Total: First Quarter 2017 Results

Total: First Quarter 2017 Results

Regulatory News:

Total (Paris:FP) (LSE:TTA) (NYSE:TOT):

Total’s Board of Directors met on April 26, 2017, to review the Group’s first quarter accounts. Commenting on the results, Chairman and CEO Patrick Pouyanné said:

“Supported by the OPEC/non-OPEC agreement, Brent prices remained volatile in the context of high inventories and averaged 54 $/b this quarter. In this environment, Total’s adjusted net income increased by 56% to $2.6 billion in the first quarter 2017, in line with the strong recent quarterly results of 2016, due to good operational performance and a steadily decreasing breakeven. Excluding acquisitions and asset sales, the Group generated $1.7 billion of cash flow after investments, mainly due to a 63% increase in operating cash flow before working capital changes from the Exploration & Production segment and investment discipline.
Upstream production continued to grow by 4% per year with the start-up of the giant Moho Nord field in Congo. To prepare for future growth, Total signed a strategic alliance with Petrobras, gaining access to the giant Iara and Lapa fields in Brazil, without being preempted by any of the partners in the license. In addition, Total signed a global partnership agreement with Sonatrach, enabling it to consolidate its future development in Algeria.
The Downstream continued to take advantage of favorable margins due to the high availability of its installations. The Group is pursuing its profitable growth strategy for petrochemicals with the sanction of two major new investments in the United States and South Korea, benefiting from the current low cost environment. The Marketing & Services segment completed the acquisition of new assets in East Africa, reinforcing its leadership position on the continent.
In this context, the net-debt-to-equity ratio decreased to 22.7%, notably due to the finalization of the $3.2 billion sale of Atotech. The strength of the balance sheet and relentless pursuit of cost reductions allows the Group to launch new projects and acquire resources while fully benefitting from the ongoing deflation in the oil sector.”

Key figures ⁴

* The new Gas, Renewables & Power segment reflects the Group’s ambition in low-carbon energies. It encompasses downstream Gas activities previously integrated in the Upstream (now Exploration & Production) segment, New Energies activities (excluding biotechnologies) previously integrated in the Marketing & Services segment and a new Innovation & Energy Efficiency division. The Exploration & Production, Refining & Chemicals (which includes a new Biofuels division) and Marketing & Services segments have been restated accordingly. 2015 and 2016 historical data is available at total.com.
** Average €-$ exchange rate: 1.0648 in the first quarter 2017.

Highlights since the beginning of the first quarter 2017 ¹²

• Started up Moho Nord in the Congo with production capacity of 100,000 barrels per day
• Obtained exploration permits in the deep offshore Gulf of Mexico, with three in Mexico and four in the United States close to the North Platte discovery
• Signed final agreement sealing strategic alliance with Petrobras and Total’s definitive entry into the Iara and Lapa concessions, as well as Downstream gas assets in Brazil
• Sanctioned development of Vaca Muerta shale resources in Argentina and increased interest in Aguada Pichana Este license (27% to 41%)
• Increased stake to 50% in the Absheron license, currently under development in Azerbaijan
• Signed comprehensive partnership agreement with Sonatrach in Algeria
• Investment of $1.7 billion to develop petrochemical activities in Texas through a new joint venture with Borealis and Nova, with Total holding a 50% interest
• Investment of $450 million to increase the capacity of the Daesan integrated refining & petrochemicals platform in South Korea by 30%, a 50/50 joint venture between Total and Hanwha
• Signed new LNG supply contract with JERA in Japan, the largest LNG buyer, and MoU with Pavilion Energy to supply LNG as bunker fuel in Singapore
• Finalized the sale of Atotech for $3.2 billion
• Announced sale of stakes in several mature fields in Gabon for approximately $350 million

Analysis of business segments

Exploration & Production

> Environment – liquids and gas price realizations*

* Consolidated subsidiaries, excluding fixed margins.

> Production

Hydrocarbon production was 2,569 thousand barrels of oil equivalent per day (kboe/d) in the first quarter 2017, an increase of 4% compared to the first quarter 2016, due to the following:

• +6% due to project ramp ups, notably Kashagan, Laggan-Tormore, Surmont, Incahuasi and Angola LNG;
• +1% perimeter effect, mainly due to the acquisition of an additional 75% interest in the Barnett shale in the United States, which was partially offset by asset disposals (Russia, Norway…);
• +1% related to improved security conditions in Libya and Nigeria;
• -4% due to natural field decline and the PSC price effect.

