TotalEnergies Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 27, 2023

There are 11 speakers on the call.

Operator

So good morning, good afternoon, everybody, wherever you are. Patrick Pouillani speaking. Before Jean Pierre will go through the details of whether we could characterize a solid set of numbers, I would like to come back in the resolution on the major investments that we have announced put in this last quarter, which are good illustration of our oil and gas and electricity strategy, which in fact are based on these 2 fundamental growth pillars and one by growing our hydrocarbon base, mainly driven by LNG, but all of course is our cash engine of today and second day developing a profitable and integrated power business, which is key for the future cash engine of the company. The results, I should characterize them as good cash flows, good ROACE and good distribution strong distribution for buybacks. The continuity and strong and solid set of numbers, but Jean Pierre will come back on it.

Operator

So first, on the first pillar, I would like to highlight some few important projects. The first one, of course, is our projects in Iraq, called JGIB. You know that the company is born in Iraq 100 years ago, but it's not a matter of emotion. It's a matter of creating value, let's be clear. And the GTIB, in fact, providing for us access to exactly the type of hydrocarbons we are looking for, low cost, low emission oil and gas because both projects is targeting both, Freyr gas being, of course, a source of gas for the pipeline, but all as the latter we feel we'll have to increasing production of our tariff, our second objective, who I would say, breakthrough contractual breakthrough innovative contractual conditions compare to previous service contracts, which were signed by others in the past.

Operator

These contracts offers an attractive reward well balancing, of course, the Iraqi REITs. We are fully aware of that. 2nd, of course, example, a very major example of the strategy in motion is our new projects in LNG projects in the U. S, the Rio Grande LNG projects, which we have announced in June and which now is FID. You know that we are very committed to LNG.

Operator

We think that is a growing demand. And that's Of course, the U. S. Position is very important because we have lowest cost very low cost source of gas there. And I would say this is a project on which is attractive because it's one of the most competitive LNG plant with $8.50 per ton.

Operator

Pelleo Grande project benefits from a very good location outside, I would say, the Louisiana province area and more importantly, access to skill forces with no competitions, limited site preparation. So again, it's a CapEx competitive project, I know it's a matter to deliver it. More importantly, of course, for us, we have decided to integrate project by different angles. And why do we integrate it by different chemicals, becoming equity holder shareholder of Mexichem, the company or promoter of the project, but also direct investor in the projects with 16% and also of course, a loss taken. We've done that because in fact we are leveraging this integration in order access to the most competitive pricing for U.

Operator

S. LNG, and this will give us a clear competitive advantage on the market. So it's not only a matter of taking, but the integration gave us the capacity to negotiate better price than others. And that's, of course, as into source of value, we might also enter the value of the project by further integrating the upstream in order to protect gas feedstock costs in the future. And other upside will come also for expanding the plan from 3 to 5 trend.

Operator

So that's why we consider that not only being an offtaker, but more importantly also to contribute directly to the investments ways to leverage and to create different sources of value from this project. The last project, of course, emblematic from oil and gas is the final award of the contract for the AMI project in Saudi Arabia, in petrochemicals. In fact, it's really, I would say, leveraging the platform, an integrated platform, the world class petrochemical facility, well supported by the Kingdom of Synergia in order to get advantaged feedstock and very competitive projects. Then we have also, during the quarter, continued to deploy, I would say, the second growth pillar of the company, which is building the predictable integrated model in electricity, so integrated power. So it's all gas on one side, integrated power on the other side, on which we focus, I would say, our transition strategy.

Operator

2 events, 2 deals or 2 projects that happened during this past quarter, very recently, by the way. 1 is the full acquisition of Total Year End, which has been announced for quite a long time. You have seen through the figures that it's $400,000,000 EBITDA. So it's a company and cash flow for additional cash flow next year for TotalEnergies. The multiple is quite attractive.

