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WIKI ANALYSIS
Total S.A. is among the supermajor oil companies, which are the largest vertically integrated oil and gas companies in the world, by reserves, production, and market cap. Along with oil exploration and production activities, the company's upstream business segment consists of integrated Liquid Natural Gas (LNG) operations, from liquefaction to gasification, as well as a power generation business and stakes in multiple photovoltaic developers.
Total's French origins give the company an advantage over many western oil majors, as it has larger reserve and production bases in young, high-yield regions like Africa and the Middle East; Total is even one of the few companies that has operations in Iran. These regions, however, are associated with high risk because of their political violence and associations with terrorists. For the most part, its familiarity with regional cultures and the dependence of impoverished nations on international capital has allowed Total to avoid problems in these regions. Total's lack of experience across the pond, however, has led to problems in Latin America, like the nationalization of some of the company's Venezuelan assets.
The downstream portion of the oil and gas industry, involving chemicals and refining, is a traditionally volatile sector as margins can shift in two directions: changing input costs (oil prices) and changing product prices. For this reason, Total had been focusing much of its capital expenditures on upstream development; in a price environment where a barrel of oil traded at over $100, the margins for this sector were at historical highs. These high oil prices, however, have combined with worries about climate change to threaten significant portions of Total's business. For example, costs for the company's Canadian oil sands operations will skyrocket if that country's proposed greenhouse gas emissions mandates are passed, and the oil sands projects are far less profitable in an environment where oil prices are soft. Since hitting a barrel of oil hit record highs of over $140 dollars during the summer of 2008 there has been a significant pull back in the price, bottoming out at roughly $40 a barrel during the depths of the recession, and by the beginning of 2010 had returned to trade between a range of $70-80, but still well off its highs. Economic and environmental worries are also driving the development of a booming alternative energy sector, and Total is one of the few oil majors that has jumped on the bandwagon to use and develop clean energy alternatives like wind, solar, and tidal. Total's competitors are the other international oil majors, including Exxon Mobil, ConocoPhillips, BP, Chevron, Royal Dutch Shell, and Eni S.p.A..
Another aspect of Total is its diversification. The company produces fertilizers and petrochemicals and makes specialty chemicals for a variety of markets. Total is also involved in performance polymers and products that are made from petroleum. The fact that Total pumps its own crude for these purposes help cuts costs while providing revenue streams.
Business and Financials
France-based TOTAL S.A. (TOT), previously known as TOTAL Fina Elf S.A., is among the top five publicly traded global integrated oil and gas companies based on production volumes, proved reserves, and market capitalization. The company's operations can be divided into upstream (exploration and production), downstream (refining and marketing), and chemical businesses.
| 2008 | 2007 | 2006 | |
|---|---|---|---|
| Sales | 179,976 | 158,752 | 153,802 |
| Adjusted Net Operating Income | 10,590 | 13,181 | 11,768 |
| Upstream Net Operating Income | 10.446 | 8, 837 | 8,754 |
| Downstream Net Operating Income | 525 | 3,626 | 2,631 |
| Chemicals Net Operating Income | (-16) | 987 | 507 |
| 2007 | 2006 | 2007 vs. 2006 | |
|---|---|---|---|
| Hydrocarbon Production (MBOE/d) | 2,391 | 2,356 | +1.5% |
| Hydrocarbon Reserves (MMBOE) | 10,449 | 11,120 | -6% |
| Total Refinery Throughput (MBbl/d) | 2,413 | 2,454 | -2% |
| Chemicals Sales (€ Millions) | 19,805 | 19,113 | +4% |
Total's upstream business also consists of a Gas and Power segment, which encompasses natural gas and Liquid Natural Gas (LNG) operations, power generation and sales, and New (renewable) Energies. In a boost to its upstream activities, on January 15, 2010 Total completed the purchase of DC Energy Services for $44.5 million dollars. The DC Energy has seven primary locations in Western and Northern Canada and adds 3,600 pieces of rental equipment, 20 heavy trucks, and 59 trailers to Total's business base.
