February 12, 2014 11:35 am

Total lifts dividend despite sharp fall in profits

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Total has bowed to investor pressure to cut capital spending and return more cash to shareholders, announcing a dividend increase despite a sharp fall in quarterly profits and stalling output in the fourth quarter.

Weak refining margins in Europe and delays at key oilfields such as Kazakhstan’s Kashagan left the French oil group reporting a 19 per cent drop in fourth-quarter adjusted net profit to €2.47bn, while full-year 2013 output was broadly flat at 2.3m barrels.

However, the group raised its quarterly dividend from €0.59 a share to €0.61. This follows its announcement last year that the $28bn spent in capital expenditure in 2013 would be a peak, and that spending would fall to $26bn in 2014.

Investors across the industry have in the past year been arguing that, at a time of high costs and a stagnating oil price, companies should tone back their spending on expensive projects and use the money for dividends and share buybacks instead.

Many oil groups have listened. BP last year said it would make $10bn of disposals over two years and use most of the proceeds to buy back shares while Italy’s Eni also announced a buyback programme.

The news last year from Total that 2013 capital spending would be a peak helped the stock to one of the best performances among its peers. Shares, which rose 1.3 per cent on Wednesday, are up 15 per cent over the past 12 months.

“The intensive investment phase that we embarked on to transform our production profile by 2017 reached a peak of $28bn in 2013,” said Christophe de Margerie, chief executive of Total.

Total is the latest oil group to suffer from weak refining margins in the fourth quarter, with Royal Dutch Shell issuing its first profit warning since 2004 in January. Shell also raised dividends and cut capex.

Oil groups have all been hit by refinery overcapacity as well as weak demand for petrol and diesel in slowing western economies. This has hit earnings in their downstream – refining and marketing – divisions.

The flat oil and gas output figures came as little surprise, as Total last year dropped an earlier target for 2-3 per cent growth.

“All told, the tone is constructive with the dividend statement and capex guidance supportive,” said Lucas Herrmann, analyst at Deutsche Bank, in a note.

In January Total said it would become the first oil group to invest in Britain’s fledgling shale sector, announcing plans to spend about $50m on gas exploration in the East Midlands.

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