[Patrick Pouyanné, Chairman and Chief Executive Officer of Total]
Hello everyone, wherever you are in the world. I am speaking to you today having taken part in a live chat with the Group's 1,300 managers for a digital Total Review as, due to the spread of Coronavirus, our March 5 review meeting was cancelled.
Indeed, since March 5 events have accelerated and today the Group is facing 3 crises: 2 short-term crises and 1 medium-to-long term crisis.
The first short-term crisis is of course Coronavirus which meant that the French government had to take major decisions so as to organize the protection of its citizens. And we, as part of that, must implement these measures. We must be attentive to others and rigorously observe the recommendations namely, the use of hand sanitizer, keeping a distance of 1 meter with each person we meet and limiting our daily contact to 5 people maximum to avoid contaminating many others if we are a carrier.
So, I'd ask you to be disciplined in this because this is a major health crisis and protecting your health is our priority.
The Group has taken steps, we have set up a central crisis cell driven by Denis Favier, the Executive Committee is mobilized within each branch. And in this regard, in each country I trust in the common sense of our managers to take the right measures according to the local development of this virus and to act in the best interests of all our employees.
The second crisis we are facing is the price of oil. On March 6, the OPEC and non-OPEC countries, notably Russia, precipitated, unfortunately, a crisis by failing to agree. Hence, Saudi Arabia decided to break the pact it had with Russia to control the oil-producing countries' level of output and on the contrary to increase its production. All of this came at a critical moment, as due to the Coronavirus global demand for oil was falling off sharply.
This is a global economic crisis global oil demand is likely to fall by 6 million barrels/day in April due to the spread of this virus in many countries. 6 million barrels/day less for a demand of 100 barrels is 6% compounded by a crisis of supply as Saudi Arabia and its partners have decided to up production by 3 to 4 million barrels/day.
So, 6 plus 4 equals an extra 10 million barrels/day on a zero-demand market, which is huge. This explains why the price of oil has collapsed, has been halved. Today, it stands at under $30 a barrel. That has also impacted the financial markets thus halving our share price.
These are the first two crises we are facing.
The third crisis is climate change of which I will speak less today while encouraging you to mobilize to reduce CO2 emissions.
So, how do we react to this oil crisis? Firstly, thanks to your hard work since 2015 we are today in a very different situation to that of 2014. Our balance sheet is stronger as our level of debt is only 16% compared to over 30% in 2014. Our break-even point, which allows us to finance our investments is under $25 a barrel, so we still have some leeway. In 2014 it was over $100 a barrel. Our cost of production, in E&P, has fallen from $10 to $5 a barrel.
And our investments, which in 2014 stood at a huge $26 billion have since, thanks to a policy of discipline fallen to $14 billion of organic investment. So, a very different situation.
And above all, you worldwide, in France and elsewhere, have demonstrated a real capacity for resilience and delivery of objectives. Because in 2015, all the goals we had set ourselves, and in particular, our cost-cutting program were not only achieved but exceeded.
So, I have great faith in our ability to resist this crisis.
That said, we must take action. We have our strengths, but we cannot stand idle. Just to give you a figure to keep in mind... The drop from $60 a barrel, our budgeted figure up until two weeks ago to $35 a barrel, by way of example would mean a loss of $9 billion were it to last all year. $9 billion is half of our investment and more or less the dividend we pay our shareholders.
So, we must act. We must adopt the same attitude as in 2015. This action will be organized, and that is my message today, around the same keywords I used in early 2015. At that time, I coined a slogan which was: Safety, Delivery, Costs and Cash. Safety, Delivery, Costs and Cash. I repeated that for 2 years to get all our teams on board and they did.
Today, I will use the same 4 words, as there is no magic formula. Let's act on what we can control: we can't control the price of oil we know it's volatile, we'd prefer $60 to $30 but we have to face up to this reality. We have the means to act and will implement action around these 4 words. I will just change the first word and replace "Safety" with "HSE" because "H" stands for health and that today is our priority.
