Big Oil’s rebound from slump boost Total’s bottomline

Company’s earnings follow strong profits from ConocoPhillips and Statoil

Total SA posted the highest earnings from pumping oil and gas in more than two years, illustrating the improving fortunes of an industry that’s endured the deepest downturn in a generation.

Total’s earnings followed surprisingly strong profits from ConocoPhillips and Statoil, driven by a combination of higher crude prices and deep cost cuts. ExxonMobil Corp and Chevron Corp, the largest US oil majors, were expected to report their earnings yesterday. The global imbalance between crude supply and demand that’s weighed on prices for three years is finally dissipating, the French energy giant said.

“The group took full advantage of the favourable environment,” Chief Executive Officer Patrick Pouyanne said in a statement on Friday.

While the situation is improving, inventories are still high and the market will remain volatile, so Total’s strategy is to continue reducing the oil price it needs to break even, he said.

An Opec-led effort to shrink a global oil glut finally gained traction in the third quarter, when benchmark Brent crude prices were 11 per cent higher than the same period in 2016. Total also benefited from oil and gas production that rose 6 per cent to 2.58 million barrels of oil equivalent a day.

The company reported third-quarter adjusted net income of $2.67 billion, a 29 per cent increase from a year earlier and in line with estimates. Adjusted net operating income from its exploration and production unit rose 84 per cent to $1.44 billion, the highest level since the second quarter of 2015. Total shares rose 1.6 per cent to €47.3 as of 10:41am in Paris, paring their year-to-date decline to 2.9 per cent.

Since 2014, major oil companies have prioritised one thing — cutting spending. They’ve laid off thousands of workers, cancelled or deferred projects and put intense pressure on their suppliers and contractors to reduce their prices. Despite the recent recovery, Brent is still about half the level of three years ago, so there’s little sign that this focus is shifting.

Total expects to exceed its target of reducing annual costs this year by $3.6 billion compared with 2014, Pouyanne said. The company is aiming to be able to fully fund both its dividends and capital expenditure by 2019 with crude at $50 a barrel, ending a period of several years where free cash flow fell short of spending.

Italy’s ENI, which posted earnings on Friday that fell short of expectations, said it’s on track to achieve that milestone if oil rises to $60 this year. Brent crude, the international benchmark, traded near $59 a barrel yesterday after closing at the highest price in more than two years.