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Total share price up, reassures on dividend, slashes expenses targets

Total SA is deepening its reaction to low crude prices as the French oil major announced on Wednesday a further cut in capital and operating expenses, while pledging to cover the dividend fully paid in cash.

Total, which reported a $5.66-billion net loss in 2014, said it would cut capital expenditure to $20-$21 billion in 2016 and to $17-$19 billion thereafter, compared with $23-$24 billion in 2015 and a peak of $28 billion in 2013. The company also announced an adjustment in the redistribution of overall capital, with the downstream business, which includes refining and marketing, now getting 25% of total capex, up by 5%, on the back of a reduction in the upstream operations proportion.

The move follows a fresh slide in crude oil prices to the lowest in more than six years that exacerbated fears of a prolonged drop. The company also raised its target of operating expenses reductions to $3 billion by 2017, up from a previous aim of $2 billion.

This is the latest in a series of spending cutbacks in the oil industry and by other commodity producers that have been heavily hit by declining prices of raw materials, pressured by oversupply and sluggish demand.

Totals Chief Financial Officer, Patrick de la Chevardière, told reporters that the group wants to bring costs down so that it can break even at $45 per barrel in 2019 and that the company expects to maintain its dividend at the current level in 2016, although part of it will be in the form of stock.

“We wanted to dramatically reduce capex again next year so that we can reach the very important target of covering the dividend at $60 per barrel in 2017,” Mr. de la Chevardière said. “This is the cornerstone of everything we are doing.”

The company confirmed that it is currently not considering to launch any new projects as it waits for prices paid to equipment suppliers to deflate. The oil major also said that three projects — Ichthys in Australia, Tempa Rossa in Italy and Martin Linge in Norway — have been delayed beyond 2017, which, combined with the spending cut, will curb the groups targeted output in 2017.

Total said that its production would grow by 6-7% annually between 2014 and 2017 and by an average 5% between 2014 and 2019, effectively reducing its production target two years from now by 0.2 million barrels per day to 2.6 million.

“About 100 000 bpd (of the loss) come from projects which are facing some delay,” said Mr. de la Chevardière. “An additional 100 000 bpd is due to the lower capex program.”

Total SA traded 1.74% higher at €40.45 per share at 09:31 GMT in Paris, trimming its year-on-year drop to 17.04%. The company is valued at €96.58 billion.

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