DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION ® Client-Driven Solutions, Insights, and Access 08 September 2015 Europe/France Equity Research Integrated Oil & Gas Total (TOTF.PA) COMMENT Working to be 'Fit for the Fifties' ■ Maintain Outperform / TP lowered to €48.0 (From €53.5/share) following downward revisions to our oil price forecast. In the context of a softer macro, our bottom-up work suggests Total's organic cash flow break-even could fall to ~$60/bbl by 2017 assuming a level of spend that keeps the business healthy, and even turn 'Fit for the Fifties' in 2018. Ultimately, break-evens can be cyclical and moving targets. Bottom line, our analysis suggests that its dividend is secure allowing it to remove the scrip offering in 2017. Over time, maintaining capital discipline even as FCF rises will be important with share buybacks to offset current scrip dilution likely having a greater signalling power on the equity. Before it engages in any form of buybacks to offset scrip dilution, however, the focus, in our view, will be first to de-lever its balance sheet. ■ Investment Case: The trajectory of upstream volumes is turning positive, signalling the beginning of a period of strong upstream growth, which we consider lower risk as the projects that underpin the 2017 target are currently in production (ramp-up) and development. It is also lower risk given the diversified nature (unlike CVX's, where a single project risk could materially dent the outlook). Considering its superior growth profile combined with its decreasing capital intensity and more aggressive self-help measures, we expect it to create a business that is more competitive than peers. ■ Catalysts: Total will present its Strategy Update on 23 rd Sept; we could see an implied cash flow break-even of $60/bbl being targeted with the bull case of this reaching the $50s. Ultimately, it will be a function of capex intensity with a range of $18.5-20bn pa from 2017 likely, in our view; a level, which is sufficient to keep the business healthy in the longer term. ■ Valuation: our TP is based on our DCF and comparative multiples. Share price performance 35 40 45 50 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Price Price relative The price relative chart measures performance against the CAC 40 INDEX which closed at 4541.97 on 04/09/15 On 04/09/15 the spot exchange rate was €1./Eu 1. - Eu .9/US$1 Performance over 1M 3M 12M Absolute (%) -12.7 -9.3 -22.3 Relative (%) -4.3 -0.3 -14.0 Financial and valuation metrics Year 12/14A 12/15E 12/16E 12/17E Revenue (US$ m) 213,189 168,108 196,963 237,035 EBIDAX (US$ m) 30,357.0 21,446.2 22,291.6 25,848.1 Adjusted Net Income (US$ m) 12,837.00 9,685.95 9,927.66 11,929.49 CS adj. EPS (US$) 5.62 4.22 4.21 4.90 Prev. EPS (US$) — 4.61 5.38 6.10 ROGIC (%) 8.85 6.54 6.53 7.58 P/E (adj., x) 7.91 10.54 10.57 9.08 P/E rel. (%) 48.1 66.6 74.6 71.3 EV/EBIDAX (x) 3.3 4.9 4.8 4.0 Dividend (12/15E, US$) 2.69 Dividend yield (%) 6.0 Net debt (12/15E, US$ m) 27,432.0 GIC (12/15E, US$) 130,317.0 BV/share (12/15E, US$) 43.4 Current WACC 7.43 EV/GIC (x) 1.1 Number of shares (m) 2,414.36 Free float (%) 100.00 Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities (EUROPE) LTD. Estimates. Rating OUTPERFORM* Price (04 Sep 15, Eu) 39.96 Target price (Eu) (from 53.50) 48.00¹ Market cap. (Eu m) 96,477.68 Enterprise value (US$ m) 134,801.98 *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months. Research Analysts Thomas Adolff 44 20 7888 9114 [email protected]Ilkin Karimli 44 20 7883 0303 [email protected]Justin Teo 44 20 7888 9484 [email protected]Specialist Sales: Jason Turner 44 20 7888 1395 [email protected]
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DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®
Client-Driven Solutions, Insights, and Access
08 September 2015
Europe/France
Equity Research
Integrated Oil & Gas
Total (TOTF.PA) COMMENT
Working to be 'Fit for the Fifties'
■ Maintain Outperform / TP lowered to €48.0 (From €53.5/share) following
downward revisions to our oil price forecast. In the context of a softer macro, our
bottom-up work suggests Total's organic cash flow break-even could fall to
~$60/bbl by 2017 assuming a level of spend that keeps the business healthy,
and even turn 'Fit for the Fifties' in 2018. Ultimately, break-evens can be cyclical
and moving targets. Bottom line, our analysis suggests that its dividend is
secure allowing it to remove the scrip offering in 2017. Over time, maintaining
capital discipline even as FCF rises will be important with share buybacks to
offset current scrip dilution likely having a greater signalling power on the equity.
