Total’s headline earnings might not impress, but this might — the motley fool 4 gases in the atmosphere


The other number that looks a little off in these results is operating cash flow. One would assume that higher revenue and earnings would result in higher cash flow, but the company had a massive working capital build in the quarter — $3.2 billion more than the prior year — that kept cash flow weak. Typically, Total benefits from reductions in working capital in the second half of the year. As a result of the weaker cash flow numbers, net debt to capital increased to 15.1%, which is still a very healthy number. The highlights

• Production for the quarter increased 5% compared to this time last year to 2.70 million barrels of oil equivalent per day. The gains came from several recent project start-ups including the Fort Hills oil sands facility, the Libra field in Brazil, Yamal LNG in Russia, and Moho Nord in the Republic of Congo. Total closed its recent deal to acquire Maersk Oil & Gas in March, so it only got less than a month of production results from this new asset. Investors can expect production to increase significantly next quarter.

• Management continued to invest heavily in the Middle East with an expansion of its partnership with the United Arab Emirates by taking a working interest in three of its offshore fields, as well as a 16% interest in the Waha concession off of the coast of Libya. These low-cost concessions should add about 130,000 barrels per day to its existing portfolio.

• Total is also expanding its refining and chemicals segment by increasing the capacity of its 400,000-ton-per-year polyethylene facility in Bayport, Texas, by an additional 625,000 tons per year. It also signed a memorandum of understanding with Saudi Aramco to build a $9 billion petrochemical complex at their joint-venture refinery in Saudi Arabia.

[T]he Group’s adjusted net income and DACF [debt adjusted cash flow] continued to increase, achieving growth of 13% and 16%, respectively, compared to a year ago, in line with announced sensitivities. Cash flow after organic investments increased to $2.8 billion, up by more than 50% from a year ago, thanks to good operational performance and continued spending discipline. Return on equity was 10%.

In line with the shareholder return policy announced in February, the Group is raising the first 2018 interim dividend by 3.2%. Scrip [dividend] shares issued … were bought back to prevent any dilution. In addition, the group bought back a further $300 million of shares to return to shareholders [as] part of the benefit realized from higher oil prices.

It can be easy to get caught up in the headline numbers when a company reports results, but Total’s most recent earning report is an example of a time when investors need to look beyond earnings per share to see what’s going on with the business. With several acquisitions closing in recent months and relatively high oil prices lately, investors should expect results to improve through the rest of the year. If management holds to its promise about repurchasing shares when oil prices exceed its projections, then we should also expect more significant repurchases this year.