Total's profit jumps as majors rebound from deep slump

By Francois de Beaupuy on 10/27/2017

PARIS (Bloomberg) -- Total posted the highest earnings from pumping oil and gas in more than two years, illustrating the improving fortunes of an industry that’s endured the deepest downturn in a generation.

Total’s earnings followed surprisingly strong profits from ConocoPhillips and Statoil, driven by a combination of higher crude prices and deep cost cuts. Exxon Mobil and Chevron, the largest U.S. oil majors, report their earnings later Friday. The global imbalance between crude supply and demand that’s weighed on prices for three years is finally dissipating, the French energy giant said.

“The group took full advantage of the favorable environment,” CEO Patrick Pouyanne said in a statement on Friday. While the situation is improving, inventories are still high and the market will remain volatile, so Total’s strategy is to continue reducing the oil price it needs to break even, he said.

An OPEC-led effort to shrink a global oil glut finally gained traction in the third quarter, when benchmark Brent crude prices were 11% higher than the same period in 2016. Total also benefited from oil and gas production that rose 6% to 2.58 MMboepd.

The company reported third-quarter adjusted net income of $2.67 billion, a 29% increase from a year earlier and in line with estimates. Adjusted net operating income from its exploration and production unit rose 84% to $1.44 billion, the highest level since the second quarter of 2015.

Total shares rose 1.6% to 47.3 euros in Paris, paring their year-to-date decline to 2.9%.

Since 2014, major oil companies have prioritized one thing -- cutting spending. They’ve laid off thousands of workers, canceled or deferred projects and put intense pressure on their suppliers and contractors to reduce their prices. Despite the recent recovery, Brent is still about half the level of three years ago, so there’s little sign that this focus is shifting.

Total expects to exceed its target of reducing annual costs this year by $3.6 billion compared with 2014, Pouyanne said. The company is aiming to be able to fully fund both its dividends and capital expenditure by 2019 with crude at $50/bbl, ending a period of several years where free cash flow fell short of spending.

Italy’s Eni SpA, which posted earnings on Friday that fell short of expectations, said it’s on track to achieve that milestone if oil rises to $60 this year. Brent crude, the international benchmark, traded near $59/bbl on Friday after closing at the highest price in more than two years.

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