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Total to book USD8.1 bil Q2 impairment on lower prices, stranded Canadian oil sands assets

August 05/2020

MOSCOW (MRC) --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 USD8.1 billion impairment in its second quarter of 2020 results, with a knock-on effect on its debt, reported S&P Global.

In a statement a day before publishing its Q2 results, Total lowered the oil price at which it would deem assets financially impaired from USD50/b Brent crude to USD35/b in 2020, followed by USD40/b in 2021, USD50/b in 2022 and USD60/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 USD50/b.

The revision would contribute USD2.6 billion in asset impairments, of which USD1.5 billion relates to the French major's Fort Hills and Surmont oil sands projects in Canada, and USD800 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 USD5.5 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 USD50/b," it added.

As MRC informed before, Total has recently disclosed that it is evaluating construction of a new gas cracker at its Deasan, South Korea, joint venture (JV) with Hanwha Chemical.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports. At the same time, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.

Total S.A. is a French multinational oil and gas company and one of the six "Supermajor" oil companies in the world with business in Europe, the United States, the Middle East and Asia. The company's petrochemical products cover two main groups: base chemicals and the consumer polymers (polyethylene, polypropylene and polystyrene) that are derived from them.
Author:Margaret Volkova
Tags:Europe, PP, PE, crude and gaz condensate, homopolymer PP, propylene, HDPE, ethylene, petrochemistry, Hanwha Total, Total Petrochemicals, Canada, Russia, South Korea.
Category:General News
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