$30 Oil at Crux of Total's Action Plan

$30 Oil at Crux of Total's Action Plan
Total Chairman and CEO Patrick Pouyanné said the company faces two short-term crises and one long-term crisis.

Total Chairman and CEO Patrick Pouyanné on March 19 unveiled an action plan to the company’s employees based on oil prices of $30 per barrel, Total reported Monday.

“(T)oday the Group is facing three crises,” Pouyanné said in a video address to employees, adding that two of the crises are short-term and the third is long-term.

According to the Total chief, the two short-term crises are the coronavirus pandemic and the rapid decline in the price of crude oil. He said the third crisis is climate change.

Based on an approximately $30 oil price, Pouyanné said Total will implement its action plan immediately. He noted the initiative hinges on the following

  • Cutting organic capital expenditures by $3.3 billion: The company stated the 20-plus-percent increase in capex cuts will reduce net investments for this year to less than $15 billion. It also stated it will assign $2.5 billion of the capex cuts to exploration and production, $500 million to downstream and $300 million to the group.
  • Increasing  2020 operating cost reductions from $300 million to $800 million against 2019 opex: The firm stated it will freeze recruitment except in “key domains for the future” such as new energies and digital. Moreover, Total stated the firm will not replace every retiree who leaves the company.
  • Suspending the company’s previously announced $2 billion stock buyback program: The firm noted that $1.5 billion under the 2020 share buyback program – unveiled in a $60 per barrel environment – has not been spent.

Pouyanné also noted the company is better-positioned to weather the latest downturn compared to the one that occurred in 2015 and 2016. He cited the following:

  • The company’s gearing – a measure of debt to equity – was greater than 30 percent in 2014 compared to 16.7 percent last year.
  • Its cash breakeven (pre-dividend) exceeded $100 per barrel in 2014 against less than $25 per barrel in 2019.
  • Upstream opex represented $9.90 per barrel of oil equivalent (boe) in 2014 versus $5.40 per boe last year.
  • Organic capex amounted to $26.4 billion in 2014 compared to $13.4 billion in 2019.

“This is a global economic crisis … global oil demand is likely to fall by 6 million barrels per day in April due to the spread of this virus in many countries,” Pouyanné said in the video address. “Six million barrels per day less for a demand of 100 million barrels is six percent, compounded by a crisis of supply as Saudi Arabia and its partners have decided to up production by 3 to 4 million barrels per day.”

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