The company is a leader in the LNG segment. LNG is used mainly as a transportation medium for natural gas, which is difficult to move via pipeline and not economical to move via tanker. Total is a major worldwide distributor of natural gas; it is the number two gas distributor in the UK, number one in France, and owns the largest liquefaction facility in the world (located in Indonesia). Re-gasification of LNG is used to turn the liquid form back to the usable gas form, and is a relatively young technology that is necessary to make LNG usable. Total has interestes in three major re-gasification terminals - one in the large U.S. market and two in the emerging markets of Mexico and India. Total expects a 10% annual growth rate for global LNG demand in the future, and it believes these terminals will give it access to key growth markets. LNG distribution made up 20% of Total's upstream net operating income and capital employed in 2007.
Total's electricity business uses co-generation facilities as well as high-efficiency gas plants for power generation; the company sells electricity in the Middle East, South America, and Asia, and is the second-largest power company in Argentina. It also uses wind turbines, and has a 47.8% stake in European solar panel vendor, Photovoltech. The solar sector in particular is becoming increasingly competitive, with companies like SunPower and First Solar reaching efficiencies of 22% and manufacturing costs as low as $1.40 per watt (respectively); currently, Photovoltech's panels have 16% efficiencies - around the industry average - but is working with Europe's Interuniversity Microelectronics Center to research ways of making their cells more cost-efficient. Total's solar production capacity is less than 100 MW, but the company is planning to reach 400 MW by 2012[3]. Total has the additional advantages of being based in Europe, a high-growth region for solar, and having far more money than most other photovoltaics manufacturers to spend on expansion and R&D, being one of the oil supermajors.
Chemicals is Total's lowest-margins segment, but many investors often worry that, because it has the most employees, it will get unnecessary managerial attention due to France's labor-centric culture.
Trends and Forces
Total's Production Distribution Allows it to Minimize Exposure to Mature Regions - but Increases Political Risk
Total has invested most of its productive energies in Europe, Africa, and the Middle East - with Africa and the Middle East accounting for over half of total production.
| Europe | Africa | North America | Far East | Middle East | South America | Rest of World | Total Production | |
|---|---|---|---|---|---|---|---|---|
| Liquids (MBbl/d) | 355 | 681 | 14 | 28 | 323 | 118 | 10 | 1,509 |
| Natural Gas (Mcf/d) | 1,846 | 640 | 34 | 1,287 | 368 | 618 | 46 | 4,839 |
| Combined Liquids and Gas(MBoe/day) | 674 | 806 | 20 | 252 | 390 | 230 | 19 | 2,391 |
Africa is a relatively young development region for oil and gas explorers. In the past, most of the world's oil production came from areas like North America and Europe, as well as cartel-controlled OPEC nations. Since these regions have started to mature (especially North America and Europe, areas where output is uncontrolled and publicly-traded oil companies can drill to their hearts' content), exploration in Africa and the Middle East has increased, as has the overall output of the regions. While it's true that a large portion of Total's production comes from maturing European markets like the North Sea, areas where the company has seen declining production and will need to exit to increase production, the lion's share of the its holdings are in high-output, high-potential areas in Africa and the Middle East. The trade-off, however, is that the countries in these regions are often in states of political turmoil, or are breeding grounds for Islamic terrorists. Internal disturbance and hostility toward outsiders can lead to violence, damaging costly equipment or killing employees. Furthermore, many of these countries see near-constant regime changes, and each time this happens Total runs a risk that its assets will be seized by the new government with plans to nationalizethe country's oil output.
Total Seeks to Increase Cooperation with China Oil Majors
In a policy that has been met with failures before, Total S.A CEO Christophe de Margerie has sought to cooperate with rising Chinese oil majors rather than strictly competing with them. In pursuing the policy Total has entered into several agreements around the world in politically sensitive regions.
As one example, Total will make a joint bid with CNPC to develop a heavy-oil block in Venezuela's Carabobo region, where each block is estimated to cost between $10 and $20 billion. The two are also collaborating on developing fields in Iran, Venezuela, and northern China. However, in the past the two companies have had difficulty in joint ventures. Total and CNPC were also trying to work out a deal to develop Iran's giant South Pars field before the deal broke down. CNPC, then effectively replaced Total, and signed a deal with Iran to develop the field. This highlights the risk-reward inherent in the strategy that Total is pursuing. They could gain access to more fields with their combined resources, but at the same time, as the China oil majors grow, they could also threaten the position of Total, by serveing as direct competitors and Total may be pushed aside, as in the development of the Iranian South Pars field[5].