Operator

It was negotiated 5 years ago. It's 3.5 gigawatts and mainly, by the way, 2 thirds of them being in what I call the unregulated countries for feeding our integrated power business model. So it's also a lot of competencies we joined the company in order to be efficient and more efficient, with this integration and all the now the next say, and I think we'll come back to you on that in September is to we have all these assets around the world. It's a matter of industrializing the way we operate them in order to deliver more value for the Integrated Power business. We also won some market leases in Germany, free garage offshore.

Operator

Some people think it's too expensive. It's not because I think it's exactly, I think, what we are looking for in integrated power. It fitting, it's a perfect illustration of our business model. Why? Because it's the 1st piece of the market, the German market, which will offer the best price for electricity in the future.

Operator

Germany has decided not to go to nuclear. So you know in the end, the price of electricity in Germany will be supporting. Secondly, it's like an oil and gas concession. We pay only with amounts are important, but in fact, it's an upfront payment back, we pay a bonus on an oil and gas transition. In fact, we fixed exactly our fiscal dividend by what we pay upfront, 10%.

Operator

So for all these 3 gigawatts, it's something around €500,000,000 And then we will pay royalty around 20 years. And the royalty, by the way, our goal is to pay any connection fee to the grid. So when you look to the math, I can tell you I'm very happy that we have managed get access to the 3 gigawatts of FlowWell because it's exactly the model we want to put in place. The Price is not controlled, up to us to decide which part we will sell to EAS, to German Manufacturing Industries and which part we'll keep motion in order to trade around and to asset integration. So my answer to the ones who have prices is that in fact, we are exactly in the model, not an infrastructure model, but an integrated power, not a model, exactly what we do in our India.

Operator

So that's and you will see us continuing to deploy this strategy. And by the way, I might be because Jean Pierre, it's easy for me to explain that because you, but these results in Integrated World are surprising you quarter after quarter, and they will not they will continue to surprise you in a positive way. So that's what we want to build. That's my introduction, I would say. My last comment, of course, is that the Board is very comfortable with the cash operation of the company.

Operator

So yesterday, reiterated its thrust in the future by increasing the interim dividend by 7.25% year on year and maintaining the $2,000,000,000 buyback for the Q3 is a 5th quarter renewal that we stay at $2,000,000,000 despite the the softening environment, the payout for the first half is more than 42%, in line with the commitment of the Board to distribute more than 40% for 2023. And so I can only reiterate that commitment. And all the transactions the project, which of course will be the highlights of our presentation to you on September 27 in New York. Presentation, and then I will give the floor to Jean Pierre for getting into the results.

Speaker 1

Thank you, Patrick. So let's move to the financials. The commodity environment softened in the Q2, but still at high levels. Quarter over quarter Brent was down 4% to $78 per barrel, and European Gas dropped by around 35 percent to $10.5 per million. In this context, Total Energy reported Q2 2023 adjusted net income $5,000,000,000 a decrease of only 24% quarter over quarter and was able to generate outlook.

Speaker 1

A strong $8,500,000,000 of cash flow. Over the first half twenty twenty three, adjusted net income was 11,500,000,000 and cash flow was $18,000,000,000 We continue to deliver excellent profitability, reporting the 22% Roach for the 12 months ended June 23, and we continue to share our success with our shareholders, as explained by Patrick. During the Q2, we paid €1,800,000,000 in ordinary interim dividends and executed $2,000,000,000 in buybacks, which is consistent with the Q1 distribution despite the softening commodity environment as described. As a result, Peruvian shareholders, as mentioned by Patrick, was more than 42% over the first quarter the first half of twenty twenty three. Our balance sheet remains strong with gearing at 11.1% in the second quarter.

Speaker 1

Moving now on to the segment results. Outlook. Operationally, our highland gas production was 2,470,000,000 barrels of oil equivalent per day, up 2% year on year, thanks to new project efforts, Johan Berroof Phase II in Norway, ICA in Nigeria, MIR1 in Brazil and Bersten in Oman. The production also benefited from the integration of Saab and Umhlul chiefs in the United Arab Emirates. Note that our oil production was up 12% year on year, reaching above 1 production for the Q3 is expected at around 2.5 Exploration and Production reported adjusted net operating income of $2,300,000,000 Down 11% quarter over quarter, primarily due to the lower organic prices.

