Broad changes expected as Total adapts to low oil price

By Bate Felix and Michel Rose

PARIS (Reuters) - Oil major Total is expected to announce a new exploration strategy, more cost savings, asset sales and growth targets that will signal to the market on Wednesday it is adapting to the current low oil price environment.

Total, like other oil majors, has cut spending, is on target to meet its three-year $10 billion asset sales programme and has cancelled projects in high-cost areas due to oil prices that have plunged almost 60 percent since June last year due to oversupply and slow demand.

With the oil price remaining low, investors are expecting the company, France's biggest by market value, to detail more changes at its Sept. 23 investor day in London.

"We expect a broad reset of the business plan under the new CEO Patrick Pouyanne, an individual who looks to be bringing a different culture to the organisation, one where cost-control and profitability are prioritised," Citi said in Sept. 7 research note.

Pouyanne succeeded Christophe de Margerie who died in a plane accident in Russia in October last year.

"It will be interesting to see what his views are on oil price and how that is going to impact Total's business plan for the next two to three years," a London-based Bernstein analyst who requested anonymity said on Monday.

"We will probably see some new numbers for 2018 and I guess considering the environment we are in, we'll probably hear more about capex and cost reduction initiatives, not just on upstream but also more about their downstream operations," she said.

FOCUS ON DIVIDEND, EXPLORATION

Total's dividend will also be in focus. It kept it unchanged for the second quarter at 0.61 euros per share, but investors are wary about the company's ability to maintain the payout while oil prices look likely to remain low for some time.

But Morgan Stanley believes the company can. "We believe that management will continue to focus on dividend sustainability and will roll out additional measures to support the dividend," it said in a Sept. 18 research note.

Global oil benchmark Brent hit a 6-1/2 year low of $42.23 in August and was around $48 on Monday.

Analysts will also scrutinise Total's exploration strategy update. The group launched a "high-risk, high-reward" drilling strategy in 2012, which had disappointing results.

"Unlike Eni and Statoil, Total's exploration strategy over the past four years has been nothing short of disastrous," Credit Suisse said in a note.

Total cut its exploration budget to $1.9 billion this year from $2.8 billion in 2014, and hired a new head of exploration, Kevin McLachlan, who is expected to present the strategy update in London.

"The only thing we are lacking now is a big oil find," a top executive, who requested anonymity, said recently.

The group could be looking enviously at Italian rival ENI, which announced last month the discovery of a huge gas field in Egyptian waters.

Insiders said McLachlan has reorganised the exploration and production branch and has been encouraged by management to poach specialists outside Total.

If the group did not find any resources soon, it could get active in mergers and acquisitions, the Bernstein analyst said.

But the group has been cautious, sitting on the sidelines as Royal Dutch Shell launched its multi-billion dollar takeover bid for BG Group in April.

"The way mid-caps are priced at the moment, I see no acquisitions," the top executive said.

(Additional reporting by Benjamin Mallet; Editing by Susan Thomas)