French Origins Give Total a Geo-Political Advantage in Africa and the Middle East...
Historically, the French have had a strong colonizing influence in Africa and parts of Asia. The French have done business in these regions ever since, building a stronger understanding of local cultures than most Western firms have; furthermore, the French government has had the tendency to speak out against the Western-influenced wars that have in recent years swept the Middle East. Because of this, many governments in these regions are much more keen on doing business with the French than with Americans or the British. Total's French origin gives it access to oil-rich regions that oil majors from other countries cannot or do not enter. For example, ConocoPhillips sees 67.1% of its crude oil production come from the U.S. and Europe, and only 9% come from Africa and the Middle East[6]; the proportion is approximately reversed for Total, with well over half the company's liquids production coming from Africa and the Middle East. Furthermore, Total has operations in Iran, a country that has been denounced by even the French government, as well as Myanmar, a country that is rife with political violence[7] In July 2008, however, Total announced that it would freeze further investment in Iran, as the country's missile tests created too much controversy for the company to continue to defy French sanctions.[8]
...but Put it at a Disadvantage in Latin America
The French did little expanding in Latin America, another hotspot of oil exploration and production, especially deepwater oil exploration. Total has had little experience dealing with the finer points of Latin American politics,(unlike American competitors like Exxon Mobil and Chevron). Though Latin America, like Africa, is often plagued by the political instability of developing nations, African nations tend to lack the capital necessary to develop their own oil fields. Countries like Venezuela, however, have the resources to maintain their own fields, as their economies have been built on commodities like bananas and sugar cane. These nations have fewer qualms about nationalizing assets within the country that are owned by outsiders; in 2006, for example, Venezuela's state-controlled oil company, PDVSA, took control of Total's 30,000 BPD Jusepin oil field[9]. While American companies like Exxon Mobil faced the same problem, the U.S.'s proximity to these countries and its strength as one of their trading partners makes it easier for American companies to fight such nationalist actions and get results - the reason that Exxon and ConocoPhillips went to court with Venezuela while Shell and Total simply accepted meager compensation and walked away.
A Focus on Growing its Upstream Activities Will Allow Total to Avoid Volatile Refining Margins
In 2007, Total spent €8.85 billion on investing in growing its upstream segment; by contrast, the company invested €1.875 billion in its Refining and Marketing segment and €0.911 billion in its Chemicals segment, together totaling around a quarter of upstream spending. Total is spending more on developing its exploration and production segment because oil prices have been rising, and the company predicts they will continue to rise.
Oil and gas prices have fluctuated heavily over the past few years, though the most recent trend is a rise in prices, with a barrel of oil trading in international markets a day after the 2008 New Year at just over $100. Because both are nonrenewable forms of energy (they will eventually run out), slowing discoveries of new sources combined with increasing demand has led to rising prices - and to speculation that production is approaching peak oil quantities. Whether this is true or not, oil and gas are commodities: one company's oil can only be differentiated from another company's oil based on price, so when oil prices are high, all vendors of crude benefit from larger margins.
On the flip side, companies that earn most of their revenue from downstream operations tend to see margins shrink when oil prices rise, as crude oil is the main input for refined petroleum products. Refining margins tend to be volatile because oil, the main input, is a commodity, but so are the diesel, gasoline, and jet fuels that are produced. These products also are prone to cyclical prices, as higher demand tends to raise prices, as does refining under-capacity. Because margins for refined products change from two sides, they can be very unpredictable, so Total's investment in the more profitable, more predictable upstream market will allow it to decrease its reliance on refining revenues.
