Series of Upcoming Projects to Offset the Production Decline; Strengthening Upstream Operations

Tuesday 4 September 2012, Amsterdam

Total’s overall production declined with a CAGR of -0.8% during 2007–2011, primarily due to a natural decline and asset divestments, coupled with other political issues in Middle Eastern countries, such as Libya. However, the company plans to increase its production by developing upcoming projects to offset decline from mature assets. In line with this objective, it has been investing heavily in the exploration and development projects, thereby maintaining a strategic mix of legacy/ upcoming assets and managing the company’s production volumes. Moreover, Total expanded its presence across multiple geographies and gained access to enhanced technical capabilities through several acquisitions and partnerships. All these factors are expected to strengthen the company’s upstream operations and bring upside in its cash flows in the long run.

The E&P capex increased by 72.1% to nearly $30.2 bn in 2011, compared to $17.5 bn in 2010. A total capex of around $47.7 bn towards its upstream segment was invested in 2010–2011, which was spent in organic and inorganic activities. It added a resource base of nearly 3.6 bn barrels of oil equivalent (Bboe) in 2011. Major strategic acquisitions in 2010–2011 included the Fort Hills heavy oil project in Canada, a stake in Novatek, a joint venture (JV) with Chesapeake for the Barnett and Utica shale in the US, exploration assets in Uganda and the Gladstone LNG (GLNG) project in Australia. All of these acquisitions carry strategic significance to ultimately boost oil & gas production. The company’s Canadian Fort Hills heavy oil project is expected to increase its exposure to heavy oil operations in the North American markets, allowing it to benefit from high oil prices. The acquisition of a stake in Novatek will help to tap into Russian gas markets.

The company’s entry in the Barnett and Utica shale is anticipated to provide unconventional technical expertise, while the GLNG project in Australia will expand its presence in the LNG markets. As a result of this, Total has created new growth poles, which will bring upside in its production, offsetting the decline in legacy assets and improving future cash flows. The company has allocated nearly $24 bn towards its upstream operations in 2012, which represents nearly 80% of total capex in the year; nearly 70% of its 2012 E&P capex will be invested in the developments projects with a remaining 30% allocated to legacy assets. Higher capex allocation will help to accelerate exploration and development activities in the near future. Currently, it has nearly 35 major upcoming projects, which are expected to add production during 2012–2018.

Its major upcoming projects in 2012 include the Halfaya Project, Kashagan Phase 1, the Usan project, Angola LNG project, Anguille field redevelopment project, OML 58 Upgrade and the Utica shale project. Together, all of these projects are expected to contribute 35.7 MMboe towards overall production in 2012, which represents 4.3% of its total production in the year.

Halfaya project is the major driver for the company’s upcoming production in the near future. This project started production in June 2012 and is expected to contribute11 MMboe towards the company’s total production in 2012. The Kashagan Phase 1 project is another major upcoming driver for production and is expected to add total net production of 5.5 MMboe in 2012. This project has net peak production capacity of 18.4 MMboe/year. The Kashagan project is a multi-phased project and is located in Kazakhstan. Production addition from 2012 is expected to come from the first phase of this project. The Usan project started producing in Q1 2012 and is expected to add a production net total of 2.6 MMboe in 2012. This project is expected to reach a peak production of 13.1 MMboe in 2014.

LNG production is expected to increase through the Angola LNG project, starting from 2012. Total holds 13.6% working interest (WI) in this project, which has a total production capacity of upto 8.7 MMboe/year. It is also involved in the redevelopment projects in the oil-rich Anguille field and the natural gas-rich OML 53 Block. Apart from these projects, Total plans to expand its unconventional shale production though the new production addition from the Utica shale in the US. Several other projects are also lined up to add production by 2015, which are expected to add production of nearly 600 thousand barrels of oil equivalent per day (Mboe/d). Due to this, its production is expected to grow with an average rate of 4.1% during 2012–2015. Nearly 10 more projects are lined up to start production during 2016–2018, which is expected to support production growth in the long run.

Total’s strong upcoming project portfolio and increased focus on upstream operations are expected to consistently add new production, which will offset the declining production from the legacy assets. However, in the near future, the company’s production is expected to be affected by several events that occurred recently, such as the gas leakage from the offshore G4 well in the Elgin/Franklin fields in the UK’s North Sea, the European Union’s sanctions on Syria and the supply disruptions in the Yemen. The Elgin/Franklin fields were expected to contribute nearly 53 Mboe/d towards total production in 2012, which represents nearly 2.4% of production in the year. The gas leak started on March 29, 2012 and since then production has closed. All of these factors are expected to hamper production growth in 2012, however, this loss of production will be offset by the new production from the upcoming projects; GlobalData expects the production to increase with a CAGR of 5.5% during 2012–2016.