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Portfolio Update

Strong Numbers Make for Many Happy Returns

By Roger S. Conrad, on May. 17, 2014

Total’s American depositary receipt has delivered a total return of 52 percent since we added the stock to the Lifelong Income Portfolio on June 20, 2013.

The international energy giant’s total hydrocarbon production fell by 6 percent year over year, fueled by a 14 percent drop in its crude oil and natural gas liquids output.

Security-related disruptions in Libya and Nigeria get most of the blame for this shortfall. But new projects have delivered underwhelming output growth thus far. The expiration of a key license in Abu Dhabi also took a toll, and the company’s refining margins dropped by about 35 percent in Europe.

Total faces the same challenges as most major oil companies: Growing production economically in a period of resource nationalism and soaring capital costs.

During the company’s first-quarter earnings call, CFO Patrick de la Chevardire highlighted progress at gas finds in Papua New Guinea and offshore Angola.

Disruptions to operations at the Kashagan field remain a constant headache, while the possibility of tougher EU sanctions on Russia also raises concerns about Total operations in Russia.

But management expects to the oil and gas company to generate positive free cash flow in 2014. The market has rewarded Total for its efforts to rein in capital spending at a time when many major oil companies have invested huge sums but delivered minimal production growth.

The company’s Australian liquefied natural gas projects are on target to start up from late 2014 to early 2015, eliminating a large drain on capital and lifting output at the same time. LNG already accounts for 20 percent of Total’s hydrocarbon production and 30 percent of its upstream profits.

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