TOTAL's Production To Improve 4%, Geo-Political Risk A Woe

TOTAL S.A. (NYSE:TOT) has one of the best production growth profiles among the oil super majors, characterized by an upstream portfolio and expects its upstream production to increase more than 4% in 2017. The company conducts its operations in more than 130 countries across five continents. As such, it is exposed to risks associated with doing business abroad.

With the lowest exposure among oil super majors to the mature North American and North Sea regions, the company’s upstream assets have lower natural decline rates and longer productive lives, which give TOTAL a significant competitive advantage.

TOTAL expects its upstream production to improve in the second half of the year due to increase in output from the recent startups, including Moho Nord in Congo.

TOTAL continues to make strategic acquisitions in high potential areas and divest assets that are not in sync with its long-term objectives. It acquired assets worth $547 million, while disposing assets worth $2,711 million in first-quarter 2017. The company is selling its non-core assets as they don’t rank high in its future plans, and utilizing the proceeds to develop and start commercial production in higher margin assets.

TOTAL is exposed to risks associated with doing business abroad, which include embargoes and/or expropriation of assets, exchange rate risks, terrorism and political/civil sentiment.

With a significant portion of the company’s oil reserves and production located in Africa, socio-political issues in this continent may affect TOTAL’s operations and hurt profitability.

In addition, TOTAL has to compete with the likes of ExxonMobil (NYSE:XOM) , Royal Dutch Shell (LON:RDSa) RDS.A and Chevron Corporation (NYSE:CVX) for acquiring assets and licenses for the exploration and production of oil and natural gas as well as the sale of manufactured products based on crude and refined oil. An increase in competitive pressure from its peers could impact sales, finally impacting TOTAL’s margins and market share in the global business.

Price Movement

TOTAL’s shares outperformed the Zacks categorized Oil & Gas International Integrated industry over the last 12 months. The company’s shares returned 5.1% against the industry’s loss of 1.2%.

TOTAL’s strong production portfolios, operating-costs lowering initiatives, debt reduction and starting new projects will boost its performance.

Zacks Rank

TOTAL currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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