Total's Profit Rises 32% in 3Q10

Total released its earnings report for the third quarter and first nine months of 2010.

Commenting on the results, Chairman and CEO Christophe de Margerie said, "With a 32% increase in adjusted net income and more than a 4% increase in production compared to the third quarter 2009, Total confirms the momentum of the past several quarters. In addition to higher oil and gas prices, these good results reflect the quality and reliability of the Group's operations, the profitability of its new production and the improved performance of the Chemicals segment.

"This quarter was marked by major advances in the Upstream: launching the CLOV project in Angola, acquiring stakes in the Fort Hills project in Canada and GLNG in Australia, and entering into three promising new exploration permits.

"These moves illustrate the effective implementation of the Group's strategy to revitalize its exploration program and leverage partnerships to grow the Upstream, and invest in strong value-creating projects."

Highlights since the beginning of the third quarter 2010

  • Launched the development of the CLOV project on Block 17 in Angola and the Islay gas field in the North Sea
  • Acquired a 20% stake in the Canadian Fort Hills oil sands project through the acquisition of UTS
  • Acquired a 20% stake in the GNLG project to develop and liquefy coal seam gas in Australia
  • Added exploration acreage by taking interests in a permit in the joint development zone between Nigeria, Sao Tomé and Principe, in the Sebuku permit in Indonesia and in the CI-100 permit in Ivory Coast
  • Announced three offshore discoveries, including two oil discoveries on Block 15/06 in Angola and Block 15-1/05 in Vietnam and one gas and condensate discovery on Block B in Brunei
  • Signed an agreement with Petroleum Brunei allowing exploration operations to resume on Block CA-1 (formerly Block J) in Brunei with the entry of Petronas and Murphy as new partners
  • Entered into a new partnership agreement with Gazprom to transfer a 20% interest in the Ipati and Aquio permits in Bolivia

Third quarter 2010 results
Operating income

In the third quarter 2010, the Brent price averaged 76.9 $/b, an increase of 13% compared to the third quarter 2009 but a decrease of 2% compared to the second quarter 2010. European refining margin indicator (ERMI) averaged 16.4 $/t for the quarter, an increase of 37% compared to the third quarter 2009 but a decrease of 47% compared to the second quarter 2010.

The euro-dollar exchange rate averaged 1.29 $/€ in the third quarter 2010 compared to 1.43 $/€ in the third quarter 2009 and 1.27 $/€ in the second quarter 2010.

In this environment, the adjusted operating income from the business segments was 4,728 M€, an increase of 35% compared to the third quarter 2009. Expressed in dollars, the increase was 22%.

The effective tax rate for the business segments was 56% in the third quarter 2010 compared to 57% in the third quarter 2009.

Adjusted net operating income from the business segments was 2,643 M€ compared to 1,808 M€ in the third quarter 2009, an increase of 46%.

Expressed in dollars, the adjusted net operating income from the business segments was 3.4 billion dollars (B$), an increase of 32% compared to the third quarter 2009.

This increase is higher than that of the adjusted operating income from the business segments notably due to higher income from equity affiliates and a lower effective tax rate.

Net income

Adjusted net income was 2,475 M€ compared to 1,869 M€ in the third quarter 2009, an increase of 32%. Expressed in dollars, adjusted net income increased by 20%.

Effective July 1, 2010, the Group no longer accounts for its interest in Sanofi-Aventis as an equity affiliate. In the third quarter 2009, the contribution to the Group's adjusted net income from Sanofi-Aventis was 192 M€. Excluding the contribution of Sanofi-Aventis, the Group's adjusted net income would have increased by 48% in euros and 33% in dollars.

Adjusted net income excludes the after-tax inventory effect and special items.

