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TOTAL (TOT) Tops Q4 Earnings on Higher Oil Prices & Output

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TOTAL S.A.  (TOT - Free Report) reported fourth-quarter 2017 operating earnings of $1.10 per share (€0.94 per share), which beat the Zacks Consensus Estimate of $1.06 by 3.8%.

The bottom line improved 15% from the year-ago figure of 96 cents (€0.89 per share). This was due to solid operational performance, steadily decreasing production costs, improvement in the realized prices of commodities and new projects ramp ups, which boosted production.

Total Revenues

Total revenues came in at $47.35 billion, up 12.0% from $42.27 billion generated in the year-ago quarter.

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Total hydrocarbon production during the fourth quarter averaged 2,613 thousand barrels of oil equivalent per day, up 6% year over year. The increase was due to higher contribution from Kashagan, Moho Nord, Incahuasi, Surmont, Edradour-Glenlivet and Angola LNG, partially offset by natural field decline and OPEC quotas. Improved security condition in Libya and Nigeria also boosted production.

In the reported quarter, liquids production averaged 1,389 thousand barrels per day, increasing 11% from the year-ago period.

Gas production during the quarter was 6,832 thousand cubic feet per day, up 4% year over year. Soft performance in Asia Pacific region was more than offset by increased production in Africa and the Americas.

Realized Price

In the fourth quarter, the realized price for Brent was up 24% to $61.3 per barrel from $49.3 in the year-ago quarter. The average realized liquid price improved 25% to $57.6 per barrel from the year-ago level of $46.1.

Realized gas prices in the quarter improved 9% year over year to $4.23 per thousand Btu.

Realized hydrocarbon prices increased 22% to $43.3 per barrels of oil equivalent (boe) from $35.6 in fourth-quarter 2016.

Highlights of the Release

Operating income was $3,359 million, up 26% from the year-ago period. Higher contribution from Exploration & Production and Gas, Renewable & Power segments boosted operating income.

Adjusted net income in the reported quarter was $2,872 million, up 19% from the year-ago quarter.

The cost-reduction initiatives have resulted in cost savings of $3.7 billion in 2017. Production costs in the year dropped to $5.4/boe from $9.9/boe in 2014.

Segment Details

Exploration & Production’s operating income was $1,805 million compared with $1,007 million in fourth-quarter 2016. The year-over-year increase was due to production growth, cost reductions and an increase in the average realized hydrocarbon price.

Gas, Renewable & Power’s operating income was $232 million compared with $132 million in fourth-quarter 2016.

Refining & Chemicals operating income was $886 million compared with $1,131 million in the year-ago quarter.

Marketing & Services operating income was $436 million compared with $406 million in fourth-quarter 2016. The year-over-year increase was due to strong marketing margins in Africa.

Sale & Purchase of Assets

In the reported quarter, TOTAL acquired assets worth $313 million, primarily comprising the acquisition of 23% equity share in EREN Renewable Energy and 12.5% equity share in the Anchor license in the United States.

The company sold assets worth $1,119 million during the same period, consisting mainly of the sale of mature assets in Gabon, Gina Krog in Norway and part of the interest in the Fort Hills project in Canada

Financial Update

Cash and cash equivalents as of Dec 31, 2017 were $33.18 billion compared with $24.59 billion as of Dec 31, 2016. Net debt-to-equity ratio was 13.8% at the end of the quarter, down from 27.1% at the end of fourth-quarter 2016.

2017 Guidance

TOTAL’s upstream production is expected to increase 6% in 2018, in sync with its objective to grow 5% per year on average between 2016 and 2020.

The company continues to work on its cost-management initiatives and expects to generate cost savings of $4 billion in 2018. Organic capital expenditure is expected to be $14 billion in 2018.

Our View

TOTAL’s performance was better than expected in the reported quarter, thanks to its strong operational performance, cost control and new upstream projects. The company also benefited from recovery of commodity prices.

Going forward, the company will benefit further from upstream startups and cost management initiatives. It continues to gain from strategic acquisitions and asset divestures, which will further strengthen the portfolio.

The company is utilizing its strong cash flow generating capacity to strengthen its balance sheet, pay dividend and buy back shares.

TOTAL carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Peer Releases

ExxonMobil Corporation (XOM - Free Report) reported adjusted earnings of 88 cents per share in the fourth quarter, which missed the Zacks Consensus Estimate of $1.06.

BP Plc. (BP - Free Report) reported fourth-quarter adjusted earnings of 64 cents, missing the Zacks Consensus Estimate of 66 cents by 3%.

Chevron Corp. (CVX - Free Report) reported fourth-quarter adjusted earnings per share of 73 cents, lagging than the Zacks Consensus Estimate of $1.27.

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