Before it engages in any form of buybacks to offset scrip dilution, however, the
focus, in our view, will be first to de-lever its balance sheet.
■ Investment Case: The trajectory of upstream volumes is turning positive,
signalling the beginning of a period of strong upstream growth, which we
consider lower risk as the projects that underpin the 2017 target are
currently in production (ramp-up) and development. It is also lower risk given
the diversified nature (unlike CVX's, where a single project risk could
materially dent the outlook). Considering its superior growth profile combined
with its decreasing capital intensity and more aggressive self-help measures,
we expect it to create a business that is more competitive than peers.
■ Catalysts: Total will present its Strategy Update on 23rd
Sept; we could see
an implied cash flow break-even of $60/bbl being targeted with the bull case
of this reaching the $50s. Ultimately, it will be a function of capex intensity
with a range of $18.5-20bn pa from 2017 likely, in our view; a level, which is
sufficient to keep the business healthy in the longer term.
■ Valuation: our TP is based on our DCF and comparative multiples.
Share price performance
35
40
45
50
Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15
Price Price relative
The price relative chart measures performance against the
CAC 40 INDEX which closed at 4541.97 on 04/09/15
On 04/09/15 the spot exchange rate was €1./Eu 1. -
Table of contents Total TOTF.PA 3 Financial Details 4 Key charts 5 Key charts – comparing the Majors 6 The supertanker is turning, vol. III 7
Capex intensity falling, but could be re-set further 8 The baseline continues to improve… 12 Future options (beyond 2020) good enough? 14 Doing a SunPower in the Lower 48 17 Disposal target is feasible, potentially conservative 17 Exploration 18 Quick recap of latest guidance 19
Net debt/(net debt plus equity) 20% 18% 19% 24% 21% 20% 19% 16% 12% 8% Source: Company data, Credit Suisse estimates; Note: 2015 has 3 quarterly dividend payments due to processing time for the scrip dividend; the
year the scrip dividend is removed, which we assume in 2017, there will be 5 quarterly dividend payments to make up for the prior timing issue
08 September 2015
Total (TOTF.PA) 5
Key charts Figure 2: Sources and uses of cash flow Figure 3: Production profile (ex Novatek) using capex
shown in Figure 6 (kbd)
-6.0%
-4.0%
-2.0%
0.0%
2.0%
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6.0%
8.0%
10.0%
12.0%
2015
E
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E
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EFCF pre-dividend Dividend yield Dividend yield (scrip divi adjusted)
0
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Rest of Base ADCOYEMEN LIBYAFIDed New production pre FIDed production
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 4: Organic capex profile ($mn) based on the
current set of opportunities
Figure 5: Total's Post vs Pre-FID projects (kbd)
$0
$5,000
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Corporate & Others
Marketing & Services
Refining & Chemicals
Capitalised exploration
pre FIDed capex
FIDed capex
New volumemaintenance spend
Upstream Base
0
200
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120020
14E
2015
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FIDed New production Libra (ex EWT) Bonga South West
Ikike (OML 99) Elk-Antelope Uganda
Surmont Ph.3
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
■ Elk Antelope LNG (Papua New Guinea): Total's base case is for 5.4tcf gross
recoverable resources, which however can rise with further drilling activity (we think
the base case move up to being two trains with each 3.5mtpa in LNG capacity). Total
has a 40.1% gross interest (or ~31% after government back-in rights). This will be a
greenfield project – one of the most competitive ones with likely FID in 2018.
