Total: Ahead of its Peers

10/13/2014 7:00 am EST


Elliott Gue

Editor and Publisher, Energy and Income Advisor and Capitalist Times

Despite unfavorable comparisons to America’s leading shale players, the West’s biggest oil companies remain a foundational holding in any energy portfolio for their time-tested resilience and potential upside, explains Elliott Gue, editor of Energy & Income Advisor.

Investors looking to build wealth over the long-term must be picky about which names they hold and the prices at which they establish or add to their positions. We prefer Total (TOT), which boasts one of the most promising development pipelines among the major integrated oil companies.

France-based Total recently hosted its annual Investor Day in London, where management updated its financial projections and outlook for energy demand, supply, and prices.

Thanks to aggressive capital spending, Total has amassed one of the strongest portfolios of oil and gas development projects among its peers.

Total has won points in recent quarters for being one of the first major integrated oil companies to scale back its aggressive capital expenditures and refocus on reining in costs, monetizing non-core assets, and maximizing free cash flow.

The French energy giant plans to spend about US$25 billion annually on upstream growth projects over the next few.

Management also laid out plans to reduce operating expenses by US$1.4 billion and dispose of about US$10 billion worth of noncore assets over the next two-and-a-half years. Exploratory activities will bear the brunt of these cutbacks, as Total shifts its focus to development.

Management’s guidance calls for Total to grow its output from 2.1 million barrels of oil equivalent per day in the first half of 2014 to 2.8 million barrels of oil equivalent per day at the end of 2017.

Total’s developmental projects haven’t been immune to delays and cost overruns, which raises questions about the firm’s ability to meet its 2017 production target.

Despite these reservations, Total still boasts the most attractive mix of upstream projects and should be able to grow its output at a faster rate than its peers.

Even if Total fails to meet its production guidance, the energy giant’s strong dividend coverage ratio gives it ample scope to grow its payout and buy back stock. With a 5.1% dividend yield, Total’s American depositary receipt continues to rate a buy up to US$65.

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