Total offers supermajor alternative

This accident provides a handy metaphor for oil companies trying to make sure they are harnessed in if the oil price collapses in the face of a global shift away from fossil fuels. Carbon Tracker has modelled how oil companies will fare under a scenario in which greater regulation of the industry is brought in as governments race to cap emissions and slow climate change. While this is a fairly unlikely reaction in the next five years, the analysis does suggest which companies would do best in a long-term, lower-price environment. “European oil majors are more reflective of the industry average in terms of risk, ranging from BP and Repsol with around 10 per cent greater sensitivity, to Shell at the industry average, and Total, Eni and Equinor with around 10 per cent lower sensitivity,” the report said.

The French company ticks many of the same shareholder payout boxes as Royal Dutch Shell (RDSB) and BP (BP.), with a dividend yield of above 6 per cent (not including share buybacks) on similar price/earnings ratios. The difference is the integrated major’s 2019 results showed greater resilience through the low price environment, with cash flow from operations flat on the year before at $24.7bn (£19.1bn), although adjusted net income was down 13 per cent year on year. 

The December quarter adjusted net income was flat year on year, however, and beat the consensus forecast by 17 per cent, which was a far better performance than Shell and BP, and made Total a stand-out in the sector.

Part of this success reflects the fact that Total is comparatively advanced on the energy transition front, if gas is included as a less carbon-intensive option over coal (which it is, but still emits far more than renewable power options). The lower-carbon division, integrated gas, renewables and power (iGRP), had cash flow of $3.7bn, up from $2.1bn in 2018. This was largely due to added gas capacity, but Total also doubled the size of its renewables portfolio in 2019, and it contributed cash flow of $200m. Presenting the fourt quarter results this month, Total chief executive Patrick Pouyanné said his ambition was to get this figure to $1bn by 2025. Recentl, Total was picked to build an 800 megawatt (MW) solar plant in Qatar and is working on battery technology through subsidiaries.

At the same time as expanding its gas offering, the company expects to keep handing shareholders more cash. Last year’s dividend increased by 5 per cent to €2.68 (£2.27) per share, and there will be around $2bn of share buybacks this year if oil can maintain an average price of $60 a barrel (bbl). This is higher than the current level due to coronavirus worries. 

The embrace of reporting and targeting improvements in scope 1 and 2 emissions (direct emissions from operations and those from power suppliers, respectively) is widespread among the oil and gas majors, but scope 3 (the emissions linked to companies’ products) is where the competition is on. Total is aiming to get its scope 1 and 2 emissions to under 40m tonnes by 2025, from 41.5m tonnes in 2019.