Last year, the story for many of Europe’s major integrated energy stocks wasn’t that pleasant. Higher drilling costs and absolutely abysmal crack spreads on refining hurt profits and crimped share prices. From BP (BP) to Italy’s ENI (E), many of the European majors suffered.
Yet in this suffering, investors can find some pretty tasty long-term bargains. In this case we’re referring to French major Total (TOT).
Like rivals BP and E, Total didn’t have a great 2013. However, there are plenty of catalysts that should help propel TOT stock into the future. For investors looking for beat-up bargain, TOT stock could be the key to a great total return in the energy sector.
A Terrible Year For TOT Stock
To say that 2013 was bad for many of Europe’s major energy firms would be an understatement. Aside from Europe’s slow-growing economy, many of the continent’s energy majors suffered hard at the expense of downstream and refining issues. Unlike many American refiners, most of the European majors have been forced to fight rising Brent crude oil prices. Those high prices managed to dent or obliterate refining margins.
Add in poor exploration and production numbers and it’s easy to see how the European majors faired so poorly throughout the year. Overall, Total managed to see an 18% reduction in its full year profits, with upstream operations profits falling 13%.
In response to the terrible year, many of Europe’s biggest energy firms have undergone a huge asset selling binge. Both ENI and Royal Dutch Shell (RDS.A) have begun selling everything but the kitchen sink as well as cutting capital expenditure on new projects. Shell — which had been the capex king — has reduced its planned spending by nearly 20% this year, while E has plans to reduce its spending over the next four years by 5%.
And since both E & Shell saw falling production amounts last year as well, cutting capex spending on new upstream and downstream projects probably isn’t a good idea for the long term.
However, here’s where the outlook gets rosy for TOT stock. Total continues to open up its wallet. Last year, the firm increased its capex spending by 18% to reach $34.4 billion. And so far in 2014, the deals keep coming.