Total’s impressive fourth quarter earnings give us a glimpse into how a supermajor can adjust to an oil price slump by getting the downstream-upstream balance right.
Total SA (NYSE:TOT) has enjoyed a significant boost in oil production alongside a comparatively low decline in upstream income, and its newly released fourth-quarter earnings reports are now reflecting the success of its balancing act.
The French giant earned $2.1 billion in adjusted net income for the fourth quarter. This is down 26 percent, or $0.88 per share, from the same quarter of 2014. But it exceeds analyst expectations, which had forecast an adjusted net profit of $1.93 billion.
With expectations at an all-time low, exceeding expectations these days isn’t that hard. More importantly, it’s how you beat expectations, and to what extent.
Royal Dutch Shell’s fourth-quarter reports showed that adjusted profit fell 56 percent compared to fourth quarter 2014, dropping to $1.8 billion from $4.2 billion. Related: The Biggest Natural Gas Discovery Of 2016 Just Got Bigger
Norway’s Statoil might have exceeded some income expectations, but its adjusted earnings were down 44 percent over the fourth quarter of 2014.
ExxonMobil managed to beat expectations, too, but its fourth quarter earnings still fell 58 percent. Finally, Chevron and BP have been in the direst of straits, with earnings shrinking over 85 percent in Q4.
There were two things here propping up Total. Related: Oil Production Rumor Mill Continues To Turn As Iran Hints At Freeze
First, it enjoyed a major boost in production that helped along its fourth-quarter 2015 results. Downstream, Total saw a 9 percent increase in 2015 production, with the lion’s share of that in the Middle East, where last year it launched a new contract with the Abu Dhabi Onshore Oil Company (ADCO).
Second, its upstream segment took a hit, but has shown a bit of resilience, earning net operating income of $748 million, down from $1.59 billion. And the hit was eased by the boost in production.
Overall, analysts seem to like Total’s focus on improving its refining and marketing operations, and this adds to the perception that it’s weathering the oil downturn well enough. Related: The Billion Dollar Biofuel That Fell 2.7 Billion Gallons Short
But what everyone really wants to know is whether Total, and its peers, are going to continue to pay dividends. Times are tough, and investors want dividends if they’re going to stick it out.
Shell has pledged to continue paying its dividend—at least $1.88 a share—through this year, but ConocoPhillips has already said it would slash dividends by two-thirds for 2016.
In the dividends game, Total is outshining its peers. At the annual company meeting planned for 24 May, the board will propose a dividend of $2.77 per share—unchanged from last year. It’s also offering shareholders the option of taking dividends in new shares rather than cash for a 10 percent market premium.
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It’s an impressive dividend, and Total seems to think it’s sustainable, even with oil prices threatening to remain low for the rest of the year.
By Charles Kennedy of Oilprice.com
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