  • The after-tax inventory effect had a negative impact on net income of 48 M€ in the third quarter 2010 and a positive impact of 122 M€ in the third quarter 2009.
  • Special items had a positive impact on net income of 400 M€ in the third quarter 2010, comprised essentially of gains on the sale of the Group's interests in the Valhall and Hod fields in Norway and a gain related to the change in accounting treatment for the interest in Sanofi-Aventis. In the third quarter 2009, Special items had a positive impact on net income of 2 M€.
  • In the third quarter 2009, special items included the Group's equity share of adjustment items related to Sanofi-Aventis that had a negative impact on net income of 70 M€.

Net income (Group share) was 2,827 M€ compared to 1,923 M€ in the third quarter 2009. The effective tax rate for the Group was 56% in the third quarter 2010. The Group did not buy back shares in the third quarter 2010. Adjusted fully-diluted earnings per share, based on 2,244.9 million fully-diluted weighted-average shares, was 1.10 euros compared to 0.84 euros in the third quarter 2009, an increase of 32%. Expressed in dollars, adjusted fully-diluted earnings per share increased 19% to 1.42 dollars.

Investments – Divestments

Investments, excluding acquisitions and including net investments in equity affiliates and non-consolidated companies, were 3.0 B€ ($3.8B) in the third quarter 2010 compared to 3.1 B€ (4.4 B$) in the third quarter 2009.

Acquisitions were 1,023 M€ in the third quarter 2010, including essentially the acquisition of the shares of UTS in Canada.

Asset sales in the third quarter 2010 were 987 M€, comprised essentially of the sale of the Valhall and Hod fields.

Net investments were 3.0 B€ (3.9 B$) in the third quarter 2010 compared to 2.4 B€ (3.5 B$) in the third quarter 2009.

Cash flow

Cash flow from operations was 4,904 M€ in the third quarter 2010 compared to 4,538 M€ in the third quarter 2009. The 8% increase reflects essentially the increase in net income.

Adjusted cash flow from operations was 4,359 M€, an increase of 26% compared to the third quarter 2009. Expressed in dollars, adjusted cash flow from operations was 5.6 B$, an improvement of 14%.

The Group's net cash flow was 1,886 M€ compared to 2,089 M€ in the third quarter 2009. Expressed in dollars, the Group's net cash flow was 2.4 G$ in the third quarter 2010.

Results for the first nine months of 2010

Operating income

Compared to the first nine months of 2009, the average Brent price increased by 35% to 77.1 $/b while the average realized price of gas decreased by 4%. The ERMI increased by 29% to 25.7 $/t.

The euro-dollar exchange rate was 1.31 $/€ compared to 1.37 $/€ on average for the first nine months of 2009.

In this environment, the adjusted operating income from the business segments was 14,695 M€, an increase of 45% compared to the first nine months of 2009. Expressed in dollars, the adjusted operating income from the business segments was 19.3 B$, an increase of 39% compared to the first nine months of 2009.

The effective tax rate for the business segments was 56% for the first nine months of 2010 compared to 55% for the first nine months of 2009.

Adjusted net operating income from the business segments was 7,886 M€ compared to 5,536 M€ in the first nine months of 2009, an increase of 42%.

Expressed in dollars, adjusted net operating income from the business segments increased by 37%. This increase is lower than that of the adjusted operating income from the business segments mainly due to the higher average effective tax rate for the business segments.

Net income

Adjusted net income increased by 36% to 7,732 M€ from 5,703 M€ in the first nine months of 2009. This excludes the after-tax inventory effect, special items, and, through June 30, 2010, the Group's equity share of adjustment items related to Sanofi-Aventis.

  • The after-tax inventory effect had a positive impact on net income of 465 M€ compared to a positive impact of 1,237 M€ in the first nine months of 2009.
  • The Group's share of adjustment items related to Sanofi-Aventis had a negative impact on net income of 81 M€ in the first nine months of 2010 and a negative impact on net income of 252 M€ in the first nine months of 2009.
  • Special items had a positive impact on net income of 425 M€ in the first nine months of 2010 and a negative impact on net income of 306 M€ in the first nine months of 2009.

