Total takes $6.5 billion impairment, cuts costs to counter weak oil

PARIS (Reuters) - French energy company Total TOTF.PA will cut investment and jobs this year and accelerate its asset sales program after taking a $6.5 billion writedown in the fourth quarter because of weak oil prices.

A logo is pictured at French oil and gas company Total gas station in Marseille, February 11, 2015. REUTERS/Jean-Paul Pelissier

Like many of its oil producing rivals, the Paris-based firm was forced to write down the value of North American oil sands and shale assets as well as European refineries as a halving in crude prices since June and sluggish demand took their toll.

Total said it would increase cuts to operational costs to $1.2 billion this year, above a previous target of $800 million. It will reduce organic investments by up to 13 percent to $23-24 billion and spending 30 percent less on exploration work.

Chief Financial Officer Patrick de La Chevardiere said the oil major’s objective was to cut its breakeven point by $40 per barrel to about $70. Brent oil futures traded at $56 a barrel on Thursday.

Oil companies across the globe, including Shell RDSa.L and BP BP.L, have announced billions of dollars of capital cost cuts to strengthen their books whilst facing lower profits.

The budget cuts also signaled a more long-term change in its exploration strategy for Total, whose long-serving Chief Executive Christophe de Margerie died in a plane crash in Moscow last October.

New Chief Executive Patrick Pouyanne said the cut to the exploration budget, to $1.9 billion in 2015, was in part due to the current low-price but driven more by a desire to revamp the process after having failed to return any major oil find in recent years.

“We consider that after having spent a lot of money in exploration in the last three years without the results we expected, it was preferable that exploration teams be put under a certain pressure, that they get forced to make choices,” Pouyanne told reporters.

The group will announce details of the new exploration strategy in September this year.

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2,000 JOBS TO GO

Like its peers, Total maintained its shareholder payouts with a fourth-quarter dividend of 0.61 euros a share.

It also expects to sell $5 billion in assets this year.

Total had to write down projects such as the Utica shale gas venture in the United States, Fort Hills and Joslyn in Canadian oil sands but also the giant Kashagan project in Kazakhstan.

In Britain, the group will halve the production capacity of its Lindsey refinery, which it failed to sell, and cut 180 jobs, with a plan for the French refining sector set to be announced in the spring.

Total said some 2,000 jobs will go globally by the end of the year, mainly through natural attrition as it freezes hiring. The group had 99,000 employees at end-2013.

The company’s net adjusted profit, which fell 17 percent to $2.8 billion in the quarter compared with the same period a year ago, came in higher than analysts had expected however. Revenue fell 19 percent to $52.5 billion.

Shares rose by 0.8 percent by 1100 GMT (06:00 a.m. EST), slightly higher than a 0.3 percent rise in the wider oil and gas sector. .SXEP

Analysts said the better performance was due to lower tax payments and stronger results in the refining and chemicals branch, with the group reaching its 2015 target of return on average capital employed (ROACE) a year earlier than forecast, at 15 percent in 2014 from nine percent in 2013.

“While upstream results were weak, the outlook statement reads well as Total responds to the more challenging near-term outlook,” Jefferies analysts said in a note.

Oil and gas production fell 2 percent in the fourth quarter to 2.229 million barrels of oil equivalent per day, mainly due to the expiration of the ADCO license in Abu Dhabi, the capital of the United Arab Emirates, which Total renewed in 2015.

Production is expected to rise by more than eight percent in 2015, although the start-up of the Laggan-Tormore project in the North Sea was delayed to the third quarter from the first three months of the year.

Additional reporting by Karolin Schaps and Ron Bousso in London; Editing by Pravin Char and Keith Weir