Canadian Climate Change Regulations Threaten Total's Oil Sands Projects
Total has interests in two major oil sands in Alberta, Canada - one of which is worth $9 billion and both of which are expected to produce over 100,000 BPD in their first phases[10]. These investments have already proven expensive, and will take years to develop, but Canadian climate change legislation threatens to make these projects even costlier. In March of 2008, John Baird, the Environment Minister of Canada, announced proposals to reduce greenhouse gas emissions for industrial projects by 20% by 2020 - which includes oil sands development. The oil sands are the fastest-growing source of greenhouse gases in Canada, and emissions control methods would be extremely costly for Total to implement. Since Canada has yet to meet the Kyoto Protocol reductions it agreed to, they are likely targets for further emissions restrictions - and would be less profitable for Total to develop.
Total is Dipping its Hand in the Renewable Energy Pool
Fossil fuels, though highly cost-efficient forms of energy, are heavy polluters when burned. Increasing environmental concern over environmental degradation and global climate change is fueling a consumer-driven push away from dirty fuels toward such cleaner ones as biodiesel, ethanol, and cellulosic ethanol, especially in developed, politically-progressive regions like Europe and (now) the U.S. This could lead to a long-term decrease in the demand for oil and gas. Total is one of the few oil majors (BP and Chevron being the others) to invest in developing alternative energies like solar, wind, and even tidal. The company has also introduced a petroleum based fuel called Evolution that is supposed to produce lower emissions and increase fuel efficiency in cars.
Competition
Total S.A. is in the top five integrated oil companies worldwide, by production, reserve base, and market cap. The oil majors and nationals - Exxon Mobil, Chevron, Shell. BP, ConocoPhillips, Eni S.p.A., LUKOIL - are Total's main competitors. All are vertically integrated oil companies that explore, extract, and refine petroleum products. Supplying their own oil allows them to keep margins down, while their immense size allows them to keep capital expenditures high to expand refining capacity and increase exploration and production globally.
| CONOCOPHILLIPS | ROYAL DUTCH SHELL | EXXONMOBIL | CHEVRON | BP | LUKOIL(1) | Eni S.p.A(1) | Total S.A. | |
|---|---|---|---|---|---|---|---|---|
| Reserves | ||||||||
| Oil and Gas Liquids (Millions of barrels) | 5,817[11][12] | 3775[13] | 7,576(2)[14] | 7,350[15] | 10,353[16] | 15,715[17] | 3,219[18] | 5,695[19] |
| Natural Gas (Billions of cubic feet) | 24,948[20] | 40,895[21] | 31,402(2)[14] | 23,075[15] | 45,208[16] | 27,921[22] | 18,090[18] | 26,218[19] |
| Production | ||||||||
| Oil and Gas Liquids (Thousand b/d) | 1,108[23] | 1,695[13] | 2,405[24] | 1,649[25] | 2,401[26] | 1,954[27] | 1,020[18] | 1,456[28] |
| Natural Gas (Million cf/d) | 4,970[23] | 8,595[21] | 9,095[24] | 5,125[25] | 8,334[26] | 1,586[29] | 4,114[18] | 4,837[28] |
(1) Latest data is for 2007 (2) Does not include reserves of equity affiliates
