining 8% compared to 47,300 b/d during the same period last year. This key fall is primarily due to operational obstacles linked to Atora and Anguille in January and February and the instability of the Anguille gas gathering system, the affect of ONEP strike from December 2, 2014 till February 1, 2015 and operational issues related to the 18” pipe linking Coucal at the Cap Lopez terminal.
However, these impacts were partially offset by delaying the work previously programmed on Coucal/Avocette and Anguille in February 2015. The bottom line is that Total S.A. is continuing to witness headwinds from the currently ongoing weaker commodity pricing environment, forcing the company to lower its operational expenditures while maintaining enough liquidity on its balance sheet to sustain its operations profitably, going forward.
In fact, its cash flow from operations was reported to be negative $12 million earlier this year as compared to a positive $233 million during the same period last year. The reduction in operating cash flows was primarily due to reduced revenue and the lowering of the storage of production. This was due to improved sales volumes during the period, partially offset by the fall in royalties, driven by a decline in production.
Trying to counter the weakness
Total S.A. has been able to successfully lower its capital spending and reported expenditure of $78 million earlier this year as compared to significant $138 million during the same period last year. The spending verticals primarily included phase 3 drilling (AGMN078 and AGMN079 wells) of the Anguille field development program.
They also included the well development schedules on the Torpille (TRM014 and TRM015) and Anguille (AGM512) fields and finally. Moreover, the completion of AGMN 080 and 081 wells which are currently being drilled are forecasted to bring the net wells drilled count to 18, closing the estimated well count of 21. All in all, Total is keen on offsetting the negative impacts of global crude pricing decline by strategically employing its capital resources and reducing the non-core expenditures. The company has also successfully captured a nine-month extension of the fifth development period, allowing it to drill a second, pre-salt solid growth well, Monbou-1.
Though Total is indeed trying to make a comeback, investors should not forget that the company is facing a number of challenges. So, it will be a good idea to remain away from this stock until and unless the end market conditions improve.
Published on Oct 10, 2015By Vinay Singh