ii view: oil major Total triumphs overseas

This French oil company offers an alternative to BP and Shell and offers an attractive forecast dividend yield. Buy, sell, or hold?

Operational and contract updates

ii round-up:

French oil giant TotalEnergies SE (EURONEXT:TTE) announced updates regarding both traditional fossil fuels and in relation to its growing renewable energy interests. 

First phrase gas production in the Caspian Sea off the coast of Azerbaijan will now begin, while the development of renewable energy in Algeria is also set to go ahead. 

• Invest with ii: Buy US Stocks from UK | Most-traded US Stocks | Cashback Offers

Shares in the €130 billion company rose 1.5% having come into this latest news down around 12% year-to-date. That’s similar to US rival Chevron Corp (NYSE:CVX) and compares with falls of less than 5% for European rivals BP (LSE:BP.) and Shell (LSE:SHEL). 

The development of the Absheron gas field around 100 kilometres southeast of Baku is being made as part of a 50:50 partnership with the State Oil Company of the Republic of Azerbaijan. The new operation will be able to supply up to 4 million cubic meters of gas per day and 12,000 barrels a day of condensate into Azerbaijan's domestic market. Total has been operating in Azerbaijan since 1996.

Meanwhile, new agreements with Sonatrach, the national state-owned oil company of Algeria, will see Total developing solar panel sites along with advancing an R&D programme in low carbon energies and energy transition. 

Cooperation with Sonatrach will also see increased gas production at the nation’s Tin Fouyé Tabankort fields, as well as an extension of Liquefied Natural Gas (LNG) deliveries by Sonatrach of 2 million tons per year to Total into 2024. 

Second-quarter results are scheduled for 27 July.

ii view:

TotalEnergies is a global multi-energy company and is one of France’s biggest companies by stock market value. Active in more than 130 countries, it employs over 100,000 people, with its core areas of production in West Africa, the Middle East and the North Sea. It operates through the divisional areas of Exploration & Production, Integrated Gas, Renewables & Power (including solar and on/offshore wind), Refining & Chemicals, and Marketing & Services. 

For investors, the uncertain economic outlook and possible recession continue to raise questions over expected global future energy demand, and costs generally for businesses remain elevated. Tackling climate change issues remains a pressing need for both the industry and governments globally, while government taxes in many countries have already risen given the backdrop of elevated energy bills and a consumer cost-of-living crisis. The pricing of Total’s shares in euros also adds the additional risk of currency movements for UK investors.  

• ii view: Shell warns on quarterly gas trading decline
• The Income Investor: dividend stocks still beat bonds and two shares I like
• Stockwatch: dividend supports this share until good times return

More favourably, Total is diverse both by business type and geographically, with strong cashflows allowing a combination of investment, debt reduction and shareholder returns. Hydrocarbon production this financial year is expected to grow by around 2% given start-ups in Oman, Brazil, and Azerbaijan, while an estimated future dividend yield of close to 6% is not to be overlooked. 

In all, and with the consensus analyst estimate of fair value per share near €65 per share, TotalEnergies remains a solid alternative for UK investors diversifying overseas.

Positives: 

• Geographical diversity of operations
• Attractive dividend payment (not guaranteed)

Negatives:

• Uncertain economic outlook
• Currency risks 

The average rating of stock market analysts:

Buy