Total’s outlook revised to ‘negative’ by Fitch Ratings

In a note to clients on Thursday, the ratings agency also assigned an 'A' rating to the company's €5bn ($3.88bn) subordinated notes.

“The outlook revision reflects our expectation that weak oil prices will result in Total's financial leverage being higher than we previously assumed. We now expect Total's funds from operations (FFO) net leverage to peak at around 2.7x in 2016 and to average 1.9x in 2017-19, close to our 2x negative rating action guidance,” Fitch noted.

It added that over the next two years Total’s ratings will be largely driven by its ability to balance its cash inflows and outflows amid weak oil prices.

Last month, Fitch lowered its forecast for Brent to average $35 per barrel in 2016, before gradually recovering to $45/bbl in 2017, $55/bbl in 2018 and $65/bbl in the long-term.

This far into the current calendar year, Total has announced plans to reduce capital expenditure to $19bn in 2016 and to $17bn-$19bn in 2017, from $23bn in 2015 and $26.4bn in 2014. In addition, the company has made a commitment to reduce operating expenses by more than $3bn per year up to 2017, after having achieved $1.5bn savings in 2015.

However, Fitch noted: “We believe that in a deflationary cost environment these cuts are moderate compared with those announced by more upstream-focused US companies, and should allow Total to maintain at least stable production through the cycle.

“We also view positively the company's scrip dividend programme with a 10% incentive, which allowed Total to reduce its cash dividends by 61% in 2015. We assume the scrip dividend programme will remain in place in 2016-17.”