Total missing output, cash targets to plan cost cuts, BMO says

Petrogas said it “intends to build on the current Aberdeen presence” and that no redundancies would result from the deal
Petrogas said it “intends to build on the current Aberdeen presence” and that no redundancies would result from the deal

Total SA, Europe’s second-biggest oil company, will probably announce “demanding” cost-cutting measures next week to counter shortfalls expected in production and cash-generation goals, BMO Capital Markets said.

“It is very likely that Total’s management will publicly confirm that its key targets are too ambitious,” analysts led by Iain Reid said in a report published today. A “modest” share buyback is possible, it said.

Chief Executive Officer Christophe de Margerie is holding a meeting with investors on 22 September to discuss strategy. The oil explorer had pledged to raise output and free cash flow as new projects from Angola to the North Sea start producing crude and natural gas. In July, the company said a three-year cost-cutting program is being completed and will be presented at the meeting.

The report is the latest in a series pointing to a lowering of expectations for the French company. RBC Capital Markets forecast earlier this week Total will miss targets.
Total’s production may fall 5 percent this year from 2013 and reach 2.38 million barrels of oil equivalent a day in 2015, short of the 2.6 million-barrel target, according to BMO Capital Markets.

While the shortfall will be “disappointing,” it may be followed by a 9% increase in volumes in 2015, according to the report.

“Looking beyond 2015 we are also expecting Total to miss its 2017 target,” the report said.

The forecast output of 3 million barrels of oil equivalent a day may reach only up to 2.72 million barrels, according to the report. Australian LNG projects Gladstone and Ichthys may not be at full production until 2018, while Yamal LNG and Fort Hills may not have started producing.

A Total spokeswoman declined to comment.

The scheduled meeting with investors comes after Total reported second-quarter output fell to a record partly due to a loss of concessions in Abu Dhabi, disruptions in Libya and halts at Kashagan and Angola LNG.

The French oil company is also expected to fall short of free cash flow goals, reaching $8.6billion instead of about $10 billion next year and $9.3billion in place of more than $15 billion in 2017, BMO Capital Markets said.

Total is also completing a plan to sell assets, having reached almost $17 billion in the second quarter, compared with a target of $15 billion to $20billion from 2012 to 2014.