DBRS Confirms Total S.A. Commercial Paper at R-1 (middle), Stable Trends

DBRS has today confirmed the Commercial Paper ratings of Total S.A. (TOTAL or the Company or the Group). The rating confirmations are reflective of TOTAL’s strong business risk profile, underpinned by sizable and geographically well-diversified upstream operations and a high level of integration. Its current ratings also continue to be supported by maintenance of strong financial metrics on a net debt basis that reflect the Company’s commitment to capital discipline and a highly liquid balance sheet.

While the upstream operating environment has remained largely stable, TOTAL’s profitability continues to be restrained by its geographically concentrated refining operations, where approximately 85% of its 2013 refining throughput is located in an oversaturated European market. DBRS expects profitability to improve as the Company makes progress on reducing its capacity in Europe (expected to reduce by 20% by 2017) and remains on track in reshaping and restructuring its refining business through investments in integrated refining and petrochemical complexes. Only two of the global platforms are in Europe (Normandie and Antwerp) and the others are spread across the world (Jubail in Saudi Arabia, Port Arthur in the United States and one each in Qatar and South Korea).

Continued capital discipline remains a critical factor supporting TOTAL’s ratings as it progresses in transforming its production profile and reaching its potential production target of three million barrels of oil equivalent per day (mmboe/d) by 2017 (2.3 mmboe/d in 2013). While DBRS expects capital expenditure (capex) to fund the inherently complex and mega-investment projects to remain elevated, TOTAL is expected to fund any free cash flow deficits with non-core asset divestitures and cash on hand to preserve balance sheet flexibility. TOTAL has indicated that 2013 was the peak year for capex. The Company expects investments for the following years to decrease to between $24 billion and $25 billion by 2015-2017. DBRS acknowledges the substantive cash balance maintained by TOTAL ($23.7 billion as of March 31, 2014), which significantly reduces the Company’s net debt position, bringing the key credit metrics strongly within DBRS’s requirements for a AA-rated entity, with net debt-to-capital of 19.3% (<25% required for a AA rating) and net debt-to-cash flow of 1.0x (<1.0 times (x)) required). EBIT interest coverage continues to be maintained at well above 20.0x, providing further support for the rating.

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.

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

Total Capital SA and Total Capital Canada Ltd. ratings are guaranteed by Total S.A.

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

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.

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