It was as recently as Jan. 21 that Patrick Pouaynné, the CEO of Total, conceded that low oil prices had forced the French oil giant to cut capital spending, but he promised that not a single job would be touched.
“We have to control costs,” Pouaynné said at the World Economic Forum in Davos, Switzerland. “This won’t mean cutting jobs. Over the medium and long term, we’ll stick to our strategy.”
All that has changed in just 22 days. The company lost $5.7 billion in the fourth quarter of 2014, in stark contrast with a $2.2 billion profit in the same period the previous year.
As a result, Total announced Feb. 12 that it will cut jobs as well as investments in 2015 and sell assets worth $5 billion after it lost $6.5 billion of its value in the fourth quarter of 2014 because of the sharp drop in the price of crude oil. The writedowns included assets such as shale energy fields in the United States, oil sands in Canada and refineries in Europe.
In January the Paris-based company said it would cut spending by as much as $800 million this year, but now that target is $1.2 billion. Investment cuts also will be larger than previously estimated – by 13 percent – dropping by between $23 billion and $24 billion. The company said it also will spend 30 percent less exploring for new sources of energy.
Speaking with reporters in Paris, Pouyanné said reducing the exploration budget is mostly due to a need to overhaul procedures, given that Total hasn’t discovered any major energy fields recently.
“We consider that after having spent a lot of money in exploration in the last three years without the results we expected, it was preferable that exploration teams be put under a certain pressure, that they get forced to make choices,” Pouyanné said.
As for jobs, Total has frozen hiring across the board and even intends to lay off 15 percent of the employees at its Paris headquarters by 2017.
The company issued a statement saying its economies in response to the fall in oil prices would save $8 billion in cash, which would allow it to sell oil at $70 per barrel. Ordinarily, its “break-even” price for oil would be over $100 per barrel. But the $8 billion cash infusion means it can sell oil profitably in 2015 for about $40 less, according to Patrick de La Chevardiere, Total’s CFO.
Another economy being pursued by Total is to reduce output at the Lindsey refinery, one of the largest in England. It will cut capacity by about one-half or about 5 million metric tons of oil, and lay off about 180 workers, from 580 to 400, by the end of 2016. Still, Total plans to invest about $280 million to improve Lindsey’s efficiency over the next five years.
Total said it will announce similar output reductions in the spring at its refineries in France.
In all, 2014 wasn’t a very good year for Total. Besides its financial losses, its veteran CEO, Christophe de Margerie, died in a plane crash in Moscow in October. Perhaps the only good news to report is that this may be the last of the bad news for the world’s energy giants. Total is the last of the “big six” oil companies to report its earnings for 2014.
By. Andy Tully of Oilprice.com