Net income (Group share) was 8,541 M€ compared to 6,382 M€ in the first nine months of 2009. The effective tax rate for the Group was 55% in the first nine months of 2010. The Group did not buy back shares in the first nine months of 2010. On September 30, 2010, there were 2,246.9 million fully-diluted shares compared to 2,239.7 million fully-diluted shares on September 30, 2009. Adjusted fully-diluted earnings per share, based on 2,243.3 million weighted-average shares was 3.45 euros compared to 2.55 euros in the first nine months of 2009, an increase of 35%. Expressed in dollars, adjusted fully-diluted earnings per share were 4.53 compared to 3.49 in the first nine months of 2009, an increase of 30%.

Investments – divestments

Investments, excluding acquisitions and including net investments in equity affiliates and non-consolidated companies, were 8.5 B€ ($11.1B) in the first nine months of 2010 compared to 9.0 B€ (12.2 B$) in the first nine months of 2009.

Acquisitions were 2.5 B€ in the first nine months of 2010, comprised essentially of assets in the Barnett Shale in the U.S., UTS in Canada and an increased stake in the Laggan Tormore blocks in the UK.

Asset sales in the first nine months of 2010 were 2.7 B€, comprised essentially of the sales of Sanofi-Aventis shares, the Valhall and Hod fields in Norway and the Mapa Spontex unit in the Chemicals segment.

Net investments increased by 8% to 8.3 B€ from 7.7 B€ in the first nine months of 2009. Expressed in dollars, net investments increased by 4% in the first nine months of 2010 to $10.9B.

Cash flow

Cash flow from operations was 15,106 M€, an increase of 44% compared to the first nine months of 2009 essentially due to the increase in net income and the more favorable changes in working capital than in 2009.

Adjusted cash flow from operations was 13,348 M€, an increase of 33%. Expressed in dollars, adjusted cash flow from operations was $17.5B, an increase of 28%.

The Group's net cash flow was 6,831 M€ compared to 2,783 M€ in the first nine months of 2009. Expressed in dollars, the Group's net cash flow was $9.0B in the first nine months of 2010.

The net-debt-to-equity ratio was 18,2% on September 30, 2010 compared to 22.7% on June 30, 2010 and 20.8% on September 30, 2009.

In the third quarter 2010, hydrocarbon production was 2,340 thousand barrels of oil equivalent per day (kboe/d), an increase of 4.3% compared to the third quarter 2009, essentially as a result of :

  • +3.5% for production ramp-ups on new fields, net of the normal decline, and a lower level of turnarounds,
  • +1.5% for lower OPEC reductions and an improvement in gas demand,
  • +1.5% for lower levels of disruptions in Nigeria related to security issues,
  • -2% for the price effect.

In the first nine months of 2010, hydrocarbon production was 2,375 kboe/d, an increase of 5.6% compared to the first nine months of 2009, essentially as a result of :

  • +6.5% for production ramp-ups on new fields, net of the normal decline, and a lower level of turnarounds,
  • +1.5% for lower OPEC reductions and an improvement in gas demand,
  • +1% for lower levels of disruptions in Nigeria related to security issues,
  • -0.5% for changes in the portfolio,
  • -3% for the price effect.

Upstream

Adjusted net operating income for the Upstream segment in the third quarter 2010 was 2,123 M€ compared to 1,501 M€ in the third quarter 2009, an increase of 41%.

Expressed in dollars, this increase was 28%, reflecting mainly the increase in both production and hydrocarbon prices compared to the third quarter 2009.

The increase income from equity affiliates in the third quarter 2010 compared to the third quarter 2009 was due essentially to higher revenues from Qatargas and Yemen LNG.

The effective tax rate for the Upstream segment was 59% compared to 58% in the second quarter and 59% in the third quarter 2009.