■ LNG from PNG is highly competitive due to its proximity to Asian customers, lower
costs (onshore gas resources) and potentially attractive fiscal regime. The hard work
in establishing a new LNG province (eg. determining fiscal regime, building essential
infrastructure, training labour etc) has been done by PNG LNG (XOM), and Elk-
Antelope (TOT) stands to reap the benefits. The ability of Papua New Guinea to
transport LNG to Japan without travelling through the South China Sea is likely also an
important element to securing off-take agreements from Japan.
■ Bonga South-West – giant Nigerian development. This project, operated by RDS,
has a relatively attractive break-even, particularly as it lies in a wider ring-fence area
and spending can be recovered much faster than if developed as a stand-alone ring-
fenced area. This is potentially a large development with an FPSO in excess of
200kbd. The consortium is spending more time, however, getting the costs right for the
development, and FID may be likely at some point in 2016, in our view, assuming the
fiscal terms (in the absence of a PIB) can be 'grand-fathered' by the president and
certain local content issues resolved. This is almost a 1bn boe (gross) field.
■ GLNG and Santos. There has been discussions of late that Santos could be an
opportunistic target, with numerous investors believing Total would be the most logical
suitor. There are theoretical synergies in PNG if Total had equity in PNG LNG and the
company knows GLNG from their own equity ownership – although unfortunately we
would tend to argue that this knowledge of what is inside the tent might be a deterrent
rather than a positive. Total recently resumed its purchase of Novatek shares taking
its shareholding to 18.64% (end 2Q15) from 18.24% earlier in the year. Its previous
ambition was to get to 19.4% shareholding in Novatek.
■ Kashagan – additional phases longer term. The potential could be considerable,
but for now the focus is on getting the project to first commercial production; at this
stage offshore pipe-laying and welding is one month ahead of schedule (current
timeline is for 4Q16 start-up). Kashagan is located offshore in the north Caspian Sea
08 September 2015
Total (TOTF.PA) 17
in Kazakhstan, and the field’s recoverable reserves are estimated at over 11bn bbl (ie,
additional phases); in addition four satellite fields (Kalamkas More, Aktote, Kairan and
Kashagan SW) may contain another 1.2bn bbl of oil and condensate. The field is
technically challenging, as it is located in shallow water, which freezes for around five
months every year, its carbonate reservoir has very high pressure and the associated
gas has a high concentration of hydrogen sulphide (15%).
■ Absheron – Azerbaijan: if developed, should be focused on delivering gas to Turkey,
and not to Europe, in our view – a different approach to BP's Shah Deniz Phase II.
The development plans are at an early stage, and if pursued, likely to be done in
phases. The Ashberon discovery lies 35km east of the giant Shah Deniz field,
although is thought to be smaller in size, but still large in absolute terms (~5-10tcf of
recoverable gas and >200mbbls of condensate, according to industry estimates).
■ The field will not be easy nor cheap to develop given the extremely deep reservoirs
with high and variable pressures. That said, the know-how from the development of
Shah Deniz should help Total better manage the risk on Ashberon. The field in theory
should be able to produce at or more than 750mmcfd of gas for an extended plateau
based on the recoverable gas resource estimates. Right now, the chance of this
project moving forward is , however, very low, in our view – our base case.
Doing a SunPower in the Lower 48
US shale has changed the dynamics in oil markets. A Supermajor like Total can't get away
with not knowing and fully understanding shale, in our view. As one of the Big 5 Super
Majors, Total is the least exposed to the Lower 48, and the list above misses US LRS
opportunities. At the same time, this also means unlike some of its peers, it has not made
expensive mistakes in the past and taken significant impairment charges in the recent past
(eg RDS, STL) as a result. But in an oil market, which may be structurally changed
because of US shale, a Super Major like Total needs to have a greater presence, in our
view, and a better understanding of this 'new swing producer'. There is no need to rush in
now; if indeed, there is a more prolonged downturn, patience could be rewarding.
There are more unconventional ways to gaining exposure and understanding shale than
outright acquisitions, which can come with risks, especially for European Majors with a
lack of understanding and structurally a higher cost base than the independent peers. We
think an unconventional and rationale approach for Total could be to replicate its approach
taken in the renewables business (eg Sun Power, where it has a ~60% shareholding).
