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Global Credit Research - 29 Mar 2012
London, 29 March 2012 -- Moody's note that Total (Aa1, stable outlook) reported a material
gas leak at the wellhead platform on the Elgin gas and condensate field
on 25 March 2012. This incident occurred during work undertaken
with a view to permanently capping and abandoning the well, which
had already been plugged in early 2011. The field is located in
the UK North Sea approximately 240 km east of Aberdeen. Total is
the operator (46.17% stake) of the Elgin/Franklin complex,
with Eni (A2, negative outlook) and BG Energy (A2, stable
outlook) holding 21.9% and 14.1% interests
respectively. Production on the Elgin, Franklin and West
Franklin fields, which averages 130,000 barrel of oil equivalent
per day (kboepd), is now shut in.
Based on our initial assessment, we view the probabilities that
significant environmental damage will be caused by the incident as relatively
low at this stage. While the loss of 50-60kboe in daily
production from the Elgin, Franklin and West Franklin fields is
expected to deprive Total of approximately USD1.5 million in net
operating income per day, equivalent to USD550 million on an annualised
basis, this has to be viewed in the context of the overall financial
strength of the group, which reported a net operating income of
USD17 billion in FY2011 and had cash balances of EUR14 billion at the
end of 2011.
However, much uncertainty remains as to when and how Total will
be able to stop the gas leak. We will therefore continue to closely
monitor Total's response, as any sign that the incident may
result in greater environmental damage, and higher financial liabilities
and reputational fallout for Total than currently expected, would
likely put pressure on its Aa1 rating.
According to Total's latest update, the gas leak remains ongoing,
although the situation is stable. Total is continuing its investigations
to analyse the precise cause of the gas leak. It has yet to decide
on the remedial operations to undertake in order to halt the flow of gas
and condensate at the earliest possible time. This may involve
drilling a relief well, which could take several months to complete.
The risk of environmental damage appears relatively contained at this
stage. The volumes of condensate evaporate relatively quickly and
remain stable at about 30 cubic metres. In its latest update,
Total noted that while a sheen is visible on the surface of the sea,
its surveillance data indicates that the area it covers has remained unchanged.
In addition, the well has been plugged since early 2011 and has
no longer access to the main reservoir. Total therefore believes
that the leak is likely to be coming from an ancillary reservoir located
above the main reservoir, which could, in a best case scenario,
exhaust itself naturally.
However, we note that there is also a risk that the gas spreading
from the installation connects with the naked flame that has been left
burning in the flare stack above the platform following its evacuation,
and causes an explosion. While the fact that the cloud of escaped
gas at sea level is at a much lower height than the flare reduces the
risk of ignition, we note that an explosion would likely result
in significant damage to the platform.
From a financial standpoint, we estimate that the loss of the production
of 50-60kboepd from the Elgin, Franklin and West Franklin
fields should cost Total approximately USD1.5 million in net operating
income per day, equivalent to USD550 million on an annualised basis.
This compares to a net operating income of USD17 billion reported by the
group in FY2011, and may also be viewed against the sensitivity
of Total's profitability to a change of USD1 per barrel in the price
of Brent, which translate into a USD150 million variation in annual
net operating income in 2012 according to management's public guidance.
Headquartered in Paris, France, TOTAL S.A. is
one of the largest integrated oil & gas companies in the world,
with total proved hydrocarbon reserves of 11.4 billion barrels
of oil equivalent and operations in more than 130 countries. In
2011, it reported revenues from sales of EUR166 billion and hydrocarbon
production of around 2.35 million barrels of oil equivalent per
day.
Francois Lauras
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Olivier Beroud
Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's comments on Elgin gas leak incident reported by Total
No Related Data.
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