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Fitch downgrades Total’s outlook to negative

By on May 21, 2014

Fitch Ratings has revised its outlook on Total SA’s long-term Issuer Default Rating (IDR) to negative, from stable.The global rating agency also affirmed the company’s IDR at ‘AA’.

The negative outlook according to a release from Fitch reflects higher completion risks associated with Total’s new upstream projects and the potential that funds from operations (FFO) adjusted net leverage may stay above 1.5x in the medium term.

Total’s production (excluding equity affiliates) declined in 2013 for the third year in a row amid increased capital intensity and moderately higher leverage.

Total expects to boost its production by 2015, thanks to new projects scheduled to come on-stream in 2014-2015, as well as ramp-ups of already producing projects and reducing decline rates.

For the outlook to be revised back to Stable, Fitch noted that Total would need to achieve its upstream production targets and demonstrate that its ambitious $50 billion (EUR37.5bn) capex allocated for 2013-2014 is starting to pay off.

Total is a leading global integrated oil and gas company with 2013 production of 1.55 million barrels of oil equivalent per day (mmbbl/d) (excluding equity affiliates) and strong positions in deepwater offshore and liquefied natural gas (LNG) production.

In 2013, Total’s upstream production (excluding equity affiliates) dropped by five per cent from 2012 to 1.55mmboe/d, close to the levels of Eni (A+/Negative, 1.50mmboe/d) and ConocoPhilips (A/Stable, 1.41mmboe/d), and below that of Royal Dutch Shell (RDS, AA/Stable, 2.37mmboe/d).

Between 2010 and 2013, Total’s upstream output reduced down by a CAGR of six per cent (excluding equity affiliates), due to a natural decline of mature fields, including offshore fields in Norway, a temporary shutdown of several fields due to a gas leak in the North Sea in 2012, increased oil theft in Nigeria and disposal of certain assets.

“The company expects to boost its production by more than 10 per cent by 2015 (including equity affiliates), mainly due to new projects coming on-stream in 2013-2015, including Ekofisk South in Norway, Laggan-Tormore in the UK, OFON2 in Nigeria and CLOV in Angola.

“Total’s failure to increase upstream production in 2014-2015 by at least two per cent annually (excluding equity affiliates) could result in a downgrade.

“Although higher production from assets in which Total has minority (equity) stakes offsets falling production of its consolidated subsidiaries, we do not view this as equivalent substitution as we put more emphasis on consolidated production,” it added.

 

 

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