| SUNOCO | CHEVRON | VALERO | EXXON MOBIL | Royal Dutch Shell | SINOPEC | WESTERN REFINING | ConocoPhillips | BP | LUKOIL(1) | Eni S.p.A(1)[30] | Total S.A. | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Refinery Capacity (Million BPD) | 0.91[31] | 2.139[32] | 2.99[33] | 6.2[34] | 3.678[35] | 3.376[36] | 0.238[37] | 1.986[38] | 2.678[39] | 1.135[40][41] | 0.544 | 2.604[42] |
| Number of Refineries (including partial interests) | 5[43] | 18[32] | 16[44] | 37[34] | 40[45] | 17[46] | 4[47] | 12[38] | 17[39] | 9[48] | N/A | 25[42] |
| Number of Retail Gas Stations | 7,785[49] | 25,000[50][51] | 5,800[44] | 10,516[52] | 45,000[53] | 29,279[54] | 153[55] | 8,340[56] | 22,600[57] | 6,287[58] | 6,441 (in Europe) | 16,425[42] |
(1) Latest data is for 2007
Notes
- ↑ Total 2008 Annual Report
- ↑ Total 2007 Results Press Release
- ↑ Total 2007 Results Presentation
- ↑ Total 2007 Results Press Release
- ↑ Total Aims to Boost China Ties December 22, 2009
- ↑ COP 2007 10-K, Page 58
- ↑ http://www.total.com/en/common/contact/contact-exploration-production/exploration_production_1032.htm
- ↑ BBC: " French firm quits Iran gas deal"
- ↑ NewsMax: "Venezuela Takes Control of Total S.A. Oil Field"
- ↑ Reuters: "UPDATE 2-Total plans big Canadian oil sands upgrade"
- ↑ COP 2008 10-K, Item 8,Page 149
- ↑ COP 2008 10-K, Item 8,Page 152
- ↑ 13.0 13.1 RDS’A 2008 20-F, Supplementary Information, Crude oil and natural gas liquids
- ↑ 14.0 14.1 XOM 2008 10-K, Item 1, Page6
- ↑ 15.0 15.1 CVX 10-K 2009, Item 1, Page 7
- ↑ 16.0 16.1 BP 2008 20-F, Item 1, Page 16
- ↑ Lukoil Investor Relations – Fact Book 2008, Page 11
- ↑ 18.0 18.1 18.2 18.3 ENI S.p.A. – Fact Book 2007, Page 11
- ↑ 19.0 19.1 TOT 2008 20-F, Item 4, Page 10
- ↑ COP 2008 10-K, Item 8, Page 151
- ↑ 21.0 21.1 RDS’A 2008 20-F, Supplementary Information, Natural gas
- ↑ Lukoil Investor Relations – Fact Book 2008, Page 12
- ↑ 23.0 23.1 COP 2008 10-K, Item 6, Page 42
- ↑ 24.0 24.1 XOM, 2008 10-K, Item 6, Page 36
- ↑ 25.0 25.1 CVX 2008 10-K, Item 1, Page 5
- ↑ 26.0 26.1 BP 2008 20-F, Item 1, Page 14
- ↑ Lukoil Investor Relations – Fact Book 2008, Page 13
- ↑ 28.0 28.1 TOT 2008 20-F, Item 4, Page 12
- ↑ Lukoil Investor Relations – Fact Book 2008, Page 14
- ↑ E 2007 Annual Report
- ↑ SUN 2008 10-K, Item 7, Page 35
- ↑ 32.0 32.1 CVX 10-K 2009, Item 1, Page 24
- ↑ VLO 2008 10-K, Item 1, Page 3
- ↑ 34.0 34.1 XOM 2008 10-K, Item 6, Page 43
- ↑ RDS’A 2008 20-F, Results, Refining Data
- ↑ Sinopec Investor Relations, Operational Statistics for 2008
- ↑ WNR 2008 10-K, Item 7, Page 34
- ↑ 38.0 38.1 COP 2008 10-K, Item 1, Page 16
- ↑ 39.0 39.1 BP 2008 20-F, Item 1, Page 29
- ↑ Lukoil Investor Relations – Fact Book 2008, Page 15
- ↑ Conversion factor is 1 BPD = 50 tonnes per year
- ↑ 42.0 42.1 42.2 TOT 2008 20-F, Item 4, Page 36
- ↑ SUN 2008 10-K, Item 1, Page 1
- ↑ 44.0 44.1 VLO 10-K 2008, Item 1, Page 1
- ↑ RDS’A 2008 20-F, Results, Manufacturing
- ↑ Sinopec Refining Overview
- ↑ WNR 2008 10-K, Item 1, Page 19
- ↑ Lukoil Investor Relations – Fact Book 2008, Page 16
- ↑ SUN 2008 10-K, Item 1, Page7
- ↑ CVX 10-K 2008, Item 1, Page 25
- ↑ CVX 10-K 2008, Item 1, Page 26
- ↑ XOM 2008 10-K, Item 2, Page 25
- ↑ RDS’A 2008 20-F, Results, Marketing
- ↑ Sinopec 2008 Annual Report, Business Review and Prospects, Page 20
- ↑ WNR 2008 10-K, Item 1, Page 3
- ↑ COP 2008 10-K, Item 1, Page 18
- ↑ BP 2008 20-F, Item 1, Page 30
- ↑ Lukoil Investor Relations – Fact Book 2008, Page 60
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