Total Profit Beats Estimates as It Boosts Output, Cuts Costs

(Bloomberg) -- Total SA’s third-quarter profit beat analyst estimates and cash flow held firm, as the French giant offset lower oil and gas prices by boosting production and cutting costs.

The positive result mirrors that of British rival BP Plc, which also used a strong refining performance to offset weaker crude prices caused by the U.S.-China trade war and a flood of American shale output.

“The group continues to achieve solid results” despite weaker prices, Total Chief Executive Officer Patrick Pouyanne said in a statement on Wednesday. The company is accelerating dividend growth and is on track to buy back $1.75 billion of its shares this year, he said.

Reaping Rewards

Adjusted net income fell 24% from a year earlier to $3.02 billion, said the company based near Paris. Analysts polled by Bloomberg had forecast $2.77 billion on average.

Total is reaping the rewards of growth from new projects and acquisitions, while also shedding barrels with higher production costs through asset sales. The company said it has reduced the price at which it can cover spending, excluding dividends, from cash flow to less than $25 a barrel, well below current international prices of about $60. Cost cuts will exceed $500 million in 2019.

Operating cash flow before working capital changes, a measure of oil majors’ ability to keep paying generous dividends and investing in growth, held steady despite falling energy prices. It fell just 3% in the third quarter to $6.85 billion.

It’s “a resilient set of numbers on earnings and cash flow” and “a genuine beat to market expectations,” RBC analyst Biraj Borkhataria wrote in a report. “In the midst of the sector seeing material earnings downgrades, Total stands out as having a relatively resilient portfolio, visibility on earnings and a shareholder-friendly remuneration plan.”

Like its peers, Total is under pressure from investors to boost returns. BP shares fell 3.8% on Tuesday despite earnings that beat estimates, as investors’ hopes of a dividend increase this year were dashed.

As announced in September, Total’s interim dividend for the third quarter will rise by 6% year on year to 68 euro cents. It plans to boost its payout by 5% to 6% annually in the coming years, up from a previous plan for 3% growth.

Total shares rose rose 1.1% as of 9:11 a.m. in Paris to 48.18 euros, beating gains in France’s benchmark index.

New Projects

Oil and gas production climbed 8.4% from a year earlier to 3.04 million barrels equivalent a day. Thanks to project startups in the U.K. North Sea, Norway and Brazil, output is on track to grow by 9% for the full year, the company said.

Sales of liquefied natural gas grew 20% in the quarter to 7.4 million tons, helped by the ramp-up of projects in Australia and Russia, and the start of the first liquefaction plant at Cameron LNG in the U.S. Cash flow from Total’s integrated gas, renewables and power segment jumped by 53% to $848 million.

The downstream division benefited from better petrochemicals margins in Europe and rising sales of gasoline and other petroleum products. The unit generated almost $2 billion of cash flow in the third quarter, up 14% from a year earlier, and is “well positioned” to generate close to $7 billion of cash flow this year, the company said.

To contact the reporter on this story: Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Helen Robertson

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