In the first nine months of 2010, adjusted net operating income for the Upstream segment was 6,297 M€ compared to 4,434 M€ in the first nine months of 2009, an increase of 42%. Expressed in dollars, adjusted net operating income for the Upstream segment was 8.3 B$, an increase of 37% compared to the first nine months of 2009, essentially due to the increase in both production and hydrocarbon prices.

The return on average capital employed (ROACE) for the Upstream segment for the twelve months ended September 30, 2010 was 21% compared to 19% for the twelve months ended June 30, 2010 and 18% for the full year 2009.

The annualized third quarter 2010 ROACE for the Upstream segment was 20%.

Downstream

In the third quarter 2010, despite a low level of planned turnarounds, refinery throughput decreased by 3% compared to the third quarter 2009 and second quarter 2010. The decrease compared to the third quarter 2009 was due mainly to the shutdown of the Dunkirk refinery, while the decrease compared to the second quarter 2010 came essentially from shutting down a distillation unit at the Lindsey refinery. The Group maintained good operational performance in its other refineries.

In the first nine months of 2010, refinery throughput decreased by 5% compared to the first nine months of 2009, reflecting essentially the shutdown of the Dunkirk refinery and a distillation unit at the Normandy refinery.

The European refinery margin indicator averaged 16.4 $/t in the third quarter 2010, an increase of 37% compared to the third quarter 2009. In the first nine months of 2010, the ERMI was 25.7 $/t, an increase of 29% compared to the first nine months of 2009.

Adjusted net operating income from the Downstream segment was 264 M€ in the third quarter 2010, an increase of 81% compared to the third quarter 2009.

Expressed in dollars, adjusted net operating income from the Downstream segment was $341MM, an increase of 63% compared to the third quarter 2009, reflecting in particular the increase in refining margins – which, however, remain at a very low level – and the good performance of marketing.

In the first nine months of 2010, adjusted net operating income from the Downstream segment was stable compared to the first nine months of 2009 at 902 M€.

Expressed in dollars, adjusted net operating income from the Downstream segment was $1.2B, a decrease of 4% compared to the first nine months of 2009.

The ROACE for the Downstream segment for the twelve months ended September 30, 2010 was 7% compared to 6% for the twelve months ended June 30, 2010 and 7% for the full year 2009.

The annualized third quarter 2010 ROACE for the Downstream segment was 7%.

Summary and outlook

The ROACE for the twelve months ended September 30, 2010 was 16% for the Group and 17% for the business segments. The ROACE for the Group was 14% for the twelve months ended June 30, 2010 and 13% for the full year 2009.

Annualizing the third quarter 2010 adjusted net operating income, the ROACE for the Group was 15%.

Return on equity for the twelve months ended September 30, 2010 was 19%.

Investments excluding acquisitions were $11.1B in the first nine months of 2010, in line with the 2010 budget of $18B.

The net-debt-to-equity ratio at September 30, 2010 was 18.2% compared to 22.7% at the end of the second quarter 2010. The Group maintains its net-debt-to-equity objective range of 25-30% for year-end 2010.

Following a decision by the Board of Directors on July 29, 2010, Total will pay the interim 2010 dividend of 1.14 €/share on November 17, 2010.

In addition, within the delegation of authority granted to the Board of Directors by the Shareholders' Annual Meeting, the Board decided on October 28, 2010 to proceed with a capital increase reserved for employees of up to 12 million shares by the May 2011 Annual Meeting.

At the beginning of the fourth quarter 2010, strikes to protest pension reforms led to a temporary shutdown of the French refineries. The dollar has continued to weaken against the euro, while the price of oil has increased in response to positive economic signs and the approach of winter in the northern hemisphere. Natural gas spot prices have increased in Europe and Asia but have decreased in the U.S., where the market remains oversupplied as a result of the abundance of shale gas production.

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Brent Crude Oil : $48.06/BBL 2.51%
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