[LONDON] French oil group Total has to make the steepest cuts to investments and shareholder returns among Europe's oil majors if oil prices remain weak, in order to maintain its current credit rating, Fitch said on Monday.
Total's spending has to fall by around a third this year compared with 2015 to bring net leverage, a measure of a company's ability to meet financial obligations, to a level needed to keep its 'AA-' rating with Fitch, the ratings agency said in a report.
Total has previously said it expects to have beaten its 2015 cost-cutting target of US$1.2 billion and plans to raise US$10 billion from asset disposals by 2017. It has also forecast capital spending in 2016 would be US$20-21 billion, down from US$23-24 billion in 2015.
"If Total is not successful in its disposal plans, the cuts to discretionary expenditure would have to go up to 44 per cent compared with 2015," Fitch said. The agency assumes oil prices to average US$45 a barrel this year, US$50 in 2017 and US$55 in 2018.
Major oil companies have announced plans to sell billions worth of assets in a bid to ride out weak oil prices but few large sales have so far been agreed as volatile oil prices make it difficult for buyers and sellers to agree on a price.
Royal Dutch Shell has announced a US$30 billion divestment programme following its expected takeover of BG Group .
Fitch said if Shell makes no disposals, it would have to cut discretionary spending by 49 per cent to maintain its current rating by 2018.
"Companies can do more than just cut capex and shareholder returns," Fitch said. So far, only Italy's ENI has reduced shareholder returns to rein in spending. "As with capex, (operating expenditure) cuts should be easier over time as contracts can be renewed at lower market prices."