Overview of the 2014 fiscal year for TOTAL
The year 2014 was marked by the sharp decline in oil prices in the second half, which continued in early 2015. Brent oil prices ended the year 2014 below 60 $ / b after a long period of stability at around 110 $ / b, due to a substantial increase in oil supply while growth in demand was lower than expected. At the same time, the euro was driven down against the dollar by the September 2014 FED decision in the US and the anticipation of the decisions of the European Central Bank that were eventually taken in January 2015.
Global oil demand increased by +0.6 Mb / d(1) compared with +1.1 Mb / d in 2013, which was lower than anticipated primarily due to a slowdown in Chinese growth. Global oil supply rose significantly in 2014 by +1.9 Mb / d after a moderate increase of +0.4 Mb / d in 2013. Growth in production was mainly due to a dramatic increase of unconventional production in North America. Brent oil prices thus averaged 99.0 $ / b in 2014 compared with 108.7 $ / b in 2013.
In Asia, where the gas price is indexed to oil, prices dropped steeply in the second half of the year and the annual price averaged 14 $ / Mbtu, compared with 16 $ / Mbtu in 2013. Gas prices in Europe were affected by a very mild winter in 2013-2014 and fell by more than 20% to 8 $ / Mbtu. Finally, American gas, highly abundant due to shale gas development, was cheaper at 4 $ / Mbtu on average over the year. In the downstream, the year was marked by volatile refining margins. The margins were very low in the first half of the year and almost tripled in the second half, benefiting from the fall in Brent oil prices. On an annual average, the margins remained low due to overcapacity, particularly in Europe, and the European Refining Margin Indicator (ERMI) (2) was 18.7 $ / t in 2014, compared with 17.9 $ / t in 2013. Petrochemicals margins were very good in 2014, particularly in the United States, supported by falling raw material prices, while the polymer market remained favorable. The environment for Marketing & Services was less favorable than in 2013, particularly in the European networks.
In this context, TOTAL generated adjusted net results of $12.8 billion in 2014, down 10% from 2013. This decline essentially reflects the fall in Brent prices, which was partly offset by the increase in the income of the Refining & Chemicals segment, which benefited from its restructuring and took advantage of the volatile margins. Given the economic environment at the end of the year, the Group recognized after-tax impairments of about $6.5 billion in the fourth quarter 2014, essentially related to Canadian oil sands, unconventional gas, notably in the United States, and refining in Europe.
Adjusted net operating income from the Upstream segment in 2014 was $10,504 million compared to $12,450 million in 2013, a decrease of 16%, which was due essentially to the decrease in the average realized price of hydrocarbons.
Adjusted net operating income from the Refining & Chemicals segment in 2014 was $2,489 million, an increase of 34% compared to 2013, while the refining margin increased by only 4%. The synergies and efficiency plans supported the ability of the segment to adapt to the lower European margins in the first half of 2014 and subsequently take advantage of a more favorable refining & chemicals environment in the second half of the year. The petrochemicals environment was more favorable in 2014, especially in the United States.
Adjusted net operating income from the Marketing & Services segment in 2014 was $1,254 million, a decrease of 19% compared to 2013. This decline was mainly due to weather conditions in the first half in Europe, and lower margins in 2014, notably in the European network.
Acquisitions in 2014 were $2.5 billion, comprised principally of the acquisition of an interest in the Elk and Antelope discoveries in Papua New Guinea, the acquisition of an additional stake in OAO Novatek (3) and the carry on the Utica gas and condensate field in the United States. Asset sales were $4.7 billion (4), comprised essentially of the sale of interests in Shah Deniz and the associated pipelines in Azerbaijan, Block 15 / 06 in Angola, the Cardinal midstream assets in the United States and GTT (Gaztransport & Technigaz).
Investments excluding acquisitions amounted to $26 billion in 2014, down $2 billion from 2013. TOTAL financed its investments and dividends while maintaining a solid balance sheet and ended 2014 with a net-debt-to-equity ratio of 31.3%, compared to 23.3% in 2013. The increase is partly due to the higher level of net debt linked to lower cash flow from operations as well as the incomplete status on December 31, 2014, of the sales of Bostik, Totalgaz and the South African coal mines, and partly due to the decrease in equity linked mainly to variations in foreign exchange and to the impact of impairments.
The Group further improved its safety performance, with a 16% drop in TRIR (5) compared with 2013. For all of its projects conducted in a large number of countries, the Group also places emphasis on Corporate Social Responsibility (CSR) challenges and the development of local economies.
In the Upstream segment, the year 2014 saw the start-up of CLOV in Angola, which reached its plateau production ahead of schedule and is a testament to the Group’s deep offshore expertise. TOTAL also launched the Kaombo project in Angola after optimizing the project design and reducing the investment by $4 billion. The Group also continued its exploration program and made discoveries in the Kurdistan region in Iraq and in Côte d’Ivoire, where potential is under review.
The Refining & Chemicals segment’s net income continued to grow and the segment is one year ahead in the implementation of its synergy and efficiency programs. Industrial performance improved and helped take full advantage, in the second half of the year, of the more favorable environment for European refining and attractive petrochemicals margins.
Between 2012 and 2014, the Marketing & Services segment increased its market shares in the networks where it operates from 12% to 13% in Europe and from 15% to 18% in Africa. TOTAL’s market share in the lucrative lubricants segment also rose to 4.5% in 2014 compared with 4.2%(6) in 2012. In New Energies, the Group is expanding in the field of solar energy through its subsidiary SunPower, which has won tenders in recent years in Chile and South Africa. SunPower’s net income also benefited from significant cost cutting measures and the improved efficiency of solar panels.
In 2014, TOTAL dedicated $1,353 million to Research and Development (R&D), compared with $1,260 million in 2013. The Group continues to invest strongly to improve its technological expertise in the exploration and development of oil and gas resources, as well as to develop its competencies in the fields of solar energy, biomass and carbon capture and contribute to the evolution of global energy supply.
(1) EIA’s estimates, production including crude oil, condensates, LPGs, unconventional oils and other sources.
(2) TOTAL’s margin indicator.
(3) The Group held an 18.24% stake in OAO Novatek as of December 31, 2014.
(4) Excluding other transactions with non-controlling interests.
(5) Total Recordable Injury Rate.
(6) Company data.