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TOTAL Expands in Brazil With Offshore Exploration License

Zacks Equity Research

TOTAL S.A. TOT and its co-venturers Qatar Petroleum and Petroleo Brasileiro S.A. PBR have won an exploration license in the C-M-541 deep offshore block, which is located in the pre-salt Campos Basin in a water depth of about 9,842 feet (3,000 meters). TOTAL will be the operator of this block with a 40% interest, and Qatar Petroleum and Petronas will hold 40% and 20% shares, respectively. First exploration well in this block is expected to drilled in 2021.

TOTAL will make better use of its expertise in exploring deepwater assets to explore this block in Brazil. It is operating in Brazil over the last four decades, and has a presence in the entire oil and gas value chain of the country.

At the end of 2018, TOTAL produced 19,000 barrels of oil equivalent per day from Brazil. Petrobras’ hydrocarbon production from Brazilian assets is expected to further increase on the back of this strategic alliance.

Production Outlook

TOTAL is aiming to increase production by an average of 5% per year between 2018 and 2021. After a stable period between 2022 and 2023, growth will resume at more than 3% per year. We expect TOTAL’s tie up with partners to explore and produce oil and gas from new fields across the globe. This will further help it to achieve production goals.

The company has one of the best production growth profiles among the oil super majors, characterized by an upstream portfolio with above-average industry exposure to faster growing hydrocarbon producing regions of the world.

TOTAL is concentrating on expanding LNG assets on a worldwide basis, as natural gas is expected to be the primary energy source that will help utilities to lower emissions from the electricity generation process. The company will face competition from the likes of Exxon Mobil XOM and Royal Dutch Shell RDS.A for LNG shipment in the international market.  However, TOTAL is making strategic acquisitions to strengthen LNG operations.

Clean Energy in Focus

TOTAL — in addition to building the oil and gas production portfolio across the globe through acquisitions, partnerships and tie-ups — is also concentrating on generating electricity from renewable sources of energy on a worldwide basis. To capitalize on rising demand for solar power-based energy, the company acquired majority interest in SunPower Corporation SPWR to expand in the alternate energy space.

Per the International Energy Agency, renewable sources of energy will play a crucial role in addressing emission reduction and rising energy needs on a global scale. Among renewable sources, solar power is expected to be the most popular, given the availability of solar rays across the globe and declining cost of setting up utility-scale power plants.

TOTAL, taking into consideration the impact of climate change, is building a portfolio of low-carbon businesses that could account for 15-20% of sales by 2040.

Price Movement

TOTAL’s shares have underperformed its industry in the past 12 months.

Zacks Rank

TOTAL currently has a Zacks Rank #5 (Strong Sell).

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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