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

DBRS has today confirmed the Issuer Rating and Unsecured Bonds & Debentures for Total S.A. (TOTAL or the Company or the Group) at AA and the Commercial Paper rating at R-1 (middle), all with Stable trends. The rating confirmations reflect DBRS’s view that TOTAL has maintained a strong financial profile, benefiting from a robust pricing environment, and its ongoing effort to downsize exposure in the European refinery market (85% of TOTAL’s refining capacity), which has experienced overcapacity and weak margins.

TOTAL’s ratings are supported by its massive size and scale and its financial flexibility. These two key factors enable the Company to withstand the impact of crude oil pricing volatility through the cycle. The Company is planning to achieve three million barrels of oil equivalent (Mmboe)/day by 2017 (2.3 Mmboe/d in 2012). As a result, significant net capex is expected over the next few years (€22 billion in 2013). TOTAL expects to fund its expansion with internal cash flow, asset divestitures (€12-€15 billion from 2012-2014, of which over €11 million is expected to be achieved by the end of 2013), and new debt. TOTAL targets its net debt in the capital structure in the 20%-30% range. As at June 30, 2013, this ratio was at the low end of the target at 21.7%. This provides TOTAL with significant financing flexibility, and when combined with €12 billion in cash (as of June 30, 2013) and cash proceeds from asset divestitures (non-core upstream assets, including pipeline assets), the Company is expected to maintain its financial profile within the current rating.

In its downstream segments, TOTAL faces challenges to improve profitability as 85% of its refining capacity is located in the European market, which has experienced overcapacity and a declining demand for gasoline. TOTAL is expected to reduce its capacity in Europe by 20% by 2017 and is focusing on more efficient integrated facilities, which should improve profitability over the long-term.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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

The applicable methodologies are DBRS Criteria: Commercial Paper Liquidity Support Criteria for Corporate Non-Bank Issuers and Rating Companies in the Oil and Gas Industry, which can be found on our website under Methodologies.