UPDATE 2-Total hit by struggling refining, lower output

Wed Apr 30, 2014 5:23am EDT

Related Topics

* Q1 adj net down 10 pct at $3.3 billion

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* Books $350 mln depreciation charge on Russian project

* Says European refining margins start to recover in Q2 (Adds details, background, shares, analyst)

By Michel Rose

PARIS, April 30 (Reuters) - French oil major Total reported a 10 percent drop in first-quarter net profit on Wednesday, dragged down like its rivals by shrinking margins at its European refineries and a drop in oil and gas output.

Security issues hurt output from Libya and Nigeria while in the United Arab Emirates Abu Dhabi in January took over control of oilfields that had been run by oil majors such as Total for decades.

The group also booked a $350 million depreciation charge on a Russian Arctic gas project it hoped to develop with Gazprom but shelved due to the huge costs.

Total shares were down 1.3 percent in early trade, underperforming the European oil and gas index and rival Shell which was up 3 percent despite booking a $2.9 billion charge related to refineries in Europe and Asia.

Shell said was it was in the process of divesting refineries in four countries.

"The miss came from the downstream business," said Bernstein analysts in a note on Total. "Upstream net income per barrel was $15.8/boe versus expectations for $14.3/boe due to higher equity income (from affiliates Novatek and Angola LNG)."

Total said this month that European first-quarter refining margins had fallen to a four-year low.

"The impact of sharply lower European refining margins was limited thanks to the implementation of performance improvement plans by the segment," Chief Executive Christophe de Margerie said in a statement.

The economic slowdown has hit European oil demand in the past few years, leaving refineries operating at overcapacity.

Total said European margins had started to recover in the second quarter, but expected maintenance at its German and Dutch refineries in Leuna and Vlissingen to hit output.

FRONTIER DRILLING

In the upstream, the group said it expected the start-up of the big CLOV project in Angola at the end of June, and the coming on stream of the Laggan-Tormore field in Scotland and Nigeria's Ofon Phase 2 in the second half of the year.

The group also said it would soon start drilling in promising new fields in Brazil, the Kwanza basin in Angola and deep offshore Ivory Coast, where it struck oil earlier this year.

"Total is now entering an exciting period for exploration with a series of frontier wells to be drilled through the next two quarters," Bernstein analysts said.

Total gave the go-ahead to another Angolan investment this month, Kaombo, the latest in a series of African projects meant to help it meet its 2015 and 2017 production targets of 2.6 million and 3 million boepd respectively.

The loss of the ADCO licence in Abu Dhabi in January removed about 140,000 barrels per day, pushing production down 5.5 percent, while security issues in Libya and Nigeria lowered output by 1.5 percent.

A one-percent output rise from start-ups and lower maintenance meant production was down 6 percent overall versus the same quarter last year.

A 4-percent drop in Brent crude prices and exploration charges up about 20 percent year on year also weighed on net adjusted profit, which was down 10 percent to $3.3 billion in the first quarter, it said.

Non-adjusted net profit was up 71 percent due to a large impairment charge on a Canadian project booked in the first quarter of last year.

Total kept its quarterly dividend at 0.61 euros per share, level from the previous quarter. (Additional reporting by Sarah Young in London; Editing by David Holmes and Jason Neely)

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