Oil companies love to predict the future.
Total, the French company, outlined a plan for growth this week in a gruelling five-hour investor presentation that included talks from all of its senior business managers. This half-yearly event is a chance for the company to outline investment plans and growth strategies to shareholders, but a look at the same event 10 years ago shows that the targets and ambitions outlined at these talks can be very wide of the mark.
In 2002, TotalFinaElf, as it was then called, presented a bullish expansion plan that forecast 6% annual growth out to 2007. The company’s output of 2.2 million barrels of oil equivalent per day (MMboe/d) would therefore increase to more than 3 MMboe/d by 2007. The growth plans were backed up by projects across the group’s portfolio, from fields in the Gulf of Mexico to Kashagan in Kazakhstan (which is still not onstream) and Snøhvit in Norway (which has started up).
With hindsight these figures look wildly optimistic. History shows us that Total’s output rose steadily, to peak at 2.585 MMboe/d in 2004, before dropping back to below 2.4 MMboe/d by 2006 and hovering at around this level up until now. At the time, the company blamed the effect of steadily increasing oil and gas prices – which reduce entitlement volumes under production sharing agreements – and damage from hurricanes in the Gulf of Mexico.
Even so, Total’s management, led by Christophe de Margerie, said at this week’s presentation that there is enough production, either already ramping up or under development, to give the company a 3% combined annual growth rate between 2011 and 2015. The company can say this with a degree of confidence because 70% of the 1 MMboe/d of new production due onstream has already been sanctioned. By 2017 the company could even reach 3 MMboe/d – a familiar target from that investor presentation 10 years ago.
There are signs that this is bothering investors. “The key for Total is delivery, we believe, as the market is likely to be wary. Total has missed production targets frequently in the past, most recently in 2012 due to the Elgin leak,” Jefferies bank analyst Ian Reid said in a note on Tuesday. Presenting a growth story to the stock market is an important part of any publically listed business – something Total and other oil companies are expert at. However, delivering on this promise is also important.
Over-promising and under-delivering can erode confidence in management and leave a company’s share price in the doldrums. The company patently failed to achieve the production growth targets set 10 years ago. It remains to be seen whether Total can deliver on its promise this time around.