TOTAL (TOT) Beats Q1 Earnings Estimates, Keeps '17 Outlook

Integrated oil and gas company, TOTAL S.A. TOT reported first-quarter 2017 operating earnings of $1.01 per share (€0.95 per share), beating  the Zacks Consensus Estimate of 95 cents by 6.3%.

First-quarter operating earnings improved 49% from the year-ago figure of 68 cents per share (€0.62 per share). The year-over-year improvement in earnings was due to good operational performance, steadily decreasing breakeven production costs and a gradual improvement in the realized prices of commodities.

Total Revenue

Total revenue in the reported quarter came in at $41.18 billion, up 25.4% from $32.84 billion in the year-ago quarter.

Production

Total hydrocarbon production during first-quarter 2017 averaged 2,569 thousand barrels of oil equivalent (kboe) per day, up 4.0% year over year. The increase was due to higher contribution from its Kashagan, Laggan-Tormore, Surmont, Incahuasi and Angola LNG projects, partially offset by natural field decline.

In the first quarter, liquids production averaged 1,303 thousand barrels per day, increasing 1% from the year-ago period.

Gas production during the quarter was 6,894 thousand cubic feet per day, up 7% year over year. Soft performance in Asia Pacific, Middle East & North Africa was more than neutralized by an increase in production in Africa, Europe & Central Asia and Americas.

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Realized Price

In first-quarter 2017, the realized price for Brent was up 58% to $53.70 per barrel from $33.90 in the year-ago quarter. The average realized liquid price improved 59% to $49.2 per barrel from the year-ago level of $31.0.

Realized gas prices in first-quarter 2017 improved 18% year over year to $4.10 per one thousand Btu (Mbtu).

Realized hydrocarbon prices gained 44% to $37.9 per barrels of oil equivalent (boe) from $26.4 in first-quarter 2016.

Highlights of the Release

Operating income in the reported quarter was $2,767 million, up 47% from the year-ago period. The higher contribution from Exploration & Production segment boosted the operating income.

Net cost of debt in the reported quarter was $259 million, up from $210 million in the year-ago quarter.

Adjusted net income in the reported quarter was $2,558 million, up 56% from the year-ago quarter.

During the quarter, TOTAL announced that it will form a joint venture with Borealis and Nova to expand its petrochemical business in the U.S. The joint venture is aimed at building a 1 million ton-per-year ethane steam cracker in Port Arthur, TX. TOTAL will own 50% of the $1.7 billion project.

Segment Details

Exploration & Production’s operating income was $1,382 million, compared with $386 million in first-quarter 2016. The year-over-year increase was due to production growth, cost reductions and a 44% increase in the average realized hydrocarbon price.

Gas, Renewable & Power’s operating income was $61million, compared with $73 million in first-quarter 2016. The year-over-year decrease was primarily due to unfavorable solar activities.

Refining & Chemicals operating income was $1,023 million, compared with $1,130 million in first-quarter 2016.

Marketing & Services operating income was $301 million, compared with $289 million in first-quarter 2016. The year-over-year increase was due to strong marketing margins.

Sale & Purchase of Assets

In first-quarter 2017, TOTAL acquired assets worth $547 million, primarily comprising the 23% equity share in Tellurian and the marketing and logistics network acquired in Kenya, Uganda and Tanzania.

However, the company sold assets worth $2,711 million during the same period, including the sale of Atotech.

Financial Update

Cash and cash equivalents as of Mar 31, 2017 were $27.53 billion, compared with $24.60 billion as of Dec 31, 2016.

The net debt-to-equity ratio was 22.7% at the end of first-quarter 2017, down from 27.1% at the end of fourth-quarter 2016.

2017 Guidance

TOTAL expects production from the upstream segment to improve 4% year over year.

The company continues to work on cost management initiatives and targets cost savings of $3.5 billion in 2017.

Upcoming Peer Releases

Exxon Mobil Corp. XOM is scheduled to release first-quarter 2017 earnings on Apr 28. The Zacks Consensus Estimate for the quarter is pegged at 85 cents.

BP plc BP is scheduled to release first-quarter 2017 earnings on May 2. The Zacks Consensus Estimate for the quarter is pegged at 35 cents.

Royal Dutch Shell RDS.A is scheduled to release first-quarter 2017 earnings on May 3. The Zacks Consensus Estimate for the quarter is pegged at 82 cents.

Our View

TOTAL reported strong results for first-quarter 2017, with its earnings outpacing the Zacks Consensus Estimate. Amid ongoing volatility of crude oil prices, the company remains committed toward cost savings initiatives. After savings of $2.8 billion in 2016, TOTAL aims to save $3.5 billion in costs this year.

Furthermore, TOTAL expects to improve its top-line production by 4% in 2017, owing to new projects that are lined up to start during the year.

Going forward, the company will continue to benefit from upstream startups and cost management initiatives. Strategic acquisitions and asset divestures will further strengthen portfolio.

TOTAL currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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