Speaker 1

Similarly, cash flow of $4,400,000,000 was also down 11% quarter on quarter. These are quite resilient set of results Compared to the lower environment, I already mentioned the minus 4% for Brent and around 35% drop for European gas prices. As previously announced, we are now reporting integrated energy and integrated power as in the balance segments. So let's move what we could put on. In the Q2 of 2023, LNG sales were stable at 11,000,000 tons quarter on quarter, benefiting from the restart of free portfolio energy that decreased year over year due to lower demand in Europe because of mild weather and high inventories.

Speaker 1

Integrated LNG generated adjusted net operating income of $1,300,000,000 down 36% quarter upon quarter, reflecting lower earnings price our revenue outlook. Averaging $10 per minute Meteo in the 2nd quarter and faster trading results compared to the exceptional ones we benefited in the Q1 in less volatile markets. However, operating cash flow was down only 13% quarter on quarter, also due to lower RME prices, outlook, partially offset by higher margin secured in 2022 and energy costs to be delivered in 2023. Given the evolution of oil and gas prices in recent months and the lag effect on price formula, Total Energy anticipated that its average LNG selling price should be between $9.10 per minute TEU in the Q1 of 'twenty three. For integrated power, in the Q2, we met our target of double digit returns, Being a traffic cog as an integrative and profitable player in the electricity business.

Speaker 1

So for the 12 months ended 2023, we achieved ROACE at 10.1%. The proof is the results. Our integrated approach to the business is working, which combines renewable projects, flexible power generation, energy storage, asset optimization, trading and B2B, B2C support. Integrated Power 2nd quarter adjusted net operating income our revenue. It's $450,000,000 and cash flow is €491,000,000 outlook.

Speaker 1

Up 22% and 12%, respectively, quarter on quarter due to the good performance our Integrity, explicitly for free. Integrity Power generated $930,000,000 of cash flow in the first half twenty twenty three contribution. And contributed to the robust forecast 'twenty three results. Gas fired power plants will improve trading and supply, demonstrating the strength integrated power strategy. Net power generation was 8.2 terawatt hour in the Q2 of 'twenty three, That's 8% year on year as growing electricity generation from renewables was partly offset by lower generation Now at 19 gigawatts at the end of the second quarter, up by more than 1 gigawatt quarter on quarter, including 0.5 gigawatts installed in the U.

Speaker 1

S. And the connection of 0.3 gigawatts from our Sealy Offshore Wind project in the UK. Let's move to Downstream. So Downstream contributed €1,500,000,000 of adjusted net operating income, Down 23% quarter over quarter, reflecting clearly lower refining margins, particularly in Europe, The remaining margins were impacted at the start of the period by Chinese exports and the quicker than anticipated reorganization of Russian flows revenue. Following the European embargo.

Speaker 1

They were also supported at the end of the quarter by higher gasoline exports to the U. S. And lower diesel imports in Europe from China. Our refinery utilization rates on processed crudes improved to 82% in the Q2, which is a good performance, compared to 78% in the Q1. We expect some On company working capital requirements, last quarter, we had an exceptionally high build R4,500,000,000 mainly related to higher crude and petroleum products in countries and water and to the seasonality of our power and gas marketing in business, I said last quarter that we are expecting $1,400,000,000 would reverse I think we have a $1,500,000,000 working capital release, mainly due to the effects of lower inventory seasonality of payments on the Gas and Power Marketing business.

