UpdateRefining, petrochemical margin plunges pull Total profits down

29 July 2011 14:52  [Source: ICIS news]

LONDON (ICIS)--Total’s second-quarter earnings were dragged down by weakening refining and petrochemicals margins, as sales revenues rose almost 12% year on year but profits fell, the French energy major said in its interim report on Friday.

Total earned €40.5bn ($57.9bn) in revenue in the three months to the end of June 2011, an 11.5% improvement on the same period a year earlier, when it made €36.3bn. However, net income was only €2.9bn in the second quarter, down 4.8% from €3.1bn for the same period in 2010.

“The combination of sustained global demand and geopolitical troubles increased tensions in the oil market,” said Total chairman and CEO Christophe de Margerie. “In this environment, Total continued to develop and rebalance its portfolio in accordance with its commitment to sustainable growth.”

Total’s upstream operations earned €2.5bn in the second quarter of the year on the back of sales revenue of €11.6bn, compared to profits and revenues of €2.2bn and €10.3bn respectively in the same period in 2010.  

The company's lower earnings were largely due to weakening margins at the its refining and petrochemicals units, where revenues increased year on year but net profits plunged. Margins in the refining segment were particularly weak, with net income accounting for 0.6% of sales revenues. The division made €197m on the back of sales revenues of €31.5bn in the second quarter of the year, compared to sales and profits of €28.6bn and €483m in 2010. Operating costs for the unit were in excess of 99% of revenue during the quarter.

Total’s proprietary European Refinery Margin Index (ERMI) shows that refining margins were $16.30/tonne in the second quarter of 2011, just over half the $31.20/tonne the company recorded for the same period a year earlier. The margin during the first six months of the year was $20.40/tonne, Total said, almost a third lower than the $30.40/tonne it calculated in the first half of 2010.

Meanwhile, the petrochemicals division earned a net $247m on sales of €5.6bn in the second quarter of the year. This was some 9.9% less than in the same period of 2010, when it made €274m on the back of sales of €4.9bn.

The chemical segment’s earnings in the second quarter of 2010 reflected strong petrochemical margins in Europe and the US, according to Total. “Results for the speciality chemicals were in line with the strong results shown over recent quarters in a still favourable environment,” the company said.

Calculations based on revenues and operating expense figures given by Total show that raw production margins for petrochemicals fell from 8.9% in the second quarter of 2010 to 7.1% during the same period of 2011. The same calculations show a fall in margins from 7.7% to 7.1% when comparing the first six months of 2010 to the same period of 2011. In the first half of 2011, Total’s chemicals segment reported a 13% increase in net operating profit to €485m, with sales rising 18% to €10.4bn, the company said.

($1 = €0.70)

By: Peter Salisbury
+44 20 8652 3214

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