By Sarah McFarlane 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 30, 2020).

French energy giant Total SA is writing down the value of its oil-and-gas assets by $8.1 billion after lowering its oil-price expectations in the wake of the coronavirus pandemic.

The company, one of the world's big five oil majors, said Wednesday the charge mainly related to its Canadian oil-sand assets, as well as to its liquefied-natural-gas assets in Australia.

The write-down comes a day before Total is expected to report a fall in second-quarter profit and follows similar moves by Royal Dutch Shell PLC and BP PLC, as the industry grapples with falling demand and prices amid the pandemic.

Earlier this year, Total revised its financial plan for 2020 based on an oil price of $35 a barrel, down from a previous assumption of $60 a barrel. Benchmark Brent oil traded Wednesday at $44.15 a barrel.

Taking account of the lower forecast, Total said it was writing down the value of the Canadian assets by $7 billion. The company cited high production costs at its Fort Hills and Surmont projects that may mean oil will be left in the ground. Total now thinks it can maintain its current production levels for 18.5 years, rather than 19 years.

Total also said it won't approve any new projects to increase the production capacity of the Canadian assets.

Liquefied-natural-gas assets in Australia were responsible for a further $800 million of the write-down, the company said.

The company said its gearing level, or net debt as a percentage of total capital and debt, will rise by 1.3% because of the lower asset values. In April Total's gearing was 25% including leases.

Total's announcement comes at the outset of earnings season for the world's top five oil companies. Second-quarter profits across the industry are expected to show deep wounds after the pandemic decimated energy demand.

Total and Shell are due to report Thursday, followed by Exxon Mobil Corp. and Chevron Corp. on Friday. BP is scheduled to report results Tuesday.

Oil companies quickly cut costs and curbed investments in March, as oil demand plummeted, and prices followed. At the time, Total suspended a $2 billion share-buyback program, cut expenditures and introduced a hiring freeze to conserve cash.

Still, oil majors have avoided cutting dividend payouts to shareholders, with the exception of Shell, which reduced its dividend by two-thirds in April. Analysts aren't expecting Total to cut its dividend when it reports Thursday.

Write to Sarah McFarlane at sarah.mcfarlane@wsj.com

 

(END) Dow Jones Newswires

July 30, 2020 02:47 ET (06:47 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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