French oil major Total has revealed its plan to reduce its capital expenditure (capex) for 2020 by more than $3 billion and save about $800 million in operating costs compared to 2019.
Total will also suspend its buyback program.
According to Patrick Pouyanné, Chairman & CEO of Total, the decision is aimed to alleviate the consequences of the recent oil price plunge,
He recalled the resilience that the group’s teams demonstrated during the 2015-16 oil crisis as well as the two pillars of the group’s strategy which are the organic pre-dividend breakeven of less than $25/b and the low gearing to face this high volatility.
In a context of oil prices on the order of $30 per barrel, he announced an action plan to be implemented immediately. The plan was based on three axes.
The first one is organic capex cuts of more than $3 billion, ie. more than 20%, reducing 2020 net investments to less than $15 billion. These savings are mainly in the form of short-cycle flexible capex, which can be arbitrated contractually over a very short time period.
It is worth noting that, out of the planned $3.3 billion capex cut, about $2.5 billion will be cut in the Exploration & Production (E&P) business while $500 million will be cut in the Downstream sector.
The second axis is $800 million of savings in 2020 on operating costs compared to 2019, instead of the $300 million previously announced.
The final one is suspension of the buyback program – the company announced a $2 billion buyback for 2020 in a 60 $/b environment; it bought back $550 million in the first two months.