European oil companies Total SA (TOT) and Eni SpA (E) Friday posted declines in second-quarter profit as output fell, but said they expect to boost their production in the second half of the year.
The companies face some production challenges in common. Lower demand for oil and gas has taken its toll, encouraging them to produce less gas and prompting the Organization of Petroleum Exporting Countries to cut output quotas several times late last year to defend price levels.
Security issues in Nigeria also cut output for both Total and Eni.
Eni was able to offer investors reassurance on production, saying average daily hydrocarbon production should increase by between 0.5% and 1% on the year. Oil and gas output fell 2.2% on-year in the second quarter.
The Italian company said it plans to boost output in places such as Congo and the U.S. in order to offset the factors that have been hindering its output.
Total, meanwhile, said that ramping up new fields in offshore Nigeria, the Gulf of Mexico and Norway, and starting up liquefied natural gas projects in Yemen and Qatar and the Angolan Tombua Landana oil field will help it improve volumes over the remaining months of the year
Total's production performance cast a cloud over the stock, with analysts expressing concern that the French major is now likely to post lower output in 2009 for the second year in a row. Total posted a 7.3% drop in volumes in the second quarter compared to a year earlier, steeper than analysts had forecast.
Even though demand and prices have weakened in the economic recession, large oil companies are confident that as the downturn eases, supply will get tighter.
Other big oil and gas companies also are having trouble sustaining oil and gas production rates, as both Exxon and Shell showed Thursday in their earnings reports. A drop in European demand for gas led Exxon to pare back production by 12% in the region for example.
With most of the world's conventional oil resources in the grasp of state-owned companies, international majors increasingly face the challenge of making do with harder-to-access reserves and maintaining production growth is difficult for all.
If they fail to meet the challenge and their production dwindles, oil companies risk losing investors' confidence
The economic downturn's erosion of demand and prices makes it harder for companies to invest in production, complicating their attempts to position themselves for better days to come.
And while Eni was able to say it will grow production volumes over the full-year, its strategy of buying smaller energy companies to boost growth has contributed to lifting its net debt to EUR18.4 billion at the end of June from EUR16.5 billion at the end of March.
Eni surprised investors Friday by slashing its interim dividend to EUR0.50 per share, from EUR0.65 a year earlier, aiming to preserve the strength of its credit rating and have sufficient funds to finance capital expenditure.
By contrast, Total's confidence in its balance sheet allowed it to keep up payments to shareholders, confirming an interim dividend of EUR1.14 per share to be paid in November, the same amount as the interim and final payments last year.
Total also confirmed it is sticking to its $18 billion investment budget for the year, though it may end up spending less because to prices for equipment such as piping have fallen.
Total's second-quarter net profit slid 54% to EUR2.17 billion while Eni's fell 76% to EUR832 million, with prices and demand for crude and petroleum products far lower than the year.
At 1455 GMT shares of Total traded down 2.6%, or EUR1.04 lower at 38.95 on a lower market. Eni was down 7.5% EUR1.32 at EUR16.37.