The energy industry is full of some larger-than-life characters, and one of the biggest was French integrated major Total SA (TOT) CEO Christophe de Margerie. The charismatic and outspoken leader was a fixture at TOT for nearly 40 years in various roles on the exploration and production side, before becoming the energy stock’s top dog in 2007.
Sadly, de Margerie was killed in a plane crash late Monday when his private jet hit a snow plow during takeoff from Moscow’s Vnukovo airport.
While Margerie’s death leaves a void at TOT as well as France, it might not be as dark of a cloud for Total SA as thought at first blush. In fact, TOT stock actually finished Tuesday’s trading nearly 3% higher.
While I hope that the market wasn’t “cheering” Margerie’s untimely demise, it does open up an interesting future for the French integrated giant — one investors might want to explore.
A History of Big Projects At Total SA
If you had to pick one word to sum up Christophe de Margerie’s tenure at Total, it’d be “big.” His personality was big, and his love of big-production projects was even bigger.
Margerie was one of the few energy company CEOs who believed in “peak oil” theory. And given that stance (and the belief that energy prices would continue to rise and rise), he pushed Total SA into a variety of expensive and high-risk plays to help curtail the firm’s falling production.
If you remember, almost all the energy majors are suffering from the issue of falling production as old legacy fields dry up faster than the companies can add new meaningful sources of supply.
For TOT, that meant plowing headfirst into places with some pretty sketchy neighborhoods: Yemen, Burma, Iran and Nigeria. More recently, TOT had moved heavily into Russia, including partnering on a $27 billion project to tap the vast natural gas fields in northwest Siberia and ship it via liquefied natural gas tankers to Europe. Further expansion was why de Margerie was in Russia when his plane crashed.
These sorts of high-risk, high-reward projects were all the rage back in the mid-aughts when oil prices seemed to never go down.
However, several of these projects failed to hit paydirt for Total SA. Fields in Libya, Kazakhstan and Nigeria have all been burdened with various production outages, while low oil prices have curtailed work on the firm’s Canadian oil sands projects. Several major offshore fields and shale gas projects in Poland have come up empty.
As these marquee projects have stumbled, TOT’s production has continued to decline. According to ratings agency Fitch, Total’s production dropped once again in 2013 — the third consecutive year of declines.
TOT stock has declined in turn; aside from perpetual whipping boy BP (BP), TOT has been one of Europe’s worst-performing energy stocks over the last few years.
To that end, Total SA started following the playbook of getting “lean and mean.” That has led to billions of asset sales and project closures. Everything from natural gas fields in Azerbaijan and refineries in China to liquefied petroleum gas distribution in France and withdrawing its stake/capital pledge in the massive Trans Adriatic Gas Pipeline have been cut from TOT’s asset base.
With de Margerie’s passing, Total’s ability to cut more fat is greatly enhanced.
More Cuts to Come At Total SA
Moves by Total’s board would have allowed de Margerie to continue on as CEO for several more years. It’s not that Christophe de Margerie was a bad CEO by any means, it’s just that several of these major projects don’t currently make any sense in the recent price environment for oil and natural gas.
Under a new CEO — such as Patrick Pouyanne, the man who is charge of reducing Total’s exposure to unprofitable European refining — Total could really make the commitment to become a leaner, more profitable animal.
And as we’ve seen with firms like ConocoPhillips (COP) and Marathon (MRO), there is nothing but blue skies for firms that undergo the plunge. Both COP and MRO have surged by high double digits since making the split from their refining arms. There certainly is room for multiple expansion at Total SA. Currently, TOT shares are one of the cheapest energy stocks an investor can buy at a forward P/E of 9 and a whopping 7% dividend yield.
That cheap price could become thing of the past as Total continues to reconfigure itself to a modern energy landscape.
Christophe de Margerie’s death should in no way be celebrated — he was one of the energy industries most charismatic leaders — but it does offer TOT stock holders a silver lining.
Now, Total can adopt a quicker pace toward becoming a streamlined and production-ready oil company.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.