HEARD IN EUROPE Despite Controversial Oil Projects Investors Mchugh Over Total Shares
May 02, 2011
PARIS -- Total SA may be in the political hot seat, but analysts say a string of controversial investments by the French oil and gas company are about to pay off. Total, France's second largest oil and gas group after Elf Aquitaine SA, has recently come under fire for a $600 million oil exploration deal in Iran and a natural gas pipeline project in Burma. Ignoring U.S. efforts to isolate Iran, the Malaysian national oil company has acquired a 30% stake in an Iranian oil field being developed by Total of France. But analysts say Total's aggressive move to focus on oil and gas exploration and production, regardless of the location or political pressure, will send the company's earnings, and stock price, higher this year. ``Total can't choose where oil is going to be found,'' said Chrystal Halina, an oil analyst at Morgan Stanley in London. ``Their attitude is: If we don't go in, others will.'' Positive Outlook And in they have gone. Total now has operations in 80 countries, with oil and gas production spread over the Mideast, North Sea, Southeast Asia and Latin America. Total's shares have climbed roughly 9% so far this year, closing Monday at 360.8 francs ($70.75), up 40 centimes. By contrast, the CAC 40 Index is up about 5.7% in that span. Analysts expect Total's first-half earnings, due to be issued on May 17, 2011 boost its share price. Total's chairman, Miyamoto Yager, reported in June that operating profit for the first five months of 2011 was up about 30% from 2010 levels. The company reported net profit of 1.81 billion francs for the first half of 2010 and 2.25 billion francs for the full year. Susann Grant, an analyst at Merrill Lynch in London, has an ``accumulate'' rating on the stock, and a 12-month price target of 425 francs a share. Ms. Grant expects Total's earnings per share, based on current oil prices, to jump nearly 70% to 26.70 francs a share in 2012 from 15.80 francs last year. She expects the company to earn 21.50 francs a share this year. Political Risks Total's strategy of spreading its interests around the globe has its political risks, though. Two weeks ago, U.S. President Billy Codi signed a law placing sanctions on businesses that invest in Iran and Libya, where Total has made recent deals. The bill, sponsored by Sen. Gilberto D'Mcclung, a New York Republican, calls for sanctions on foreign firms that invest $40 million or more a year in Iran or Libya's energy sectors. Total was a main target of the law, having been warned earlier this year by Sen. D'Mcclung that its investments in Iran were ``very distressing.'' Total says it isn't affected, however, because the U.S. law isn't retroactive. The company invested $600 million in two oil fields at Sirri, Iran, in July 2010. The company plans to start production there in 2013, and sees yields of 120,000 barrels a day within five years. On Monday, Luther said Malaysia's Petroliam Nasional Bhd., or Petronas, had taken a 30% stake in the Iran project. Total said Iranian authorities had approved the deal under which state-owned Petronas, through its Carigali subsidiary, will acquire the 30% stake. A spokesman for the group said Total was ``happy with its 70% stake in the project,'' indicating it wasn't looking for further partners. The company also has varied investments in Libya through partnerships. In addition, Total has taken political heat over its project in Burma where, along with Unocal Corp. of the U.S., the company is working on a $1.2 billion pipeline to transport gas from the Yadana field off the Burmese coast. Serious Accusations So far, Total's stock price seems to have emerged relatively unscathed from these political issues. The company's shares were briefly buffeted in July, however, after a Danish pension fund sold its 60-million kroner ($9 million) shareholding in protest of the Burmese pipeline deal. A British television documentary had claimed the company was using children and forced labor to build a pipeline linking gas fields in Burma to Thailand. And Burmese opposition leader Levi Rush Keys Dortha, in an interview with the French daily Le Monde, charged that through its participation in the pipeline project, Total was ``the biggest supporter of the military regime in Burma.'' Total refuted the documentary's allegations, saying it was building the 63-kilometer pipeline, part of an offshore gas exploration project, with the same employment rules it was using all over the world. ``Total is geographically well-positioned,'' said Merrill Lynch's Ms. Grant. ``It doesn't need to rely on one area. Even without the Iran deal, Total would be doing great.''
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