TOTAL S.A. (TOT - Analyst Report) announced a new strategy and outlook to counter the ongoing weakness in commodity prices. Note that every company in the oil & gas space has been suffering due to a significant drop in oil and gas prices from the 2014 highs. Amid such bleak market conditions, these companies have been resorting to strategies like steering away from high-cost oil production, trimming production volumes, reducing the pace of capital investment and cutting the workforce in a bid to lower the breakeven point of production.
The New Strategy
Like every other major company operating in the oil and gas space, TOTAL is being adversely impacted by the weak commodity price environment. Thus, TOTAL’s management has aimed to continue leveraging its diverse asset portfolio to maximize profits, which is in sync with its long-term growth objectives.
Meanwhile, TOTAL aims to further reduce its capital expenditure in the days to come. From 2017, annual capital expenditure has been projected in the range of $15–$17 billion, reflecting a decrease of $2 billion from the previous guidance. This will likely be a result of capex discipline and cost reduction.
Despite the anticipated reduction in capital expenditure, TOTAL’s long-term outlook is to boost production by an average 5% per year between 2014 and 2020 (up to 2019 as per the prior guidance). The company has started four projects this year and it already had 10 projects under construction, which will give support to management’s production goals.
Moreover, TOTAL has undertaken several initiatives to trim overall expenditure. The company was able to save $1.5 billion in 2015, higher than its expectation of $1.2 billion. TOTAL has also successfully lowered operating expenses, as per its plans, and is on track to exceed its cost saving target of $2.4 billion in 2016. For 2017, the company now expects to save $4 billion, compared to its previous target of $3 billion.
TOTAL is also working to lower the breakeven point of its upstream and downstream projects, and expanding its green energy portfolio through acquisitions and its subsidiary, SunPower Corporation (SPWR - Analyst Report) . The company is expanding its footprint across the entire gas value chain, with gas representing 50% of its total reserve.
TOTAL is also focused on expanding its oil and renewables assets, while shedding non-core assets.
Benefit for Shareholders
Thanks to its strategic initiatives and cost savings, the company has been able to reward its shareholders through dividend payments. TOTAL’s dividend yield has touched 5.8% during the last 12 months.
Zacks Rank & Key Picks
TOTAL currently carries a Zacks Rank #2 (Buy). Other favorably placed stocks in the same industry include Repsol, S.A. (REPYY - Snapshot Report) and Premier Oil plc (PMOIY - Snapshot Report) . Both stocks carry the same Zacks Rank as TOTAL. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Repsol’s earnings estimates witnessed an increase of 8% and 12% to $1.08 for 2016 and $1.12 for 2017, respectively, over the last 60 days.
Premier Oil’s earnings estimates for 2016 moved to 18 cents from a loss of 7 cents over the past 60 days. For 2017, the company witnessed an increase of 58.3% in its earnings estimates to 19 cents over the same period.
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