French oil major Total SA, a key operator in Uganda’s leading oil projects said it would further cut investment and costs on its operations to retain profitability as it continues to counter the oil-price collapse.

Patrick Pouyanné, Total’s chief executive, told investors and analysts he will pursue the strategy that has kept the company in the black for most of the time since oil price collapsed in the second half of 2014: cut investment, lift operating efficiency and boost oil and gas output.

“In the short term, we will continue to be disciplined on capex and on cost-saving and focus on raising production,” he told investors. “We focus on cash flow.”

Even though the Total strategy to deal with an oil barrel worth less than half what it was two and half years ago is far from original, the French company has been more successful than most of its peers to carry it out. The company managed to keep booking billion-dollar profits in 2014 and 2015.

During his presentation, Pouyanné said the company plans to cut its investment to between $15 billion and $17 billion a year in 2017, down from an expected $18 billion to $19 billion this year and set up a target to cut costs by more than $4 billion in 2018, up from more than $2.4 billion expected this year and more than $3 billion targeted in 2017.

The Thursday announcement isn’t a surprise, as most analysts expected a change in capex and cost-saving upgrade. The news, however, will raise investor interest in the shares of Total which haven’t performed significantly better than its peers despite outperforming them, said brokerage Macquarie earlier this week.

Shares of Total ended 3.7% higher on Thursday, while the CAC-40 blue chip index was 2.3%.

The reduction of investment on its oil and gas fields and the more aggressive cost-cutting in the next two years will allow the company to cover all capital expenditure, resource renewal, cash dividend with its cash flow from operations with an oil price at $55 a barrel of Brent crude in 2017, the company said.

The company would generate enough cash flow to pay its expenses and dividend with a price of Brent oil at between $40 and $45 in 2020, Pouyanne said.

Despite increased cost-savings and lower investment, Total said it would lift output by 5% a year until 2020 and by between 1% and 2% a year thereafter. To achieve this, the company counts mainly on the projects it has invested in before the oil price collapsed and it started cutting on investment.

“We have 10 sizable projects under construction,” Pouyanné said.

The company will focus on giant projects where production costs are low and where efficiency gains are easier to find, he said, while reducing its exposure to costly assets such as oil sands or mature declining fields.

In the medium term, Pouyanné, who expects the price of oil to inch up later as the imbalances between demand and supply widen, said the company will add to its strategy a focus on customer-oriented businesses, such as power utilities, that have thinner margins but represent more stable income flow.

The company will also speed up its investment in renewable energy to anticipate the impact on the energy markets of the political decisions to limit global warming. The company has recently bought French battery maker Saft and Belgian utility Lempiris as part of this strategy.

Total is serious about its foray into the renewable business. Mr. Pouyanné told investors and analysts: “We don’t do that for the climate or for communications, we do it for profit.”

Credit: Wall Street Journal