Total SA, Europe’s third-largest oil producer, reported output fell to the lowest in at least nine years as the global recession eroded energy demand, offsetting gains from new projects in Nigeria and the Gulf of Mexico.

“The market is disappointed with the production figures,” Irene Himona, an oil and gas analyst at Exane BNP Paribas, said by telephone. “There has been a failure to deliver on production for a number of years now even if it is for understandable reasons.”

Output fell 7.3 percent in the second quarter to 2.18 million barrels of oil equivalent a day, Total said in today’s earnings statement. Total production last fell to below this level in 2000 when the company, which completed a takeover that year of Elf Aquitaine SA, reported 2.12 million barrels of oil equivalent of output.

Chief Executive Officer Christophe de Margerie had predicted in February that output would rise in 2009, after a 2 percent drop in 2008, on the start of new projects in Africa, the Middle East and the Gulf of Mexico. Production retreated 4.3 percent in the first quarter, although it remained above the second-quarter 2006 level, deemed a “low point” by the company when production slumped to 2.29 million barrels of oil equivalent. It’s now sunk below that.

Total fell as much as 3.5 percent to 38.58 euros and was down 1.085 euros, or 2.7 percent, at 38.905 euros at 1:40 p.m. in Paris trading.

‘Weak Demand’

“Production was weaker than expected,” Bertrand Hodee, an analyst at Kepler Capital Markets in Paris with a ‘buy’ rating on the stock, wrote in a note to clients today. “The second half could prove better with the ramp up of Akpo, Tahiti and three other start-ups.”

Profit excluding changes in inventories and the value of a stake in Sanofi-Aventis SA fell 54 percent to 1.7 billion euros ($2.4 billion) in the second quarter from 3.7 billion euros a year earlier, the Paris-based company said today in a statement on its Web site. That matches the median estimate of 18 analysts surveyed by Bloomberg News.

“Weak demand caused natural gas prices and refining margins to fall sharply,” de Margerie said in the statement. “Total is fully engaged in ongoing cost reduction and optimization programs needed to lower the breakeven points and launch new development projects.”

Exxon Mobil Corp. and Royal Dutch Shell Plc, the world’s biggest energy companies, posted their largest declines in second-quarter profit in more than a decade after slumping fuel demand spurred a record drop in oil prices. Crude futures in New York averaged less than $60 a barrel in the period, down 52 percent from a year earlier.

Investment Outlook

De Margerie has warned investment this year may not reach the company’s $18 billion target amid project delays. The oil producer, which has pledged to cut costs by renegotiating contracts with suppliers, is counting on production growth from deep-water African fields, heavy-oil ventures in Canada and liquefied natural gas projects.

Five new developments are scheduled to start this year, including the Akpo oilfield off Nigeria, which came on stream in March, LNG plants in Yemen and Qatar, the Tahiti venture in the Gulf of Mexico, which started pumping in May, and Angola’s Tombua-Landana field. Total started production this month at the Tyrihans oil and gas field in the Norwegian Sea. The company’s share of these projects will add as much as 200,000 barrels of oil equivalent a day in output.

Total expects the start up of Yemen LNG in the third quarter and the Qatargas 2 train B and Tombua Landana projects in Angola by the end of the year, the statement said.

Second-quarter net investment was $3.8 billion, more than the $3.3 billion spent in the same period a year ago.

Output Drop

Total said the drop in production was mainly due to lower output quotas by OPEC and weak demand for natural gas amid the global economic slowdown. The shutdown of the Alwyn area in the North Sea for maintenance and disruptions in output in Nigeria for security reasons also pushed down output, the company said.

Net income fell 54 percent to 2.17 billion euros which included provisions for the modernization of refining and petrochemicals sites in France, the statement said. The company will pay a 2009 interim dividend of 1.14 euros a share.

Total, Europe’s biggest refiner, said earlier this month that refining margins in Europe dropped 69 percent in the second quarter from a year earlier on weaker demand for gasoline and diesel. Profit from turning crude into fuels shrank to $12.40 a metric ton, or $1.69 a barrel, from $40.20 a ton last year, the company said.

Total carried out a turnaround at the Leuna refinery and partial turnarounds at Normandy and Grandpuits in the second quarter, the statement said.

Refinery Work

“Increased turnarounds and voluntary throughput reductions” in the second quarter led the refinery utilization rate to 84 percent in the second quarter from 86 percent in the first three months of the year and 88 percent last year, the statement said.

Adjusted net operating income for Total’s downstream division fell 73 percent to 156 million euros from a year earlier, the statement said.

Total plans to cut 555 jobs at its refining and petrochemicals operations in France. It will also reduce output at the Gonfreville refinery in Normandy by 25 percent to 12 million tons a year, and shut a fluid catalytic cracker, lowering gasoline output by 60 percent.

The company last September changed its average hydrocarbon output growth target to 2 percent to 3 percent over the next decade based on crude prices at $100 a barrel from the 4 percent predicted in 2007 for the five years through 2010 based on oil at $60.

The target remains a “challenge” de Margerie told analysts Sept. 10 in London. “It is higher than the average but it is doable.” Total wouldn’t give more specific output forecasts as it did previously because of oil market volatility, geopolitics and project approvals.

Shell, based in The Hague, posted a 67 percent decline in second-quarter net income yesterday, while London-based BP Plc reported a 53 percent drop July 28. Exxon, the world’s largest company by market value, said yesterday profit sank 66 percent.

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