Total SA is getting payback from bets in the Middle East and its dogged defense of refining. Both helped Europe’s second-biggest oil company limit the damage from a crash in crude prices.

The renewal of a 40-year oil concession in Abu Dhabi, half a decade of heavy spending on offshore projects and years of reorganization and investment in refining -- much of it at a time when the sector was in the doldrums -- helped the French producer shrug off a 50 percent plunge in crude prices.

Second-quarter results published Wednesday prove “integrated business models work well in volatile oil price periods,” Oswald Clint, an analyst at Sanford C Bernstein & Co. Inc. wrote in a note. “The company’s response to the 2015 trough oil price year is working.”

Total Chief Executive Officer Patrick Pouyanne, who took the helm in October following the death of Christophe de Margerie, repeated the mantra in defending the company’s refining operations. Plucked from the division to replace de Margerie, Pouyanne has worked to cut European capacity, even in France where political and union opposition was strong, and add more in high-growth regions like the Middle East, where Total has invested in a Saudi plant.

“We are very happy about the resilience coming from being an integrated company,” Chief Financial Officer Patrick de La Chevardiere said on a conference call with analysts, referring to the businesses of exploring and producing oil as well as processing it into gasoline and diesel and marketing it at service stations. The downstream is “performing at a level that hasn’t been seen in years.”

Beating Expectations

Adjusted net operating income from refining and chemicals tripled in the quarter, helping Total to beat expectations in announcing a miserly 2.1 percent drop in profit to $3.09 billion even as oil prices fell by more than half. During the period, Total’s measures of European refining margins rose to its highest level in a dozen years.

Total’s wager on the United Arab Emirates, where other major oil groups have hesitated, is also bearing fruit. Exxon Mobil Corp. last year decided against bidding to renew its own concession with Abu Dhabi National Oil Co., complaining about low returns. BP Plc and Royal Dutch Shell Plc were also former holders, but so far haven’t signed new deals. The French group paid a $2.2 billion signing bonus for a 10 percent stake in the 40-year concession, two people familiar with the contract have said.

Getting the award at the start of the year ahead of any other major competitors helped boost the French company’s output 12 percent this quarter.

Project Pipeline

While lowering overall spending this year in response to the slump in crude prices, Total is still working hard to start producing from a lengthy pipeline of projects that began when oil was hovering at about $100 a barrel.

In recent quarters, Total has started up operations from Angola to west of Shetland Islands and is planning for others in Australia and Canada later this year. In pledging on Wednesday to meet a production growth target this year of more than 8 percent, Total is reversing years of missed output goals.

“Group production is up 12 percent which is impressive compared to the already high 8 percent expected,” Alexandre Andlauer, analyst at Alphavalue in Paris, wrote in a report on the results. Improved output from mature fields also played a part, he said.

Source: www.bloomberg.com

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