France’s energy giant Total S.A. (NYSE: TOT – $53.56) posted a fall in profits for the latest quarter, after natural gas prices plunged in Europe and Asia, which was partly offset by overall hydrocarbon production growth and higher oil prices. Total’s production beat expectations, rising 9% to 2.96 million barrels a day following the startup of some major projects including those in Angola and the North Sea. Adjusted net income fell 19% to $2.89 billion with per share earnings of $1.05, $0.13 below Wall Street projections. The Exploration and Production segment benefited from higher Brent crude prices with a 15% increase in operating cash flow before working capital changes. Brent averaged $69/bbl. for the second quarter, compared with $63 the previous quarter, but natural gas prices were down 36% in Europe and 26% in Asia.
Total noted strong growth in its liquefied natural gas business, where sales more than doubled compared to the same quarter a year ago thanks to the startup of projects in Russia, Australia and the U.S., along with the portfolio of LNG contracts acquired from Engie S.A. last year. The company noted the continued growth of the business with the agreement with Occidental Petroleum Corp. to buy Anadarko’s assets in Africa, along with a contract signed with Chinese company Guanghui Energy Co. Ltd. and the takeover of Toshiba Corp.’s LNG portfolio. Total expects production growth to exceed 9% this year but warned of an uncertain outlook for oil and gas demand growth due to weakness in the global economy. The company also said it plans to sell off around $5 billion in assets over the next year, mostly from its upstream exploration-and-production portfolio.
Management intends to return a decent amount of capital via dividends and stock repurchases as it initiated a 3.1% interim dividend increase. Total’s healthy balance sheet and strong free cash flow generation suggest these value-adding actions are likely to carry over into next decade. The ADRs, yielding 5.4%, are reasonably valued at about 10 times estimated 2019 earnings and can be considered for conservative income accounts.