■ A la SunPower: All in one go, back in 2011, Total took a ~60% stake in SunPower – a
leading solar company in the US. Total has a fairly hands-off approach to its
controlling shareholding because part of the magic is that this is a silicon valley high-
tech venture; a similar approach would be taken for a shale US E&P. This means that
Total kept a portion listed/floated because employees are incentivized with shares.
Total has a number of secondees, including until very recently the treasurer. In our
view, 'doing a Sun Power' for a US Shale E&P could work potentially much better than
Total taking over a company or buying own acreage. Additionally, having a better
understanding of shale may also have broader benefits to the rest of the its portfolio.
According to STL, a few development strategies have been adopted offshore.
Disposal target is feasible, potentially conservative
Total targeted $15-20bn in asset sales over 2012-14, and it delivered on that. The assets
sold included peripheral businesses (midstream and downstream), farm-downs of large
equity positions and non-core upstream projects, and admittedly was done in a somewhat
more favourable environment for disposals. The current target for 2015-17 is $10bn.
The rationale behind this program was to balance the cash cycle (at the time of heavy
investment), simplify and rejuvenate the portfolio where possible in strategic alliance, and
08 September 2015
Total (TOTF.PA) 18
balance country exposure. Once the target is met, Total will continue to sell assets and
rotate the portfolio, but it will likely be balanced out (through cycle) by an equal amount
spent on acquisitions. For now, the budgeting to 2017 calls for more disposals than
acquisitions. The target over 2015-17 in terms of disposals is $10bn – a feasible target, in
our view, as Total has many non-oil linked assets it can sell.
Figure 31: Total (completed) disposals 2011-1H15 TOTAL U$bn
2Q15 Totalgaz 0.7
1Q15 Bostik sale to Arkema, 10% stake in OML18 (RDS announced), 10% stake in OML 29 and Nembe Creek Trunk Line (RDS announced), transportation rights in the Ocensa pipeline in ColumbiaFrance, Nigeria 2.7
Total disposals in 2015 3.5
4Q14 Cardinal midstream in US, blocks in Norway and Nigeria (OML 24) and CCP composites business (refining and chemicals) US, Norway, Nigeria 1.3
3Q14 Shah Deniz Azerbaijan 1.7
2Q14 Not disclosed Not disclosed 0.2
1Q14 Angola Block 15/06, partial IPO of GTT Angola, France 1.5
Total disposals in 2014 4.7
4Q13 5% in Ocensa pipeline, 15% of Total E&P Congo Colombia, Congo 0.3
3Q13 TIGF pipeline, E&P assets in Trinidad & Tobago France, Trinidad 2.5
2Q13 25% in Tempa Rossa oil field, GPN subsidiary and 56.86% in Rosier (fertilizer businesses) Italy, France, Belgium, Netherlands 1.4
1Q13 49% interest in Voyager upgrader project Canada 0.6
Other assets 2.2
Total disposals in 2013 6.9
4Q12 Colombian affiliate, upstream assets, 40% stake in Geostock Colombia, UK, Nigeria, Norway, France 1.1
3Q12 Sanofi shares, upstream assets France, UK, Nigeria 1.8
2Q12 Sanofi shares France 1.1
1Q12 Sanofi shares, 6.4% in Gassled, E&P assets in France, 51% in Composites One and 100% of Pec-Rhin France, Norway, US 2.0
Total disposals in 2012 6.0
4Q11 UK marketing assets, two non-operated blocks in Nigeria, Sanofi shares UK, Nigeria, France 1.6
3Q11 48.83% in CEPSA. Chemical assets, 10% in Ocensa pipeline, Sanofi shares Spain, Colombia, France 6.9
2Q11 Interest in Cameroon E&P sub, interest in Joslyn project, Sanofi shares Cameroon, Canada, France 1.8
1Q11 Sanofi-Aventis shares France 0.4
Total disposals in 2011 10.7 Source: Company data, Credit Suisse estimates: Note: there is a difference between announcement and completion date
There are other high multiple options, which over time could be considered for sale, but for
now represent a nice hedge in the low oil price environment, which include Atotek and
Hutchinson, which combined could be worth $10bn to Total with lots of interest for these
assets. This is not part of the $10bn disposal target over 2015-17, but we think non-core.
