TOTAL (TOT) Updates Guidance, to Create Long-Term Value
TOTAL S.A. TOT recently revealed its strategy to continue increasing production, lower expenses and create long-term value through payment of dividends.
Production Growth & Cost Savings
Harnessing benefits from the startups, ramp-ups and other new ventures, the company expects its production to increase by an average of 5% per year between 2014 and 2020. TOTAL is geared to achieve its targeted production growth on the back of 11 major start-ups lined up from 2017 to 2018.
TOTAL continues to benefit from the structural changes that have helped in reducing operational expenses. It aims to save around $4 billion in 2018 and expects to increase savings to $5 billion by 2020.
The company has maintained its capital expenditure guidance for 2018-2020 between $13 billion and $15 billion per year. The company is focused on developing the high-return projects that will ensure better return amid oil price volatility.
Divestment & Acquisition
TOTAL continues to sell its non-core and high breakeven assets and utilize the net proceeds to fund acquisition that are in sync with its long-term objectives. The company has completed its $10 billion asset sales program for 2015-2017.
Last month, TOTAL decided to acquire Maersk Oil & Gas A/S (Maersk Oil). This high-quality, low margin production assets will help TOTAL increase its total hydrocarbon production level to 3,000 thousand barrels of oil equivalent (kboe) per day in 2019 from 2,500 kboe per day at the end of second quarter of 2017.
We believe the deal will further strengthen TOTAL’s position in the industry and create tougher competition for the super majors like Exxon Mobil Corporation XOM and Chevron Corporation CVX, among others.
Renewable Goals
TOTAL’s management is also focused on expanding renewable assets portfolio as renewable energy is going play an important role in energy supply mix. Regulations to curb emission and depleting fossil fuels will make renewables the best possible choice for electricity production. TOTAL has presence in the solar industry space through the acquisition of SunPower Corporation SPWR. The company is now planning to further its renewable goal by producing 5 Gigawatt of power from renewable sources by 2022.
To Sum Up
All these initiatives will help the company to improve free cash flow by nearly $60 billion in 2020. This will help TOTAL to strengthen its balance sheet through debt repayment and payment of regular dividend to its shareholders.
TOTAL has been a steady performer, delivering a positive earnings surprise of 2.1% in the last quarter. Thanks to its positive results and performance the Zacks Consensus Estimate for 2017 has moved up 3.3% to $4.06 per share in the last 60 days.
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