Speaker 1

Of course, we continue to monitor closely and take actions to minimize the working capital requirements. We are expecting in the next quarter some working capital release coming from exploration and production tax penalties. Our net investment, 2nd quarter amounted to DKK8.6 billion and our guidance for 33 net investments is unchanged in the range €16,000,000,000 to €18,000,000,000 The Board of Directors, as mentioned by Patrick, confirmed for 23 years a shareholder distribution of more than 30% of cash flow, supported by our Canadian divestments as expressed end of April.

Speaker 2

Our revenue. Before, regarding

Speaker 1

the distribution of the secular interim dividend for the 2023 financial year in the amount our revenue. €0.74 per share, up 7.25% year on year and authorize the company to buy back shares for an additional €2,000,000,000 in the 3rd 1,000,000,000 in the Q3. And with that, let's move to the Q and A.

Operator

Thank you, Jean Pierre.

Speaker 3

Our our revenue. The first question is from Christian Malek JPMorgan. Please go ahead.

Speaker 4

Hi, good morning, Patrick, it's Jean Pierre. Thank you for taking my question. I want to ask you about the 2 pillars, which you've simplified very well. I know you've framed A compelling case of wondering the year was through optimizing the cost of value chain. What I'm trying to rationalize is how you generate a return Competitive with the oil and gas pillar, when you're looking at overall trends for the portfolio.

Speaker 4

And if you're essentially trying to maximize every dollar you place into your fuels generation, if you will, it just doesn't make sense to me why you don't double down on your oil reserves, while oil is getting could over the next few years. So my question is basically, can we expect a high growth oil target from you over the coming years? And if so, will that take CapEx higher? Thank you.

Operator

Thank you, Christian. You know we have and you will come back on your big question, of course, into the call of our presentation in September to all of you and to our investors. It's true that we have quite a large portfolio of oil and gas projects, oil and energy projects, and we'll come back on it. On oil, we have together Angola, we have Iraq. We should have probably a Suriname project coming.

Operator

We are just facing the last wells. Have put. And so let's be clear, at the end, the guidance we gave you for $16,000,000,000 $18,000,000,000 in an environment, I would say like today, it will be maintained, to be clear. And if we have more oil, we will have to arbitrate the project. We have room to maneuver in our portfolio a little bit here.

Operator

So don't expect the CapEx increase. But again, we will not arbitrate the gap against oil and gas profitable projects. It's a question of plans. We have 2 pillars in our strategy. 1 is our creep in now, the oil.

Operator

And if we have more oil, I'm happy to deliver oil. We have gas and we have a blue ball as low carbon growth, like oil and gas growth. You can make the math. I mean, some of you have knowledge, we'll find a 2% to 3%, I think, and that's good. But we are also a company in our regulatory power pillar, as you said, we probably simplify and we are looking to the various put.

Operator

Energy, new energies that we are strong and we consider that our commitment to build this integrated try. We'll try

Speaker 3

The next question is from Oswald Clint of Bernstein. Please go ahead.

Speaker 5

Good afternoon. Thank you. Just on LNG and specifically United States, Total Energy is, I think, is the largest offtaker of U. S. LNG.

Speaker 5

It's just you've got bigger now with Rio Grande and that. But I wanted to ask about that exposure to to think about in terms of feedstock coverage for these terminals, for these offticks that you would think about Looking forward is the first question, please. And then secondly, I noticed it looks like you may be planning to drill a well in The South African portion of the Orange Basin, perhaps next year. So I was curious if you've completed any further analysis Over the last quarter around the Venus discovery, that gives you the confidence to really extend the exploration campaign further south. Thank you.

Operator

The second one, I think we will focus on Namibia. My priority is Namibia. We have drilled an appraisal well of Venice, which is very positive. Of course, we still are expecting the dynamic data. The first test will start beginning by August, and I think when we'll miss, I'm sure in September, we'll have the results of the first test, which of course is important because positivity per well, of course, if it's 15,000 barrels per day, it's fine.

Operator

If it's 5, it's not 5. But as I can tell you, the oil column is very big. So my focus will be Namibia first. We have a lot of the place. Of course, we have some license in South Africa and we work on geologists are working on it.