$5bn to be announced in 2015, and another $5bn over 2016-17. Total plans to sell
$5bn of assets in 2015 (excluding those announced in 2014 and completed in 2015, which
amount to ~$4bn), which is part of a $10bn plan over 2015-17. Recent announcements on
the sale of the Schwedt refinery ($300m plus inventory release), a 20% stake in Laggan-
Tormore ($876m + 2015 capex exceeds consensus of ~$740m) and its Turkish Retail
Network (for ~$356m) are encouraging in terms of valuation. It also recently announced
the sale of gas pipeline assets in the UK North Sea for ~$0.9bn. All these disposals
amount to ~$3bn and should close before the end of the year.
Other assets that Total is marketing (and reported in the press) include a stake in the Port
Arthur refinery in the US, where it wants to bring in a partner to share the capex burden for
potential improvement work. In addition, it continues to market its stake in Usan (Nigeria),
for which there are a number of interested parties. Usan has been producing at plateau for
over two years; a project that was developed by Total and now operated by XOM, where
the reserve base remains unchanged despite years of production as 2P moved towards
3P, in our view. Gearing (ND/EQ) fell to ~26% in 2Q15, from ~28% in 1Q15, which is
below its target of up to 30%, and helped by disposal proceeds.
Exploration
Exploration success is important; success here gives greater optionality, better longer-
term visibility and avoids having to fill any gap inorganically. In other words, it allows a
company to make better project choices over time: high-grading the portfolio through
selective development and to be a more dynamic asset manager. Unlike Eni and Statoil,
Total's exploration strategy over the past four years has been nothing short of disastrous.
08 September 2015
Total (TOTF.PA) 19
Total has cut its exploration budget to $1.9bn in 2015, down from $2.8bn in 2014, and
hired a new Head of Exploration, who will present at the upcoming Strategy Update. Most
companies have been reducing exploration budgets similar to Total (it is the flexible part of
the capex budget) and have reduced the risk profile of their exploration campaign: less
speculative frontier drilling (ie new hydrocarbon provinces) and more drilling in known
hydrocarbon provinces and geologies, and appraising existing discoveries. In addition, in
this environment, companies can add new acreage on low costs with less onerous
commitments, and shoot seismic (very cheap right now).
Figure 32: 3-year average Finding cost per barrel Figure 33: 3-year average reserve replacement ratio (%)
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Total (3y avg excl assocs) Sector (3y avg excl assocs)
Total (3y avg incl assocs) Sector (3y avg incl assocs)
0%
20%
40%
60%
80%
100%
120%
140%
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Total (3y avg total proven additions ex associates) Sector (3y avg total proven additions ex associates)
Total (3y avg organic additions ex associates) Sector (3y avg organic additions ex associates)
Source: Company data, Credit Suisse Research Source: Company data, Credit Suisse Research
Total has a big acreage position in Africa; but even there its success ratio has been
lackluster, most notably as the company was either chasing more challenging geologies in
the Transform Margin (Cretaceous turbidites) or found itself in expensive disappointments
in the Kwanza Basin, pre-salt Angola, where the industry had high hopes. In the US GoM,
the results were mixed; Total pursued drilling activities in partnership with CIE.
More recently, Total has farmed into new opportunities in Myanmar, which for us is a
potentially exciting gas province; a known hydrocarbon province, but largely unexplored,
which recently opened up. Companies such as Statoil, Conoco, BG, Woodside, ENI, RDS,
Chevron, Ophir etc have recently been awarded blocks in the shallow and deepwater area
of Myanmar. Total recently farmed into a deep-water opportunity in the Rakhine basin with
a 40% non-operated stake (still subject to government approval) with Woodside the
operator. The consortium has plans to spud the Saung-1 prospect in the fourth quarter of
2015, which targets a multi tcf prospect on trend with the giant producing Shwe field.
Quick recap of latest guidance
Total will present its Strategy Update on 23rd
September. We briefly provide a recap of
what the company has said in the past, including the latest guidance that exists and one
that has been under review for some time with no update earlier in the year.
