TOTAL Beats But Net Falls

TOTAL S.A. (TOT: 56.34 +0.33 +0.59%) reported fourth-quarter earnings of $1.37 per share (€0.93 per share), well above the Zacks Consensus Estimate of $1.22. However, earnings declined substantially from $1.70 reported a year ago.
 
Though the company’s earnings came in below the year-earlier level, it has maintained its dividend payout, which reflects an attractive dividend yield.
 
Estimate Revisions Trend
 
There was a mixed trend in estimate revisions. For the last 30 days, 2 of the 7 analysts covering the stock raised estimates for full fiscal 2010 while 3 analysts moved in the opposite direction. However, no up or downward movements were noticed in the last 7 days. Currently, the Zacks Consensus Estimate for full fiscal 2010 earnings is $7.07 per share, which is a significant improvement over full fiscal 2009 earnings of $4.85 per share.
 
Operational Performance
 
Total revenues declined more than 6% from the year-ago quarter but improved nearly 8% sequentially to €36.2 billion ($53.6 billion). The year-over-year decline was caused mainly by lower liquid production volumes, weak natural gas prices, reduced throughput volumes and lower refinery utilization rates.
 
Total hydrocarbon production averaged 2,377 thousand barrels of oil equivalent (MBOE) per day, up 1% from last year and nearly 6% from the previous quarter. The increase was mainly due to production improvements and start-ups of new fields. This was offset by OPEC reductions, disruptions in Nigeria and changes in the portfolio, essentially in Venezuela. Excluding the effect of OPEC reductions, production growth was 2.5% year over year.
 
Liquids and gas production averaged 1,404 thousand barrels (MBbls) per day (down 2%) and 5,320 thousand cubic feet (Mcf) per day (up 4%), respectively. Average hydrocarbon prices increased 15% year over year in the quarter. Liquids and gas realizations were up 43% and down 33%, respectively.
 
Total refinery throughput was 2,055 MBbls per day, down 13% year over year and 4% sequentially, driven by voluntary throughput reductions to adjust to the economic environment. Crude and other feedstock based utilization rates in the quarter declined to 79% from 91% last year. Chemicals revenues declined 2% from the year-ago quarter to €3.93 billion ($5.82 billion).
 
Liquidity Position
 
In the reported quarter, TOTAL generated cash flow of €1.9 billion ($2.8 billion) from operating activities. At the end of 2009, net debt-to-equity ratio stood at 27%. The company invested €3.5 billion ($5.2 billion) in the fourth quarter, bringing full-year 2009 investment of €13.3 billion ($18.6 billion). At year-end, TOTAL had €11.7 billion ($17.3 billion) of cash and cash equivalents.
 
Outlook
 
Based on the projects started last year, the company is expecting an increase in total production volumes during this year. In addition, the recent start-up of Surmont Phase II project and the anticipated launch of several other important projects this year will definitely add numbers to its production volumes.
 
Excluding divestitures, TOTAL expects $18 billion in capital expenditure in this year. Net debt-to-equity ratio is expected to be in the range of 25% – 30%.
 
We continue to like TOTAL for its positive production growth profile, attractive returns and improving upstream investments (80% of the total investment this year). The group has been quite active on the acquisition front. Notably, in the reported quarter, it has acquired one fourth of Chesapeake’s (CHK: 24.45 +0.05 +0.20%) interest in Barnett Shale’s unconventional acreages.
 
TOTAL’s aggressive acquisitions and solid upstream investments help the company to compete with other oil majors such as, ExxonMobil (XOM: 64.67 -0.18 -0.28%), British Petroleum (BP: 53.76 +0.11 +0.21%), Chevron (CVX: 70.58 -0.17 -0.24%) and Royal Dutch Shell (RDS.A). However, we are currently Neutral on TOT ADRs.