Even though French big oil company Total (TOT +0.00%) has been consistently churning out some of the best results among its peers over the past couple of years, its stock has been the worst performer among the big five integrated majors, down 14% over the past year. After yet another quarter of remarkable production growth and good operating results, the stock just can't seem to gain any traction.
So let's look at the company's most recent earnings report, what management has been doing over the past quarter that could help pull the stock out of this rut, and why this stock's decline could be a great buying opportunity.
An LNG loading facility. Image source: Getty Images.
By the numbers
| Metric | Q1 2019 | Q4 2018 | Q1 2018 |
|---|---|---|---|
| Revenue | $51.2 billion | $52.5 billion | $49.6 billion |
| Net income | $3.14 billion | $1.13 billion | $2.65 billion |
| EPS (diluted) | $1.16 | $0.40 | $0.99 |
| Operating cash flow | $3.63 billion | $10.6 billion | $2.08 billion |
Data source: Total earnings release.
As is the case almost every time Total or any other big oil company reports earnings, don't get too caught up looking at the operating cash flow for any given quarter. There are almost always some working capital build or drawdown that makes that reported number incredibly lumpy. In this case, Total had a significant capital build this quarter while the fourth quarter had a significant capital drawdown. The important thing is that overall cash from operations is still on the rise.
The strong point of Total's recent earnings results was its gas, renewables, and power segment, which benefited immensely from new liquefied natural gas (LNG) export facilities starting up. It's worth noting that LNG production was previously part of its exploration and production business, so the numbers reported here look significantly different from the way they were reported in prior quarters.
Data source: Total. Prior results revised to reflect the migration of Total's LNG business to gas, renewables, and power.
The highlights
- Total's net production was up 9% compared with this time last year to 2.94 million barrels of oil equivalent per day (BOE/D). The production jump comes largely from new projects ramping up to full capacity as well as the integration of Maersk Oil & Gas.
- Management was incredibly busy this past quarter with a slew of announcements related to new investments and partnerships. These include a 50/50 joint venture with Saudi Aramco for 250 retail sites in Saudi Arabia, a wind farm in France, and acquiring a plastic recycling facility. Total also announced it was taking a 10% interest in the second Arctic LNG facility in Russia, making another significant investment in the Driftwood LNG project in the Gulf of Mexico including an equity stake in operator Tellurian, entering into a joint venture lithium-ion battery project between its subsidiary Saft and a Chinese battery manufacturer, and starting a new gas development project including LNG in Oman.
- Total also announced it had started production at one of its floating production, storage, and off-loading facilities in Angola, which will produce about 115,000 BOE/D.
- The board of directors authorized a 3.1% increase to its dividend on a euro basis, and said it will end its scrip dividend program effective June 2019.
What management had to say
LNG has clearly been a management focal point for the past few years, and this past quarter, CEO Patrick Pouyanne went out of his way to emphasize this. On top of separating LNG from the rest of its exploration and production segment for reporting purposes, he also highlighted several new projects it started this past quarter to keep growing this segment.
Effective this quarter, the new iGRP (integrated gas, renewables, and power) reporting segment spearheads the Group's ambition in the integrated gas chain and low-carbon electricity. The segment's operating cash flow before working capital changes increased by 55% year on year thanks to growing LNG production by more than 50% and doubling LNG sales activity by Total. To prepare the segment for profitable growth in the future, the Group finalized its entry into the Arctic LNG 2 project in Russia, signed the gas agreement for the Papua LNG project to enable the launch of the engineering phase, and strengthened its commitment to the Tellurian-led Driftwood LNG project in the United States.
After earnings were released, Total also made a significant LNG-related announcement. It has a contingent acquisition where it will acquire all of Anadarko Petroleum's (APC +0.00%) Africa assets from Occidental Petroleum (OXY 0.10%) for $8.8 billion. Part of that deal includes Anadarko's Mozambique LNG holdings, which is a 26.5% stake in a 12.8-million-ton per year LNG export facility and its offshore gas acreage that holds over 60 trillion cubic feet. The deal is contingent upon Occidental being able to close the deal to acquire Anadarko.
Its business gets better by the day. Its stock? Well ...
Even though Total has done a great job of generating high returns and investing in higher-growth parts of the energy industry, its stock has not reflected that lately. For investors, it seems like a great time to be looking at the stock. The company is growing its LNG business by leaps and bounds, production continues to grow at a nearly double-digit rate, and Total is producing some of the best returns on equity in the business.
The best case against Total right now is that its shareholder return program looks a bit tepid compared with its peers. While others are either growing dividends at a faster rate or buying back loads of shares, Total is plowing more money back into the business. Whether it elects to give more back to shareholders down the road remains to be seen. From a business perspective, though, the company looks positioned incredibly well for the next couple of decades of oil, gas, and making the transition to renewables.