2017 production. Total has not provided an update for 2017 earlier in 2015, and the
2.8mbd target is likely to be under review. The target assumed 50-100kbd in lost
production from disposals and 100kbd in contingencies; the latter has already been used
up due to outages in Libya and Yemen, and a revised contingency figure could be
included in the upcoming production guidance. The 2.8mbd target previously assumed
50% risking on the ADCO renewal, which Total has since successfully completed (so an
uplift of ~80kbd to what was assumed in the target), but with less investment in
brownfields, a number of outages (Libya, Yemen) coupled with a few project delays (eg
Tempa Rossa), the target may change. Based on the disposals made thus far, we carry
08 September 2015
Total (TOTF.PA) 20
~2.7mbd for 2017. The period beyond 2017, Total previously targeted a growth rate of
~1% pa, which was lowered from the prior expectation of 1-2% (ie more selective growth).
Capex likely to be lowered. Organic capex stood at $26.4bn in 2014 (down from $28bn
in 2013 organically), and the guidance for 2015 stands at $23-24bn, which also reflects
lower exploration spend. The company provided no revised guidance earlier in 2015 for
2017 as it was still under review. Based on observable projects and what we think Total
will sanction, we think the revised target will be $20bn or less (from $24-25bn previously).
It is important to highlight that Total is transitioning out of a capital intensive phase as new
projects come online between now and 2017/18.
Opex savings target should be raised. The current, but somewhat outdated target is
$2bn pa or $1.4bn pa in cash terms by 2017; this was not reviewed in early 2015. In early
2015, Total increased the target for 2015 from $0.8bn to $1.2bn with the increase driven
mostly in the Upstream division. So far, it is ahead of its plan for 2015. Given that oil
markets have proven more challenging than initial expectations and the likelihood for a
more prolonged downturn, there is potential for further cuts exceeding the $2bn pa target
by 2017. For example, it launched a new $600m cost reduction plan in Downstream with
the objective of reducing each of its units to a cash flow breakeven below $20/t.
2017 FCF (pre-dividend) target de-constructed. Previously, once adjusting for inorganic
factors, the cash flow break-even after dividend (without scrip) in 2017 stood at ~$70/bbl
Brent. At the time we wrote that we think Total targets ~$31bn in OCF in 2017 at $70/bbl.
A FCF (pre-dividend) target that looks to be $8.5bn. This likely included $1.5bn in net
proceeds ($2.5bn in disposals against $1bn in acquisitions) and capex of ~$24bn.
Adjusting for the $1.5bn net proceeds, FCF (pre-dividend) would be ~$7bn. When
adjusting for the above (likely higher opex saving targets, lower capex of ~$20bn etc), the
break-even is likely around $60/bbl Brent for 2017 with the next update.
08 September 2015
Total (TOTF.PA) 21
Companies Mentioned (Price as of 04-Sep-2015)
BP (BP.L, 337.9p) CNOOC Ltd (0883.HK, HK$8.8) Chevron Corp. (CVX.N, $76.67) Cobalt International Energy (CIE.N, $7.62) ENI (ENI.MI, €14.45) ExxonMobil Corporation (XOM.N, $72.46) NOVATEK (NVTKq.L, $92.0) Petrobras (PBR.N, $5.16) Royal Dutch Shell plc (RDSa.L, 1605.0p) Santos Ltd (STO.AX, A$4.38) Statoil (STL.OL, Nkr121.0) SunPower Corp. (SPWR.OQ, $22.88) Total (TOTF.PA, €39.96, OUTPERFORM, TP €48.0) Tullow Oil (TLW.L, 200.4p)
Disclosure Appendix
Important Global Disclosures
Thomas Adolff, Justin Teo and Ilkin Karimli each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for Total (TOTF.PA)
TOTF.PA Closing Price Target Price
Date (€) (€) Rating
25-Sep-12 40.74 44.50 N
15-Oct-12 38.50 42.50
01-Nov-12 39.12 43.00
14-Feb-13 37.74 44.00
14-Nov-13 44.02 48.50 O *
06-Dec-13 42.92 R
07-Apr-14 47.91 51.50 O
11-Jul-14 50.77 53.00
22-Oct-14 44.59 51.50
07-Nov-14 46.53 52.50
05-Dec-14 45.18 49.50
27-Jan-15 46.39 47.80
16-Feb-15 47.12 47.10 N
21-Apr-15 48.70 52.25 O
29-Apr-15 48.44 53.50
* Asterisk signifies initiation or assumption of coverage.