Operator

But it's again, I feel comfortable. My priority will be to give value to if the Nabilitis is confirmed. And then we'll see what are the expansion in the orange basin on the other side. New SLNG exposure, yes, we have 10,000,000 tons. The move for 15,000,000 tons.

Operator

It's quite a big exposure. And again, and you have noticed that we have on each project, we try Since I am CEO, I'm not going to uptake, but to integrate the project, Carbon LNG, ECA in Mexico, Rio Grande. Why? Because a few money, contribute to the investment, we have a leverage on the pricing. And of course, yes, because I believe in integration, it's not new.

Operator

Do. We have already produced a production, the net production more or less of 500,000,000 per day in the U. S. On the Barnett share that we maintain. And we can extend and double that exposure.

Operator

No worry, no worry. There is no specific. Just for me takes time, so we'll have opportunities on that. But this part of course, because I think controlling the cost of the pit stop is a smart way in order to control the full integration value. And so it's part of, I would say, our strategic agenda and integration in the U.

Operator

S.

Speaker 5

Understood. Thank you.

Speaker 3

The next question is from Irene Himona of Societe Generale. Please go ahead.

Speaker 6

Thank you. Good morning. Congratulations on a very busy quarter in terms of

Speaker 7

The 4

Speaker 6

new projects you launched in different areas, you referred to the competitive Advantage of low cost in all of those, can you perhaps help us with how we should think About the return on capital in these very different projects, please. And then secondly, You preannounced the 3rd quarter buyback. Obviously, you are generating very strong cash flow. Why would you not preannounce the 4th quarter buyback at this point? Thank you.

Operator

Policy for the last this last the end of the year. But as I told you, we have the 5th quarter in the world of $2,000,000,000 the enterprise. And to give perspective to you in New York about all these elements. So we decided that it was we maintained the 2,000,000,000. And again, the environment is softening, so we want to keep that flexibility.

Operator

The main commitment Paul has taken to all investors is more than 40% of distribution this year. We are 42%. So it will not be 40.1%, we'll be more than 42%. So we basically can make the math, I think. But again, the growth is working and remember that the commitments are also early to the closing of the Canadian sales.

Operator

And so we are moving forward of these elements positively. Furthermore, we have created an APA with Carnival has been significant. So we could expect. So we'll see we've closed by end of the Q3. And the education center are also progressing also to the Board of Directors complete view in order to make the right decision for our revenues in terms of distribution.

Operator

On the projects themselves, I cannot disclose the figures. There are products in particular. I I presented positive right to explain you that the interactive projects being yet that's true. We have created a new category of contracts, commensurate the risk. So we can imagine that it's positively, it's a good return.

Speaker 1

But the

Operator

growth of that is producing all I told you a very good offtake contract. The price is very competitive and we make money from the do. We make more money than somebody who do not invest in the project, thanks to our large frame exposure of the off-site contracts. And also because it's in fact, we want to capture the infrastructure margin somewhere leverage again through of course the off-site contract. Globally speaking the integrated IRR is more than 15% on these energy projects.

Operator

So 15 next to 20 in fact, so just to be clear on it. So globally, it's a strong project for us. Which other than I comment, I think sorry to I think. In Germany, to be clear, the Germany projects, I said some figures, we are perfectly in line with our double digit objective in Germany and even more because I'm absolutely convinced that the German electricity project price will be missing when we come and we have flexibility to deliver the double digit projects.

Speaker 3

The next question is from Christopher Kaplan of Bank of America. Please go ahead.

Speaker 8

Thank you very much. Just two quick ones hopefully. Patrick, I wonder as you are highlighting the more than 40 percent of CFFO payout ambition, whether you've learned anything from last year's special dividend. Is it a fair assumption to assume that the continuation of the $2,000,000,000 buyback run rate into Q3 is by now your preferred way of redistributing these, let's call them, extra proceeds from your expected oil sands closing. So just wanted to see whether you have a view on what the market prefers buybacks over a special dividend.

