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Financial Times: Total predicts return to growth after 9% decline in production

EXTRACT: “Total has been the worst performer this year among the big oil companies,” said Irene Himona, analyst with Exane BNP Paribas. “The newsflow has been negative with riots in Nigeria, nationalisation in Bolivia and tax increases in Argentina.  

By Peggy Hollingerin Paris

Published: August 4 2006 03:00 | Last updated: August 4 2006 03:00

Total, the French oil group, yesterday sought to take the sting out of a sharp decline in second-quarter production by declaring it the “low point” of the cycle and predicting a return to growth of at least 7 per cent next year.

Announcing a near 9 per cent drop in second-quarter production, against market expectations of a 7 per cent fall, Robert Castaigne, Total finance director, said he was confident the group was on track to “return to a sustained period of growth”.

Mr Castaigne said he expected a 3.6 per cent drop in annual production to 2.4m barrels of oil equivalent per day in 2006, but the trend would begin to reverse by the end of the year. Assuming no new disruptions to production, 2007 could see a 7 per cent increase, he said. Moreover, if certain problems experienced this year were resolved – for example, the militant attacks on foreign oil companies in Nigeria – production could be one to two percentage points higher.

Despite his confidence, the shares closed down 1.6 per cent at €51.55 on disappointment at the scale of the production fall.

Most oil companies are suffering from the impact of hurricanes, maintenance costs and the impact of high oil prices on production sharing contracts. But the French group has been hit harder than some of its peers. BP’s second-quarter production was down 2 per cent while Shell’s was 8 per cent lower.

Nevertheless, many analysts remained optimistic that Total would deliver on its production promise, and some suggested that the group’s discount relative to other oil majors was undeserved.

“Total has been the worst performer this year among the big oil companies,” said Irene Himona, analyst with Exane BNP Paribas. “The newsflow has been negative with riots in Nigeria, nationalisation in Bolivia and tax increases in Argentina. The general perception is that it is more exposed to risky parts of the world but that is untrue. If BP has a quarter of its portfolio in Russia, that is risky.”

Total had 11 or 12 “big projects” coming on stream in 2006/07 that would significantly boost production next year, she said. Mr Castaigne said Total had enjoyed a highly successful year in exploration so far, which would bolster the group’s production beyond 2010.

Total reported a 16 per cent rise in adjusted net income to €6.74bn for the first half, stripping out exceptionals, on sales 27 per cent higher at €79bn. The group said results had been helped by higher oil prices, although refining margins were weaker.

Copyright The Financial Times Limited 2006

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