TOTAL's EPS In Line with Estimate

Integrated oil and gas company TOTAL S.A. (TOT - Analyst Report) reported second-quarter 2012 operating earnings of $1.62 per share (€1.26 per share), flat with the Zacks Consensus Estimate. Operating earnings declined 9% from $1.78 (€1.24 per share) reported in the year-ago period.

Total Revenue

Total revenue at the end of second-quarter 2012 was $62.96 billion (€49.13 billion) as against $64.77 billion (€45.0 billion) in the second quarter of 2011. The year-over-year dip in revenue was 3% (up 9.0% in euros).

The year-over-year comparison was affected by the dual impact of lower sales volumes and a decline in the realized price of the products sold.

Production and Realized Price

Total hydrocarbon production during the second quarter 2012 averaged 2,261 thousand barrels of oil equivalent (kboe) per day, decreasing 2% from the year-ago production. During the quarter the company registered growth in liquids products, but the reduction in gas production lowered the overall production level of the company.

Liquids production during the quarter averaged 1,218 thousand barrels (MBbls) per day, up 2% year over year. The growth in production came mainly from contribution from new projects.

Gas production during the quarter was 5,722 thousand cubic feet (Mcf) per day, down 6% year over year from 6,077 Mcf/d. Gas production was impacted by the incidents in UK and Nigeria while the security conditions in Yemen and production shut down in Syria added to the loss.

Total refinery throughput for the second quarter of 2012 was 1,878 thousand barrels (MBbls) per day versus 1,855 MBbls per day in the second quarter of 2011.

The realized price for Brent in the second quarter of 2012 was $108.3 per barrel, down 7% from $117.0 per barrel in the second quarter of 2011. The average realized liquid price in the reported quarter decreased by 8% year over year to $101.6 per barrel from $110.60 per barrel in second quarter 2011.

Realized gas prices for the reported quarter increased 8% year over year to $7.10 per thousand British thermal unit (Mbtu) from $6.60 Mbtu in the second quarter of 2011. Realized hydrocarbon prices decreased by 90 cents per barrel of oil equivalents (boe) to $76.00 per boe from $76.90 in the second quarter of 2011.

Financial Update

Cash and cash equivalents of TOTAL as of June 30, 2012, were $18.85 billion (€14.99 billion) versus $19.27 billion (€13.39 billion) as of June 30, 2011.

The net debt-to-equity ratio was 21.5% on June 30, 2012 versus 24.3% on June 30, 2011.

TOTAL’s cash flow from operation in the second quarter 2012 was $7.9 billion (€6.1 billion), increasing by 8% (22.0% in euros) from the comparable period of the previous year.

Sale and Purchase of Assets

During the quarter, TOTAL made acquisitions worth $0.5 billion (€0.4 billion). The company increased its interest in Novatek by 1% and gained approval to carry out the Utica shale gas and condensates project in the US.

In the second quarter, TOTAL disposed of assets worth $1.1 billion (€0.9 billion), comprising mainly the sale of Sanfoli shares.

TOTAL’s net investment in the second quarter of 2012 was $5.1 billion (€4.0 billion), down 43.3% from $9.0 billion (€6.2 billion) in the second quarter of 2011.

At the Peer

BP Plc.(BP - Analyst Report), which competes with TOTAL SA, is going to report its second quarter 2012 earnings on July 31, 2012.

The Zacks Consensus expectation for the second quarter is $1.46 per share.

Our View

TOTAL continued with its aggressive drilling strategy and also acquired assets globally, leveraging its strong financial position. We appreciate TOTAL’s decision to increase its stake in the Ichthys LNG project in Australia, which will enable the company to benefit from the increasing demand for LNG in Asia. The decision to increase shareholder value through increasing the interim dividend rate is also appreciable.

As expected, the accident at TOTAL’s Elgin complex in the UK North Sea resulted in a year-over-year decline in the overall production of the company. The leak was successfully plugged, while the company was still looking into the safety measures before resuming production from this platform. We believe this will continue to have an impact on the production level of the company.

France-based TOTAL is one of the largest publicly traded, globally integrated oil and gas companies based on production volumes, proved reserves and market capitalization. The company has exploration and production operations across five continents.TOTAL S.A. currently retains a Zacks # 3 Rank (short-term Hold rating).