Total Takes $8bn Write-down on Oil Sands Assets
French oil company Total booked a $8bn impairment on the value of its assets, mainly relating to its Canadian oil sands projects, after cutting its long-term forecasts for oil prices, it said on July 29. Fellow European majors BP and Shell have similarly taken on significant charges on the price outlook in response to the Covid-19 pandemic and global decarbonisation efforts.
Total said it had revised its oil price assumptions in light of the market collapse, estimating that Brent would average $35/barrel in 2020, $40/b in 2021, $50/b in 2022 and $60/b in 2023. It sees the benchmark averaging $56.8/b between now and 2050, versus BP's forecast of $55.
Due to its short-term revisions, Total has booked $2.6bn in impairment charges, including $1.5bn for its Canadian oil sands assets and $0.8bn for its Australian LNG operations. The major has also reviewed what it classifies as stranded assets – fields with high production costs that will not reach depletion by 2050 – in light of its May pledge to become net zero in the next three decades.
Total has listed its Fort Hills and Surmount oil sands projects under this category, meaning it will only take into account their proven rather than proven and probable reserves. This decision resulted in a further $5.5bn impairment.
The company also said it would not invest in any oil sands expansion projects, and would withdraw from the Canadian Association of Petroleum Producers (Capp), as the group's views do not align with its own.
Total also reported its second-quarter results on July 30, reporting a 96% collapse in adjusted net income to $126mn, from $2.89bn a year earlier. It swung to a net operating loss for its upstream activities of $209mn, versus a $2.02bn income a year earlier. Its earnings from integrated gas, renewable and power, refining and chemicals, and marketing and services remained positive, but were down by 24%, 20% and 70% respectively.
Cash flow from operations slumped 44% to $3.47bn, although Total said its gearing was under control. Revenues from sales more than halved to $21.6bn.
"These results are driven in particular by the outperformance of trading activities, once again demonstrating the relevance of Total's integrated model, and by the effectiveness of the action plan put in place from the start of the crisis, notably the discipline on spend," CEO Patrick Pouyanne said.
Total has cut $3bn from its 2020 capital expenditure plan in 2020, lowering the total to $15bn.
The company said separately it had agreed to divest interests in seven mature non-operated offshore fields in Gabon, along with its stake in the Lopez oil terminal, to fellow French firm Perenco, for $290-350mn. The exact price will depend on future oil prices.