Total Makes Surprise Profit as Trading Gains Offset Oil Slump

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Mirroring the performance of some of its peers, the French energy giant published a litany of grim figures — including an $8.1 billion writedown — for the second quarter, when much of the world was plunged into lockdown to slow the spread of the virus. Yet its traders successfully exploited the extreme volatility in oil and gas prices resulting from the crisis, helping the company avoid the loss that analysts had expected.

Second-quarter adjusted net income was $126 million, Total said in a statement on Thursday. That’s down 96% from a year earlier, but better than the average loss of $443 million expected by analysts.

Total endured an energy-market crisis, “gas prices dropping to historic lows and refining margins collapsing due to weak demand,” Chief Executive Officer Patrick Pouyanne said in the statement. Yet the company still made a profit thanks to “the outperformance of trading.”

The combination of slumping demand due to Covid-19 lockdowns and a price war between Saudi Arabia and Russia meant the oil market started the second quarter deep in a price structure called contango. This allowed traders to make easy money by buying crude cheap, storing it, and selling it forward.

The biggest players with access to onshore storage tanks or ships could make the most money. Norway’s Equinor ASA (NYSE:EQNR) gained about $1 billion in the second quarter as its traders exploited the contango.

E&P Loss

Total’s earnings report wasn’t short on bad news. Its exploration and production division posted a $209 million loss, compared with a profit of $2 billion a year earlier. The company’s fuel-retail networks in Europe suffered a 30% drop in demand in the quarter and its refineries ran at just 60% of capacity. Its writedown was related mainly to the value of Canadian oil sands assets.

Energy consumption and prices started to recover in June, but the company emphasized the uncertainty, volatility and potential for continued weakness in global markets. The price of liquefied natural gas on long-term contracts is expected to decline in the second half, and significant deliveries of the fuel may be deferred, it said.

Where it really mattered, Total offered some more good news for investors. It maintained its dividend at 66 euro cents a share and reaffirmed that it was sustainable with Brent crude at $40 a barrel.

Equinor and Royal Dutch Shell (LON:RDSa) Plc have already slashed their payouts, and BP (NYSE:BP) Plc and Eni SpA are expected to follow, meaning Total may be the only European oil major to fully withstand the current storm.

©2020 Bloomberg L.P.

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