Total Reports Net Profits of US$4.5 bil. in Q4 and Predicts Strong 2008

Exchange Rates Bite

Today French supermajor Total reported earnings of 3.1 billion euro during the fourth quarter of 2007, equalling US$4.5 billion, compared with 2.7 billion euro (US$3.9 billion) in the fourth quarter of 2006: in other words, a 14% rise. Total is the only major reporting in euro, and its final results were hit by the sharp weakening of the U.S. dollar against the euro during the past year. In dollar terms, the company's fourth-quarter profit rose by 28% compared with the fourth quarter of 2006. Total's full-year profit of 12.2 billion euro in 2007 fell by 3% from 12.5 billion euro in 2006, but rose by 6% from US$15.8 billion in 2006 to US$16.7 billion in 2007 in dollar terms. The group's total 2007 net income, including non-energy-related holdings, reached 13.2 billion euro (US$19.2 billion).

Upstream production growth grew again—by 2.4% in the fourth quarter—although Total failed to reach its goal of a 4% annual long-term production growth in 2006-10 during 2007, with production growing by 1.5% and reaching 2.461 million barrels of oil equivalents per day (boe/d). Much of the year's growth came from the successful start-up of the Rosa field and the Pazflor fields in Angola, though the ramping-up of output at Angola's Dalia, as well as the successful start-up of the Qatar-United Arab Emirates Dolphin Energy integrated gas production and pipeline project also made an impact. The Sisi-Nubi gas field in Indonesia, Canada's Surmont field, and a production contract extension at Thailand's Bongkot field also contributed positively to the growth. Total invested US$16.1 billion in its upstream segment during 2007.

Downbeat Downstream

Rising crude prices were a big driver behind Total's result, as for all its competitors, although the company was hit by falling gas prices, especially in Northern Europe, during 2007. Refining margins remained strong, although volatile, and showed a negative profit growth of -9% during 2007 in euro and -1% in U.S. dollar terms, although the slide appeared to have been halted in the fourth quarter, growing by 12% in U.S. dollar terms and declining by less than 1% in euro. A lower refinery throughput and weaker European retail margins somewhat dampened the segment's 2008 outlook. Total's chemical business segment served as the largest brake on overall profit growth during the fourth quarter, with net income declining by 66% compared with the same period last year (62% in U.S. dollars), although only falling by 4% on a full-year basis during 2007.

The company's reported reserve replacement ratio (RRR) was 78% during 2007, although adjusted for Venezuela's forced acquisition of Total's stake in the Sincor heavy oil projects, the RRR was as low as 23%. Nevertheless, this was still better than similar adjustments being made to U.S major Chevron's RRR values.

Outlook and Implications

Total has reported being on track to reach its target of 4% average annual growth in upstream production rates between 2006 and 2010, which it has missed for this particular year. Saying that Total's leadership now was "confident of [its] ability to implement [its] model of sustainable growth", the company's chief executive officer (CEO) Christophe de Margerie announced that some projects initially targeted for 2007 and now due to come onstream during 2008, together with the fact that 2008's projects are mostly on target, would bring about high production growth for the year. Some examples given were the Dolphin production levels being ramped up in the past couple of days to full production, as well as the addition of significant production growth from Congo's Moho Bilondo and the United Kingdom's Jura projects.

Refining and chemical margins look less promising for Europe's largest refiner, with a weak trend ending 2007, especially within the chemicals segment. Total's LNG sales are planned to grow by 13% during the coming year. Investment in future LNG feedstock growth will concentrate particularly on Algeria and Qatar during 2008, while continuous investment in producing LNG assets will focus on North American and European integrated production platforms.

Total's production growth and 2008 production outlook place the company in a category on its own among its peers, with other majors reporting and expecting declines or significantly weaker growth figures. The bullish production outlook was strengthened by the total board's recommendation to raise the dividend by a further 11% (23% in U.S. dollars), following on last year's 15% raise, to a record 2.07 euro per share.

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