Integrated oil and gas company TOTAL S.A. TOT reported second-quarter 2015 operating earnings of $1.34 per share (€1.21 per share), surpassing the Zacks Consensus Estimate by 20.7%. Operating earnings were however 3% lower than year-ago earnings of $1.38 per share (€1.00 per share).

Total Revenue

Total revenues in the reported quarter were $44.71 billion, down 29% from $62.56 billion in the year-ago quarter.

Production

Total hydrocarbon production during the second quarter 2015 averaged 2,299 thousand barrels of oil equivalent (kboe) per day, up 12% year over year. The increase was due to new project startups in various international assets and portfolio changes including the ADCO concession in the United Arab Emirates.

In the second quarter, liquids production averaged 1,215 thousand barrels (MBbls) per day, up 23% from the prior-year quarter. Liquid production improved in all geographical locations except South America.

Gas production during the quarter was 5,910 thousand cubic feet (Mcf) per day, up 1% year over year. Soft performance from the Middle East and Africa was more than offset by increasing gas production in North America, Europe, Asia-Pacific and CIS.

Realized Price

In second-quarter 2015, the realized price for Brent decreased 44% to $61.9 per barrel from $109.7 per barrel in second-quarter 2014. The average realized liquid price dropped 44% to $58.2 per barrel from $103.0 per barrel in second-quarter 2014.

Realized gas prices in second-quarter 2015 decreased 28% year over year to $4.67 per Mbtu. Realized hydrocarbon prices decreased 38% to $45.4 per barrel of oil equivalent (boe) from $73.1 per boe a year ago.

Commodity prices have drastically dropped from the second half of 2014. Though a marginal improvement in oil prices was noticed in the second quarter, it was still way below prior-year levels. The softness in prices is expected to continue in 2015 as falling demand will be exacerbated by a supply glut.

Financial Update

Cash and cash equivalents as of Jun 30, 2015 were $27.3 billion compared with $22.1 billion as of Jun 30, 2014.

The net debt-to-equity ratio was 25.9% at the end of second-quarter 2015, down from 27.1% at the end of second-quarter 2014.

TOTAL’s cash flow from operation in second-quarter 2015 was $4.73 billion, down 10% from $5.27 billion a year ago.

Sale and Purchase of Assets

During the second quarter, TOTAL acquired assets worth $282 million. TOTAL disposed of assets worth $733 million in the reported quarter, which include the sale of Totalgaz.

The company is also planning to sell its interest in the gas fields located in the west of Shetland area of the United Kingdom and in the Schwedt refinery in Germany for a total value of $1.2 billion.

Upcoming Releases

Chevron Corporation CVX is slated to release its second-quarter 2015 results on Jul 31. The Zacks Consensus Estimate is pegged at $1.13.

ExxonMobil Corp. XOM is slated to release its second-quarter 2015 results on Jul 31. The Zacks Consensus Estimate is pegged at $1.11.

Royal Dutch Shell plc RDS.A is slated to release its second-quarter 2015 results on Jul 30. The Zacks Consensus Estimate is pegged at 93 cents.

Our View

The oil and gas story took a turn for the worse in the latter half of 2014 with a freefall in prices. TOTAL has decided to cut down on operating costs to cope with the difficult situation. The company aims to achieve more than $1.2 billion in operating cost savings in 2015, which will undoubtedly help margins.

Of the eight new planned projects in the Upstream segment, four are already functioning this year, the latest being Termokarstovoye in Russia. These additions have helped to increase its production year over year

Even though new startups have helped the company to boost production in the second quarter, the benefit could not be realized due to lower prices.

TOTAL currently has a Zacks Rank #3 (Hold).

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