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Integrated oil and gas company TOTAL S.A. (TOT - Analyst Report) reported fourth-quarter 2013 operating earnings of $1.48 per share (€1.08 per share), falling short of the Zacks Consensus Estimate by 3.9%. Operating earnings of the company were 14.9% lower than the year-ago earnings of $1.58 (€1.19 per share).

Total’s 2013 operating earnings were $6.28 per share (€4.73 per share), down 10% from $6.96 per share (€5.42 per share) reported in 2012. Earnings were also short of the Zacks Consensus Estimate of $6.46 by 2.9%.

Total Revenue

Total revenue in the reported quarter was $64.99 billion (€47.75 billion), up 1% from $64.66 billion (€49.86 billion) in the year-ago quarter.

In 2013, total revenue of $251.73 billion (€189.54 billion) was down 2% from $257.03 billion (€200.06 billion) in 2012. Revenue for the year also missed the Zacks Consensus estimate of $264.8 billion by 4.9%.

Production and Reserve

Total hydrocarbon production during 2013 averaged 2,299 thousand barrels of oil equivalent (kboe) per day, flat with 2012 levels. Start-up and new projects added 2.5% to total production, while normal decline from projects, portfolio changes and security issues in Nigeria and Libya totally offset the benefits derived from the new startups.

In 2013, liquids production averaged 1,167 thousand barrels (MBbls) per day, down 4% from the prior year. Liquid production got a beating in Africa, South America and Asia-Pacific, which pulled down the overall output.

Gas production during the year was 6,184 thousand cubic feet (Mcf) per day, up 5% year over year. Strong performance from the Middle East and CIS region more than offset the drop in gas production in South America and Europe.

TOTAL continued with its aggressive exploration & production activities in 2013. The company exited 2013 with a reserve replacement rate of 119%. Hydrocarbon reserves at the end of 2013 were 11,526 thousand Boe (Mboe), increasing 1% from last year.

Realized Price

In 2013, the realized price for Brent decreased 3% to $108.7 per barrel from $111.7 per barrel in 2012. The average realized liquid price down 4% to $103.3 [per barrel from $107.7 per barrel in 2012.

Realized gas prices in 2013 increased 6% year over year to $7.12 per Mbtu. Realized hydrocarbon prices in 2013 decreased to $74.8 per barrel of oil equivalents (boe) from $77.3 per boe in 2012.

Financial Update

Cash and cash equivalents as of Dec 31, 2013, were $19.4 billion (€14.64 billion) versus $20.4 billion (€15.46 billion) at 2012 end.

The net debt-to-equity ratio was 23.3% at the end of 2013 versus 21.9% at the end of 2012.

TOTAL’s cash flow from operation at the end of 2013 was $28.5 billion (€21.47 billion), down 4.0% from $27.19 billion in 2012. The decline was primarily due to a fall in net income.

Net cash flow in 2013 was $2.6 billion (€1.9 billion) versus $6.9 billion ((€5.4 billion) in 2012. The company has invested substantially in development projects during 2013, which impacted the net cash flow of the company.

Sale and Purchase of Assets

During 2013, TOTAL acquired assets worth $4.5 billion (€3.4 billion). The investments included interest in the Libra field in Brazil, an additional stake in the Ichthys project in Australia, a 1.6% additional interest in Novatek, carry agreement in the Utica basin in the U.S. and acquisition of exploration permits in Brazil, South Africa and Mozambique.

In 2013, TOTAL disposed of assets worth $4.7 billion (€3.6 billion), comprising the sale of its 25% interest in the Tempa Rossa field in Italy, interest in the Voyageur upgrader project in Canada, and the exploration and production assets in Trinidad & Tobago.

TOTAL has a goal of divesting assets worth $15 billion to $20 billion in the 2012-2014 time period. The idea was to reshape its existing portfolio and unlock maximum value of its worldwide assets.  

TOTAL’s net investment in 2013 was $28.3 billion, up .9% from $22.2 billion in 2011 due to heavy investments in diverse Upstream projects.

2014 Preview

TOTAL’s organic capital expenditure for 2014 is projected at $26 billion, 7% lower than the 2013 level. Like the previous year, a major portion of 2014 expenses will be directed towards the company’s upstream projects.

The exploration budget for 2014 is at $2.8 billion, with new drilling planned in the Ivory Coast, Angola, South America, Indonesia, Malaysia and Russia.

Other Company Releases

Statoil ASA (STO - Analyst Report) reported fourth quarter earnings of 56 cents per share, down 12.5% from the Zacks Consensus Estimate.

ExxonMobil Corp. (XOM - Analyst Report) reported fourth quarter earnings of $1.91 per share, down 0.5% from the Zacks Consensus Estimate.

BP plc (BP - Analyst Report) reported fourth quarter earnings of 90 cents, down 1.1% from the Zacks Consensus Estimate.

Our View

It is now an open secret that LNG’s usage on a global scale will increase as we move forward. We expect TOTAL to take advantage of the increase in demand of natural gas by leveraging its existing assets and adding more gas assets to its portfolio.

In the recently concluded quarter TOTAL acquired exploration permits in offshore blocks in Oman and Malaysia and shale gas acreage in the UK.

Management at TOTAL also decided to increase its quarterly dividend to 83 cents (€0.61 per share) from 80 cents (€ 0.59 per share) earlier. We appreciate this shareholder friendly move and expect an even higher rate of dividend once the recent investments begin to pay off.

TOTAL currently has a Zacks Rank #4 (Sell).

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