The commitment of French society to invest more in clean energy, despite a sharp drop in profits while the coronavirus stimulates demand, illustrates the persistent pressure exerted on the oil giants by investors and society to meet the environmental challenges to long term.
After a weak string of first quarter results, the big oil masters were forced to cut spending, curb production and even cut dividends in some cases. It could worsen in the coming months, with the public health crisis destroying up to a third of global energy demand.
“While responsibly addressing short-term challenges, the group continues to implement its medium and long-term strategy,” said chairman and chief executive officer Patrick Pouyanne on Tuesday.
Total’s share rose 6% to 32.32 euros at 10:22 a.m. in Paris, almost three times the increase in the French benchmark.
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Total has invested billions of dollars in batteries, wind and solar power in recent years, but is also catching up with European competitors such as Royal Dutch Shell Plc, BP Plc and Repsol SA, which have already set ambitious climate targets.
The French company aims to have zero net emissions from its own global operations, known as scope 1 and 2, by 2050 or earlier. It targets carbon neutrality for all of its production and energy products used by its customers in Europe – known as scope 3 emissions – by 2050 or before.
Total wants to reduce the average carbon intensity of energy products used worldwide by its customers by at least 60% by 2050, with intermediate steps of 15% by 2030 and 35% by 2040.
This sounds like the promises made by its European counterparts, who have also reiterated their commitment to the transition to clean energy despite immense financial pressures due to a historic drop in oil and gas prices.
Total, which currently spends more than 10% of its investment spending on low-carbon electricity, will increase that share to 20% by 2030 or sooner.
The company had stakes in 3 gigawatts of renewable energy capacity at the end of last year, and is targeting 25 gigawatts by 2025. It recently took stakes in giant solar projects in India and Qatar, and has expanded clean energy into Spain, the UK and France.
Total’s adjusted net earnings in the first quarter fell 35 percent from a year earlier to $ 1.78 billion, the company based near Paris said. Analysts polled by Bloomberg had forecast $ 1.57 billion on average.
To alleviate financial pressures, the company has decided to reduce its overall investments this year to less than $ 14 billion, compared to a target of less than $ 15 billion in March and a target of $ 18 billion in February. The company has maintained its goal of spending up to $ 2 billion on low-carbon energy in 2020.
It will cut operating expenses by more than $ 1 billion, more than the $ 800 million target set in March, and plans to save at least another $ 1 billion in energy costs.
Total also offered to pay part of its 2019 final dividend of 68 euro cents in shares, known as script, rather than cash. It set the dividend for the first quarter at 66 euro cents, unchanged from the previous year.
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“The key questions are how long Total intends to use a stock dividend and how willing it is to push the balance sheet to keep the dividend as it is,” the analyst wrote. RBC Biraj Borkhataria in a note. “Although it is not ideal and it clearly destroys long-term value – given the recent sale, we think the market will take some relief by not cutting its dividends like Shell.”
Royal Dutch Shell Plc surprised the market last week by cutting its payment for the first time since at least WWII. The Norwegian company Equinor ASA also reduced its dividend and Exxon Mobil Corp. froze it for the first time in 13 years.
Citing declining global demand and turbulent times in Libya, the company now forecasts oil and gas production of between 2.95 million and 3 million barrels per day, a reduction of at least 5% from his initial forecast.
Deliveries of liquefied natural gas could be delayed until the second and third quarters, while falling oil prices will hurt long-term LNG contract prices from the second half, Total said.
“Given the measures taken by Total, we consider that the company is well placed to face the recession,” writes Lydia Rainforth, analyst at Barclays, in a note.
© 2020 Bloomberg L.P.