DBRS Confirms Total S.A. at AA and R-1 (middle)

DBRS has today confirmed the Unsecured Bonds & Debentures and Commercial Paper ratings for Total S.A. (Total or the Company) and certain subsidiaries (see table below) at AA and R-1 (middle), respectively, all with Stable trends. The confirmations are based on the Company’s (1) highly integrated operations on a global scale, which provide a measure of earnings stability, (2) strong balance sheet with good financial flexibility, and (3) considerable production growth projects. Despite these strengths, the rating is limited by (1) political risk associated with international operations, (2) geographic concentration risk, and (3) rising production and reserve replacement costs.

Total’s financial profile remains strong, with the Company maintaining a net debt-to-capital ratio near the bottom of, or below, its target range of 20% to 30% (19.2% at March 31, 2012). However, given significant capex expected for 2012 ($24 billion) to fund growth projects, internal cash flow and asset sales proceeds may not be sufficient to fund dividends, acquisitions and capex should crude oil prices weaken materially. With similarly high growth spending anticipated post-2012, leverage is expected to increase and the Company could potentially approach or surpass the middle of its targeted range. DBRS expects Total to manage its leverage within the lower half of its target range to maintain the current AA rating.

From 2012 to 2015, Total has a significant number of projects scheduled (~25) to come on stream to support its growth plans of 2.5% per year over 2010 to 2015, implying 2015 production of 2.5 million barrels of oil equivalent per day (mmboe/d). These plans are underpinned by growth projects in Africa and the United Kingdom North Sea, and are largely dependent on crude oil pricing, as one-third of Total’s production and reserves are represented by production sharing contracts (PSCs), volumes from which are negatively affected by rising crude oil prices. Given that PSCs represent such a high proportion of Total’s production and reserves, significant increases (decreases) in price could hinder (benefit) production growth targets.

In an effort to improve profitability in non-upstream operations, the Company completed a reorganization of its Downstream and Chemicals segments on January 1, 2012. These segments were combined to form the Refining and Chemicals segment to take advantage of operating synergies. A new segment, Supply and Marketing, was also created. Total expects to improve the combined return on average capital employed of the two segments to 14% in 2015 from 9% in 2010.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The R-1 (middle) ratings apply to the Commercial Paper issued under the Canadian program only.

The applicable methodology is Rating Oil and Gas Companies, which can be found on our website under Methodologies.