N EU T RA L
O U T PERFO RM
REST RICT ED
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiv eness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12 -month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an E TR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011.
08 September 2015
Total (TOTF.PA) 22
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 54% (31% banking clients)
Neutral/Hold* 31% (42% banking clients)
Underperform/Sell* 12% (33% banking clients)
Restricted 3%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html
Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.
Price Target: (12 months) for Total (TOTF.PA)
Method: We set our TP based on our DCF valuation and comparative multiples. We use a 50/50 weighting. Our DCF uses a nominal WACC of
~7.6% derives a value of €46.3/share. Our preferred comparative multiple is EV/DACF. Combining the two methods gives us our TP of €48.0/share, which implies a 2016E EV/DACF of ~6.3x.
Risk: Risks to our TP: Earnings volatility, general market volatility. Total can benefit/suffer from changes to oil and gas prices worldwide. Capital intensity should drop, however, failure here could see Total's valuation fall as the dividend cover sees a slower improvement. Exploration success has the same implication to the upside and downside. It is difficult for a Major to re-rate on exploration success, unless a substantial discovery is made. Exploration success, however, is important as it will allow better project choices over time. Failure here will lead to the potential need for inorganic ways to grow or develop projects with less favourable IRRs in the portfolio.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names
The subject company (TOTF.PA, 0883.HK, BP.L, CIE.N, CVX.N, ENI.MI, PBR.N, RDSa.L, TLW.L, XOM.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.
Credit Suisse provided investment banking services to the subject company (TOTF.PA, 0883.HK, BP.L, CIE.N, CVX.N, PBR.N, RDSa.L, XOM.N) within the past 12 months.
Credit Suisse provided non-investment banking services to the subject company (XOM.N) within the past 12 months
Credit Suisse has managed or co-managed a public offering of securities for the subject company (0883.HK, BP.L, RDSa.L, XOM.N) within the past 12 months.
Credit Suisse has received investment banking related compensation from the subject company (TOTF.PA, 0883.HK, BP.L, CIE.N, CVX.N, PBR.N, RDSa.L, XOM.N) within the past 12 months
08 September 2015
Total (TOTF.PA) 23
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (TOTF.PA, 0883.HK, BP.L, CIE.N, CVX.N, ENI.MI, PBR.N, RDSa.L, STO.AX, TLW.L, XOM.N) within the next 3 months.
Credit Suisse has received compensation for products and services other than investment banking services from the subject company (XOM.N) within the past 12 months
As of the date of this report, Credit Suisse makes a market in the following subject companies (CVX.N, SPWR.OQ, XOM.N).
Credit Suisse has a material conflict of interest with the subject company (0883.HK) . Credit Suisse is acting as financial advisor to both CNOOC Ltd. and SINOPEC on the acquisition of Marathon Oil Corporation's 20% interest in Block 32, offshore Angola.
Credit Suisse has a material conflict of interest with the subject company (NVTKq.L) . Pursuant to sectoral sanctions imposed by the Office of Foreign Assets Control (“OFAC”) of the United States Department of the Treasury, U.S. persons are currently prohibited from providing funding for, or otherwise dealing in, new debt of more than 90 days maturity issued by Novatek. This report should not be construed as an inducement to transact in sanctioned securities. Economic sanctions imposed by the United States and European Union prohibit transacting or dealing in new equity of Novatek issued on or after the date when the Company became the target of such sanctions. This report should not be construed as an inducement to transact in any such sanctioned securities.
For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.
Important Regional Disclosures
Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events.
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.
Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.
For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html.
The following disclosed European company/ies have estimates that comply with IFRS: (BP.L, ENI.MI, NVTKq.L, RDSa.L, STL.OL, TLW.L, XOM.N).
Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (TOTF.PA, 0883.HK, BP.L, CIE.N, ENI.MI, PBR.N, RDSa.L, SPWR.OQ, STL.OL, XOM.N) within the past 3 years.
As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.
Principal is not guaranteed in the case of equities because equity prices are variable.
Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Credit Suisse Securities (Europe) Limited ................................................................................................ Thomas Adolff ; Justin Teo ; Ilkin Karimli
For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.
08 September 2015
Total (TOTF.PA) 24
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