The Shareholders' Newsletter #63

STRATEGY

Action Plan in Response to Oil Price Plunge

Global energy demand declined because of the global economic shutdown caused by the pandemic. At the same time, a supply crisis was triggered by the untimely decisions made by certain producing countries, which decided to increase their production just when demand was declining.

Total had to react quickly to adjust to the new context. In addition to the impact of lower oil and gas prices, which are expected to reduce our cash flow for 2020 by around $9 billion, based on an average price of $30 a barrel from March, the crisis also has a significant impact on our operational outlook for 2020, resulting in a loss of earnings of at least $3 billion, on top of the impact from lower prices.

Total therefore needs to react and adapt. That means excelling in the areas that we control, and more specifically in the four areas on which our industrial culture is built – safety, availability, costs and cash.

• Safety: The first cornerstone of our action plan has been broadened, in light of the pandemic, to include all aspects of HSE – health, safety and the environment.
• Availability: This is our operational excellence. We need to capitalize on our industrial assets – while giving priority in these difficult times to the continuity of our operations – so that we can improve their availability and maximize their utilization rates when demand picks up.
• Costs: Obviously, this is about keeping our capital expenditure and our production costs under control.
• Cash: Cash is king; it’s the Group’s lifeblood. That’s why generating and preserving cash is essential in these difficult times.

Total is therefore implementing an action plan that will enable us to rapidly impact the areas we control. The effort required is significant because we’re aiming to preserve $7.5 billion in cash.

With a net-debt-to-capital ratio excluding leases of 17% at end-2019, Total has a solid balance sheet and the flexibility necessary to get through the crisis.

Thanks to these measures, Total is confident in its ability to stand firm in this newly deteriorated environment.