> Results

* Details on adjustment items are shown in the business segment information annex to financial statements.
** Includes foreign exchange effect on Yamal LNG financing, which is reversed for total adjusted net operating income.
*** Tax on adjusted net operating income / (adjusted net operating income - income from equity affiliates - dividends received from investments - impairment of goodwill + tax on adjusted net operating income).

Exploration & Production adjusted net operating income was 1,382 M$ in the first quarter 2017, nearly four times higher than in the first quarter 2016, due to production growth, cost reductions and a 44% increase in the average realized hydrocarbon price.

Operating cash flow before working capital changes increased by 63% to 3,031 M$ for the same reasons. Exploration & Production generated 525 M$ of organic cash flow after investments in the first quarter 2017.

Gas, Renewables & Power

> Results

* Detail of adjustment items shown in the business segment information annex to financial statements.

Adjusted net operating income for the Gas, Renewables & Power segment was 61 M$ in the first quarter 2017 in an unfavorable context for solar activities. The acquisition of a 23% equity stake in Tellurian, which is developing an integrated LNG project in the United States, was finalized in the first quarter.

Refining & Chemicals

> Refinery throughput and utilization rates*

* Includes share of TotalErg, as well as refineries in South Africa and the French Antilles that are reported in the Marketing & Services segment.
** Based on distillation capacity at the beginning of the year.

Industrial performance was strong in the first quarter 2017 even though the Antwerp integrated platform was affected by ongoing works as part of the modernization program. The restructuring of European refining is in place and refinery throughput was reduced by nearly 200 kb/d compared to a year ago, due to the ending of crude oil refining at La Mede and a 50% capacity reduction at Lindsey.

> Results

* Detail of adjustment items shown in the business segment information annex to financial statements.

In the first quarter 2017, the Group’s European refining margin indicator (ERMI) was 38.9 $/t, reflecting strong refined product demand. Petrochemical margins were down from the very high levels of the first quarter 2016 but remain satisfactory.

In this context, adjusted net operating income from the Refining & Chemicals segment was 1,023 M$ in the first quarter 2017, a decrease of 9% compared to the first quarter 2016. The segment maintained 1.8 $B of cash flow from operations despite a decrease in operating cash flow before working capital changes notably due to taxes related to the gain on the Atotech sale.

Marketing & Services

> Petroleum product sales

* Excludes trading and bulk refining sales, includes share of TotalErg.

Petroleum product sales decreased by 2% in the first quarter 2017, notably due to the sale of the marketing network in Turkey in the second quarter 2016.

> Results

* Detail of adjustment items shown in the business segment information annex to financial statements.

The Marketing & Services segment captured the benefit of strong marketing margins, and adjusted net operating income increased by 4% to 301 M$ compared to the first quarter 2016.

Group results

> Net operating income from business segments

Adjusted net operating income from the business segments was 2,767 M$ in the first quarter 2017, a 47% increase compared to the first quarter 2016, mainly due to the increased contribution from Exploration & Production, which fully captured the benefit of higher hydrocarbon prices.

The effective tax rate¹³ of the business segments increased to 35.4% in the first quarter 2017 compared to 24.3% in the first quarter 2016, mainly due to the increase in the effective tax rate for the Exploration & Production segment.

> Net income (Group share)

Adjusted net income was 2,558 M$ in the first quarter 2017 compared to 1,636 M$ in the first quarter 2016, an increase of 56%.

Adjusted net income excludes the after-tax inventory effect, special items and the impact of changes in fair value ¹⁴.

Adjustment items¹⁵ had a positive impact on net income of 291 M$ in the first quarter 2017. This includes a positive 55 M$ inventory effect and 236 M$ of special items comprised mainly of the gain on the sale of Atotech and an exceptional depreciation related to the cost increase on the Fort Hills project in Canada.

> Adjusted fully-diluted earnings per share

Adjusted earnings per share, calculated on the basis of 2,457 million fully-diluted weighted-average shares, increased by 49% to 1.01 dollars in the first quarter 2017 from 0.68 dollars in the first quarter 2016.

Based on an interim dividend of 0.62 euro per share, the pay-out ratio was 65%.

The number of fully-diluted shares was 2,458 million on March 31, 2017, compared to 2,351 million on March 31, 2016.

