Total Cuts Output Target, Blames Higher Oil Prices


French oil major Total has trimmed its average annual hydrocarbon output growth target for 2006-2010, blaming the impact of rising oil prices on some of its production-sharing agreements and project delays.

The world's fourth largest oil group by market value said it now expected its annual hydrocarbon production to rise by 4% on average in the 2006-2010 period, down from a previous target for growth of more than 5%.

"We have unfortunately not been able to keep up with this sustained rhythm. This is due for half to a rise in oil prices, and for half to the rest (other issues)," Chief Executive Christophe de Margerie said during the company's half-year review presentation.

For 2007, production will be higher than last year but de Margerie said it was too soon to say whether growth would be around 1.5-to-2.0%. Total had previously targeted oil and gas production to growth less than 6% in 2007.

The downward revisions reflect an industry-wide trend of scaled back growth targets, as mature fields dry up and the western oil majors are forced to explore for oil in ever more inhospitable places, while the biggest fields remain off limits to them for political reasons.

Analysts at Dresdner Kleinwort on Tuesday predicted Total would follow rivals BP and Royal Dutch Shell and cut its growth forecasts in the review, despite being one of the few oil majors to increase production recently.

Total said the new forecast took into account a rise in estimated average oil prices to $60 per barrel from 2008, instead of the $40 per barrel previously envisaged.

Higher oil prices would automatically reduce the amount of oil that Total is entitled to take in production-sharing agreements with producer countries. Under production-sharing contracts companies are entitled to fixed financial rewards, meaning that as prices rise, they receive fewer barrels.

Oil prices have surged 50% since the start of the year. Oil held above $75 a barrel on Wednesday ahead of the publication of U.S. crude inventory data, and an OPEC meeting next week where supply is likely to remain unchanged.

Project Delays

As the easy-to-access fields dry up and oil companies are forced to invest in more complex projects, delays are increasingly a feature of the industry.

Delays or changes in the Kashagan, Sincor and Usan projects -- respectively in Kazakhstan, Venezuela and Nigeria -- were the other reasons behind the revised output target, Total said.

The Kashagan oil project in Kazakhstan has been delayed to the second half of 2010, from an initial 2005 target.

The operator, Italy's ENI , has blamed difficult geology and industry costs rises, that have also inflated the budget.

The Kazakh government has sought compensation and gave the project partners until today to submit a proposal.

On Wednesday, de Margerie said discussions between the ENI-led consortium of international majors and the Kazakh authorities needed to resume quickly, but insisted on the need for the Caspian Sea project to remain profitable.

"This project must clearly offer terms that allow our long-term profitability, so we will be uncompromising on this, but clearly the environment has changed and we have to accept it," he said.

Total's agreement, under pressure from the Venezuelan government, to cede a third of its stake in the 180,000 barrel-per-day Sincor oil project to state oil company PDVSA, has affected the French company's estimated production there.

In a separate statement on Wednesday, Total surprised the market by saying it would pay an interim dividend of 1 euro per share, a rise of 15% on last year's interim payout.

Analysts at Citigroup said it was unclear why the company made the announcement now rather than waiting for its third quarter results.

Total's share price was up 0.49% at 55.64 euros after earlier touching 56.60.