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Total to book $8.1 bil Q2 impairment on lower prices, ‘stranded’ Canadian oil sands assets

Friday, 31 July 2020 | 15:00

Total has revised downward its oil price assumptions and slashed the value of its Canadian oil sands assets, it said July 29, adding it would book an $8.1 billion impairment in its second quarter of 2020 results, with a knock-on effect on its debt.

In a statement a day before publishing its Q2 results, Total lowered the oil price at which it would deem assets financially impaired from $50/b Brent crude to $35/b in 2020, followed by $40/b in 2021, $50/b in 2022 and $60/b in 2023. The company added that it expected a supply shortfall and price rebound by 2025, followed by a peak in oil demand in 2030, leading to a long-term price of $50/b.

The revision would contribute $2.6 billion in asset impairments, of which $1.5 billion relates to the French major’s Fort Hills and Surmont oil sands projects in Canada, and $800 million to LNG assets in Australia, it said.

Noting the company’s target of reaching net-zero emissions from its operations by 2050, Total said this could leave a portion of its Canadian oil sands assets “stranded,” and it would therefore book an additional $5.5 billion impairment, and make no further investments in capacity additions.

“Total will only take into account for its proven and probable reserves in Canada the proved reserves. And the proved and probable reserves life of the group is thus reduced from 19.0 to 18.5 years. In addition, Total will not approve any new project of capacity increase on these Canadian oil sands assets,” it said.

It added it was withdrawing from the Canadian Association of Petroleum Producers, “considering the misalignment between their public positions” and its own.

The result of the impairments would be to increase the company’s debt gearing ratio by 1.3 percentage points, Total said. The French major had the lowest debt gearing among the European oil and natural gas majors at the end of the first quarter of 2020.

“Total maintains its analysis that the weakness of investments in the hydrocarbon sector since 2015, accentuated by the health and economic crisis of 2020, will result by 2025 in insufficient worldwide production capacities and a rebound in prices,” Total said.

“Beyond 2030, given technological developments, particularly in the transportation sector, Total anticipates oil demand will have reached its peak and Brent prices should tend toward the long-term price of $50/b,” it added.
Source: S&P Global

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