France's Total writes down $8 billion on weaker oil, gas outlook

PARIS/LONDON (Reuters) - France's Total TOTF.PA said on Wednesday it will take an $8 billon impairment on the value of its assets, mainly in energy-intensive Canadian oil sands projects after the energy group slashed its oil and gas price outlook.

FILE PHOTO: The logo of French oil and gas company Total is seen in a petrol station in Paris, France February 6, 2020. REUTERS/Gonzalo Fuentes/File Photo

The write down follows similar steps by many major oil and gas companies including Royal Dutch Shell RDSa.L and BP BP.L in recent weeks in the wake of the collapse in fuel consumption due to the coronavirus epidemic.

Total, which reports second quarter results on Thursday, sharply lowered its short-term price outlook, leading to a $1.5 billion impairment of its Canadian assets and an $800 million impairment of Australian liquefied natural gas (LNG) facilities.

Canada’s oil sands require complex and energy-intensive extraction processes that cause heavy carbon pollution. BP’s $17.5 impairment last month also included prospects in Canada.

Paris-based Total, which recently announced plans to sharply reduce its greenhouse gas emissions, wrote down a further $5.5 billion in the value of its Fort Hills and Surmont Canadian oil sand projects after cutting its long-term price.

The move will reduces Total’s oil and gas reserves from 19 years to 18.5 years of current production levels, it said in a statement.

Total will also stop investing in capacity expansion projects in Canadian oil sands, it said. It decided to withdraw from the Canadian Association of Petroleum Producers (CAPP), saying the association is not aligned with Total’s positions.

The impairments will total $8.1 billion in the second quarter of 2020 and will increase Total’s debt-to-equity ratio, or gearing, by 1.3%.

Total said it had revised its oil price assumptions for the next years given the drop in prices in 2020, setting the Brent price at $35 per barrel in 2020, $40 in 2021, $50 in 2022 and $60 in 2023.

Its average projected Brent price between 2020 and 2050 thus stands at 56.8$ per barrel, roughly in line with BP.

It said, however, that the drop in investments in the oil sector since 2015 would result in insufficient global production capacities by 2025 and a rebound in prices.

“Beyond 2030, given technological developments, particularly in the transportation sector, Total anticipates oil demand will have reached its peak and Brent prices should tend toward the long-term price of $50 per barrel,” Total said.

Reporting by Bate Felix and Ron Bousso; Editing by David Goodman, Kirsten Donovan, Andrew Cawthorne