> Divestments – acquisitions

Asset sales were 2,711 M$ in the first quarter 2017, essentially comprised of the sale of Atotech.

Acquisitions were 547 M$, mainly comprised of the 23% equity share Tellurian and the marketing and logistics network acquired in Kenya, Uganda and Tanzania.

> Cash flow

In the first quarter 2017, the Group’s net cash flow¹⁶ was 3,907 M$ compared to -215 M$ in the first quarter 2016. Operating cash flow before working capital changes increased by nearly 1 B$ compared to a year ago to 4,687 M$ in the first quarter 2017 due to the higher contribution from Exploration & Production. Net investments decreased by more than 3 B$ to 780 M$ in the first quarter 2017 mainly due to investment discipline and the sale of Atotech.

> Return on equity

Return on equity from April 1, 2016, to March 31, 2017, was 9.4%¹⁷.

Summary and outlook

Total continues to reduce its breakeven by cutting costs in line with the 3.5 B$ savings target for the year and benefiting from project start-ups. The Group also intends to take advantage of opportunities offered by the current oil cycle. Total is therefore launching new projects in a favorable cost environment and acquiring resources under attractive conditions, as demonstrated recently in Brazil and Uganda.

In the Upstream, the Group maintains its production growth objective of more than 4% in 2017. Production will benefit in the second quarter from the ramp up of projects recently started up, including Moho Nord, but will be affected by seasonal maintenance as well as the full implementation of OPEC quotas. From July, production will benefit from the entry into the Al Shaheen concession in Qatar.

In the Downstream, refining margins remain favorable going into the second quarter. Maintenance operations are planned at Leuna and Normandy, as well as at the petrochemical facilities of the Antwerp integrated platform.

Cash flow will benefit from production growth and cost reductions, while organic investments, excluding resource acquisitions, are expected to be 14-15 B$ in 2017 as previously indicated.

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To listen to CFO Patrick de La Chevardière’s conference call with financial analysts today at 14:00 (London time) please log on to total.com or call +44 (0)203 427 1916 in Europe or +1 646 254 3388 in the United States (code: 5625577). For a replay, please consult the website or call +44 (0)203 427 0598 in Europe or +1 347 366 9565 in the United States (code: 5625577).

Operating information by segment

> Exploration & Production

* Sales, Group share, excluding trading; 2016 data restated to reflect volume estimates for Bontang LNG in Indonesia based on the 2016 SEC coefficient.

> Downstream (Refining & Chemicals and Marketing & Services)

* Includes share of TotalErg.

Adjustment items to net income (Group share)

* Sensitivities are revised once per year upon publication of the previous year’s fourth quarter results. Sensitivities are estimates based on assumptions about the Group’s portfolio in 2017. Actual results could vary significantly from estimates based on the application of these sensitivities. The impact of the $-€ sensitivity on adjusted net operating income is essentially attributable to Refining & Chemicals.

Investments - Divestments

Net-debt-to-equity ratio

Return on equity

Return on average capital employed

> Twelve months ended March 31, 2017

> Full-year 2016

* At replacement cost (excluding after-tax inventory effect).

This press release presents the results for the first quarter 2016 from the consolidated financial statements of TOTAL S.A. as of March 31, 2017 (unaudited). The notes to these consolidated financial statements (unaudited) are available on the TOTAL website total.com.

This document may contain forward-looking information on the Group (including objectives and trends), as well as forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, notably with respect to the financial condition, results of operations, business, strategy and plans of TOTAL. These data do not represent forecasts within the meaning of European Regulation No. 809/2004.

Such forward-looking information and statements included in this document are based on a number of economic data and assumptions made in a given economic, competitive and regulatory environment. They may prove to be inaccurate in the future, and are subject to a number of risk factors that could lead to a significant difference between actual results and those anticipated, including currency fluctuations, the price of petroleum products, the ability to realize cost reductions and operating efficiencies without unduly disrupting business operations, environmental regulatory considerations and general economic and business conditions. Certain financial information is based on estimates particularly in the assessment of the recoverable value of assets and potential impairments of assets relating thereto.

Neither TOTAL nor any of its subsidiaries assumes any obligation to update publicly any forward-looking information or statement, objectives or trends contained in this document whether as a result of new information, future events or otherwise. Further information on factors, risks and uncertainties that could affect the Company’s financial results or the Group’s activities is provided in the most recent Registration Document, the French language version of which is filed by the Company with the French Autorité des Marchés Financiers and annual report on Form 20-F filed with the United States Securities and Exchange Commission (“SEC”).

Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL. Performance indicators excluding the adjustment items, such as adjusted operating income, adjusted net operating income, and adjusted net income are meant to facilitate the analysis of the financial performance and the comparison of income between periods. These adjustment items include:

(i) Special items
Due to their unusual nature or particular significance, certain transactions qualified as "special items" are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years.

(ii) Inventory valuation effect
The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors.
In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end price differentials between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost.

(iii) Effect of changes in fair value
The effect of changes in fair value presented as an adjustment item reflects, for some transactions, differences between internal measures of performance used by TOTAL’s management and the accounting for these transactions under IFRS.
IFRS requires that trading inventories be recorded at their fair value using period-end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of trading inventories based on forward prices.
Furthermore, TOTAL, in its trading activities, enters into storage contracts, whose future effects are recorded at fair value in Group’s internal economic performance. IFRS precludes recognition of this fair value effect.

The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items, excluding the effect of changes in fair value.

Euro amounts presented herein represent dollar amounts converted at the average euro-dollar (€-$) exchange rate for the applicable period and are not the result of financial statements prepared in euros.

Cautionary Note to U.S. Investors – The SEC permits oil and gas companies, in their filings with the SEC, to separately disclose proved, probable and possible reserves that a company has determined in accordance with SEC rules. We may use certain terms in this press release, such as “potential reserves” or “resources”, that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. U.S. investors are urged to consider closely the disclosure in our Form 20-F, File N° 1-10888, available from us at 2, place Jean Millier – Arche Nord Coupole/Regnault - 92078 Paris-La Défense Cedex, France, or at our website total.com. You can also obtain this form from the SEC by calling 1-800-SEC-0330 or on the SEC’s website sec.gov.

Total financial statements

First quarter 2017 consolidated accounts, IFRS

(a) Except for per share amounts.

(1) Treasury shares related to the restricted stock grants.

(a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value.

(b) Of which inventory valuation effect

(a) Except for earnings per share.

(a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value.

(b) Of which inventory valuation effect

(a) Except for earnings per share.

(a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value.

(b) Of which inventory valuation effect

(a) Except for earnings per share.

(a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value.

(a) Adjustments include special items, inventory valuation effect and the effect of changes in fair value.

¹ Definitions on page 2.

² Group share.

³ The ex-dividend date will be September 25, 2017, and the payment date will be set for October 12, 2017.

⁴ Adjusted results are defined as income using replacement cost, adjusted for special items, excluding the impact of changes for fair value; adjustment items are on page 9.

⁵ Includes foreign exchange effect on Yamal LNG financing, which is reversed for total adjusted net operating income.

⁶ Tax on adjusted net operating income / (adjusted net operating income – income from equity affiliates – dividends received from investments – impairment of goodwill + tax on adjusted net operating income).

⁷ In accordance with IFRS norms, adjusted fully-diluted earnings per share is calculated from the adjusted net income less the perpetual subordinated bond coupon

⁸ Including acquisitions and increases in non-current loans.

⁹ Net investments = investments - divestments - repayment of non-current loans - other operations with non-controlling interests.

¹⁰ Organic investments = net investments excluding acquisitions, asset sales and other operations with non-controlling interests.

¹¹ Operating cash flow before working capital changes, previously referred to as adjusted cash flow from operations, is defined as cash flow from operating activities before changes in working capital at replacement cost. The inventory valuation effect is explained on page 12.

¹² Certain transactions referred to in the highlights are subject to approval by authorities or to other conditions as per the agreements.

¹³ Tax on adjusted net operating income / (adjusted net operating income – income from equity affiliates – dividends received from investments – impairment of goodwill + tax on adjusted net operating income).

¹⁴ Details shown on page 12.

¹⁵ Details shown on page 9 and in the annex to the accounts.

¹⁶ Net cash flow = operating cash flow before working capital changes - net investments (including other transactions with non-controlling interests).

¹⁷ Details shown on page 11.

TOTAL S.A.
Mike SANGSTER
Nicolas FUMEX
Kim HOUSEGO
Romain RICHEMONT
Tel. : + 44 (0)207 719 7962
Fax : + 44 (0)207 719 7959
or
Robert HAMMOND (U.S.)
Tel. : +1 713-483-5070
Fax : +1 713-483-5629

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