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Bloomberg: Total Profit Misses Estimates on Production Decline: *

(Update5) Aug. 3 (Bloomberg) — Total SA, Europe’s third-biggest oil company, posted a smaller increase in second-quarter profit than analysts expected after rebel attacks in Nigeria and the seizure of fields in Venezuela and Bolivia curbed production.

Profit climbed 15 percent to 3.36 billion euros ($4.3 billion) from 2.91 billion euros a year earlier, excluding changes in the value of a stake in a drugmaker, the Paris-based company said today in a statement. That missed the median estimate from 13 analysts surveyed by Bloomberg News. Net income rose 9.7 percent to 3.4 billion euros, or 1.48 euros a share.

Chief Executive Officer Thierry Desmarest reported a 9 percent drop in output for the period, worse than European competitors BP Plc and Royal Dutch Shell Plc. The shares had their biggest decline since June 13 as Total said the second quarter was the company’s “low point” in production.

Total had “attacks in Nigeria, a shutdown in Angola and above all the problem of nationalization in Venezuela with its Jusepin field,” said Valerie Cazaban, who oversees about $150 million at Stratege SA in Paris. “Governments are nationalizing reserves or changing fiscal regimes and taxing more because they see the big benefits. Unfortunately for oil companies, even with the high prices, you’re seeing the consequences.”

Total shares fell 85 cents, or 1.6 percent, to 51.55 euros at 2:28 p.m. in Paris. The stock is down 1.6 percent this year, lagging the 4.9 percent gain in the 25-member Dow Jones Europe Stoxx 600 Oil & Gas Index.

The Competition

Total’s largest European competitors had smaller second- quarter production declines and bigger earnings gains. BP, Europe’s biggest oil company, said second-quarter earnings rose 30 percent to a record $7.27 billion while production fell 2.3 percent. Shell’s earnings rose 40 percent to $7.32 billion as production slid 7.7 percent.

Total said its average daily production fell to 2.29 million barrels of oil equivalent a day from 2.51 million a year ago. That’s the lowest since 2001, when it pumped an average of 2.2 million barrels of oil equivalent a day and the Angola deepwater field Girassol started pumping, according to Total’s web site.

“The second quarter should be the low point in our production,” Robert Castaigne, chief financial officer, said in a conference call. Castaigne said his “best estimate” for 2006 production is 2.4 million barrels of oil equivalent a day, based on a $60 a barrel oil price. Castaigne said production would rise 7 percent “with the same conditions in 2007,” including unrest in Nigeria. He repeated Total’s target to grow production “close to” 4 percent annually from 2005 to 2010.

Girassol Closure

Total shut Girassol, a floating production facility 90 miles off Angola, for 37 days during the period for its first maintenance since production began and to attach a new field called Rosa. Girassol normally pumps about 250,000 barrels a day and is Total’s largest offshore source. Angola and North Sea maintenance trimmed production by 2.5 percent, with disruptions in Nigeria cutting output by another 2 percent, Total said.

Total said operating profit from exploration and production rose 27 percent to 2.39 billion euros, refining and marketing gained 7 percent to 787 million euros, and chemicals fell 12 percent to 191 million euros. Total’s results are the first since the company spun off the Arkema chemicals unit to investors in May.

Foreign Profit Squeeze

Bolivia’s government on May 1 seized Total’s stakes in two natural gas fields, while Venezuela on April 3 took control of the 25,000-barrel-a-day Jusepin field after Total refused to hand over a majority stake to state-owned Petroleos de Venezuela SA.
South American governments aren’t the only ones trying to benefit from higher energy prices.

The U.K. government raised taxes on North Sea production, resulting in charges of 250 million euros, Total said. The U.K. tax changes will boost Total’s average tax rate for exploration by 1.5 percent. Taxes on exploration and production averaged 60 percent in the second quarter, up from 59 percent a year ago, Total said.

Production was further curbed by production-sharing contracts with national oil companies that reduce the amount of oil and gas Total keeps as prices increase. The contracts trimmed output by 2.5 percent in the period, Total said.

“This company is one of the most sensitive” to the contracts, called PSCs, said Craig Pennington, global leader of energy research at Schroders Plc in London. “When the price is high, they don’t get as many barrels, so they suffer disproportionately with the high oil price.”

Hopes for Dalia

Total is due to start an offshore Angola field called Dalia in the fourth quarter that will add about 240,000 barrels a day at full production. The floating facility will pump oil from waters 1,500 meters deep.

“Most of the equipment is now in place,” Castaigne said in the conference call. “We are very confident that production will start in the fourth quarter.” It will take a “few months” to reach peak production rates, he said.

Castaigne said a dispute with Saudi Arabia and the United Arab Emirates about territorial boundaries shouldn’t delay the $3.5 billion Dolphin natural gas project to ship gas by a pipeline from Qatar.

“From a technical point of view we are totally in line,” he said. “We are confident the production should start in the middle of next year.”

`The Bottom’

Some Total analysts said investors needed to look past the second-quarter production drop.

“The growth story is still there,” said Sandrine Cauvin, an analyst at Raymond James in Paris who has a “buy” recommendation on the shares and expected profit of 3.28 billion euros in the quarter. “Even with production dropping by 9 percent, they still had the growth in the upstream. When the production comes back, results will be very, very good.”

“This should be the bottom,” said Irene Himona, an analyst at Exane BNP Paribas in London who has an “outperform” rating on shares. “Next year is a very big year in terms of production coming on stream.”

Total last month reported crude-processing margins in the second quarter fell to $38.30 a ton from $45 a ton a year earlier. The average gas price in the second quarter was $5.75 per million British thermal units, 31 percent higher than a year earlier and down 0.6 percent from the first quarter, Total said.

The company’s refining operations suffered less from strikes than a year earlier, when labor strife shut five of six Total refineries in France for four days.

Desmarest, who is 60, will be succeeded as chief executive officer by Christophe de Margerie in January. De Margerie is Total’s exploration and production leader.
 Total’s bonds have fallen this year, with the yield on 500 million euros of 3 1/4 percent bonds maturing in 2012 rising to 3.98 percent today from 3.28 percent on Jan. 3, according to RBC Capital Markets. The company’s debt is ranked Aa1 by Moody’s Investors Service and AA by Standard & Poor’s.

Total holds about 173.3 million shares in Sanofi-Aventis, the world’s third-largest drugmaker, according to stock exchange filings from May.

To contact the reporter on this story:

Tom Cahill in Paris at  [email protected]

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