"S" stands for Safety and we have made a lot of progress in that area. Yet we still have too many deaths in this Group. 4 deaths in 2019, that is intolerable. So we must use every means to improve our safety record. I want to underline the fact that these 4 deaths occurred amongst our subcontractors. That's no coincidence, so we must improve our everyday relationship with our subcontractors on all our sites. They are part of our family and during the crisis of 2015 we launched our Safety Moment initiative. Going forward, I'd like, on all our sites especially when a crisis may strain subcontractor relations, as we must make cost reduction efforts that we do a daily safety tour with one of them to show them they are part of a family which matters.
And lastly, the "E" for "Environment" meaning CO2. Today, as you can see and read in the newspapers we are being taken to task to be positive players in carbon neutrality and the energy transition. We must mobilize to reduce our CO2 emissions worldwide, in all our operations. Our goal was to go from 46 million tons in 2015 to 40 million tons in 2025, but that is not enough. We must aim for 20 million tons. To do this, I need each and every one of you to mobilize on this issue in the coming weeks so that each of our assets and operations be equipped with a CO2 action plan wherever it is located. We have a lot of know-how in the Group especially in GRP and I want the Total Group to become the leading customer for all GRP solutions in the coming years.
Then we have Delivery, Cost and Cash. Our Executive Committee has been working for the past 10 days to implement an immediate response to these challenges and that response will take the form of an action plan.
We have a shortfall of $9 billion and we want to reduce it. To reduce it we must use the various levers we have.
The first lever is investment which across all branches as reviewed by the Executive Committee this morning can be reduced by over 20%. So, we want to save $3.3 billion: 2.5 billion in E&P, 300 million in GRP, 300 million in Refining & Chemicals, 200 million in Marketing & Services, around 20% of each budget. So, first we will be implementing a reduction of investments, that is in our hands. And the idea is to use a degree of flexibility, as we have investments we know to be flexible and to activate that to offset the fall in oil prices.
The second lever in terms of costs is our OPEXs our operating costs. Our cost-cutting program has stayed on track with planned savings of $400 million in our budgets for 2020. With regard to 2014, we'd planned overall savings of $5.1 billion.
I am asking for greater efforts worldwide so as to take a fresh look at our operating costs and double our efforts to achieve $5.5 billion in savings. So not just $400 million, but $800 million for the year.
Of course, the fact that we can no longer travel will contribute to these savings. But in addition, I am counting on all of you to apply the same recipes as in 2015. I have faith in you and in all the company employees.
Of course, it is not a matter of making savings at the expense of the teams, the employees of Total, but we have decided to freeze our recruitment. Freeze doesn't mean zero, but reduction. So, I'm instructing everyone to freeze hiring, while we rapidly decide the right level for recruitment this year across the Group.
Of course, sectors like new energies and digital, our new Digital Factory, will be safeguarded as we must prepare the future. But we must ensure that we are disciplined with regard to what we can control.
The final area of savings concerns our shareholders as we will be reducing a planned $2 billion share buy-back to just $500 million. We are halting our share buy-back program thus saving $1.5 billion as part of our plan.
So that is our plan for the $9 billion shortfall. You may ask: "Your plan only saves $5 billion dollars for a shortfall of $9 billion?" Well, we'll be using our solid balance sheet of low level of debt. Hence our decision to deleverage so we could react to such volatility in oil prices. We will be able to borrow $4 billion for debt gearing of 2%, so no worries on that score.
The markets are fluctuating a lot at the moment but our liquidity, our cash flow is high at around $10 billion so we can cope with this financial crisis. So that is basically the plan we are proposing to roll out immediately.
The challenges we are facing are important but in conclusion I have faith, I have faith in you all, in all the teams. We survived the storm of 2015, we will survive the storm of 2020 thanks to your work and also to our Group values, one of which is especially dear to me, namely, Stand Together. Standing Together we will fight this Coronavirus crisis, Standing Together we will handle this oil price crisis and Standing Together we will build together the Total of tomorrow.