Speaker 8

And I wonder whether if you consider all your options that are still pre FIDE and I would count Mozambique into that too, Whether you think by the end of this decade, all these options will actually be in development and will be operating Or whether to your point on CapEx, whether you're answering actually it might be a good thing to have more portfolio because then you can be tougher on the returns you can squeeze out of them from a project on project competition. Talking about PNG, Mozambique, of course, Arctic 2 is no longer in your consolidated numbers, And you're very busy in the U. S, too. And I'm not even mentioning some of the smaller assets. So sorry, it's a long winded question, but hopefully a relatively short answer.

Speaker 8

Thank you.

Operator

It's always, please, about the relevant question. I'm taking it back to like you and taking the second one first. We could put. On the and because 857 percent of the year brand is better than the cost we obtained today from the additional train on Cameron. So I mean, I have the option and clearly I'm very comfortable and if the CapEx on Cameron will not decrease compared to the first we can keep in the portfolio.

Operator

We are delivering TCA Phase 1 shortly in Mexico. We have also been positive to expand as there are

Speaker 1

have put. On the recent

Operator

PNG, we will see what we did across. At Bouzerny, we have a public debate with subcontractors. So we are keen to deliver them and that's part of the plan. But again, as you said, we have a large portfolio and We work on all of them. And at the end of the day, if CapEx are not meeting our expectations because there is working markets, we'll elaborate.

Operator

But again, it's for me. I mentioned here the North American project because many projects coming together. So I think on the international area, we'll find a way to make this project going through. And again, we are in that, I would say, comfortable position to be to select the ones on which we consider we could put. Last year, remember the special dividend came of Super Very Good.

Operator

We generated last year $45,000,000,000 of

Speaker 1

could. Again, it's not €45,000,000, so the growth

Operator

is making a difference between €45,000,000,000 and €36,000,000,000 in on buyback because we consider that the share of Total Energy is undervalued compared to several peers. So there is certain logic, I think on the Board, we show the trust in the share. The share will be evaluated. So that's my argument. But the investors in the market.

Speaker 9

Very good. Thank you.

Speaker 3

The next question It's from Lydia Rainforth of Barclays. Please go ahead.

Speaker 7

Thank you and good afternoon. Two questions, if I could. On the renewables business, clearly, the capacity and development has gone up again this quarter to the 50 gigawatts. Can you talk about what you're seeing in terms of the cost of this? And I think this was related a little bit to the German wind farm as well that affects the I think you're worried about cost going up.

Speaker 7

And I think sometimes the idea of the grid connection costs and the integration with the rest of the business gets But just are you worried about the cost base in renewables at this point on the CapEx side? And then secondly, Patrick, probably We've seen oil prices rally in recent weeks, and we've seen refining margins rally more. Can you just talk through what you're seeing in the market in terms of demand at this point? Thank you.

Speaker 1

Okay. The first one, to

Operator

be clear, it's like exactly at the end it's like in. We will invest in projects and we obtain the returns we get. And that's why, by the way, the German Auctions were interesting because in fact we have submitted a bonus to get the auction in our portfolio in 10% of the global, I would say, Which is for me, I'm putting my offer like when I'm buying an exploration license in Brazil, I could pay a purchase of 300 could. Honestly, offshore wind, as often told you, I'm not surprised at the end that all major companies are coming into that business because it's clearly exactly the type of projects that we are able to manage, project management, we can leverage the skills of the company, relations with contractors. It's exactly what we do in any offshore oil and gas projects.

Speaker 1

So for me, that's the right

Operator

way to look at this. So I'm not worried. We're going to put. I'm not worried. I don't like CapEx in fleet neither in LNG nor in oil offshore nor in offloading, but it's up to us To leverage our purchase is important.

Operator

And I think this is where we have an advantage. I think, certainly, in this business, we could. I think it scales as a value and the purchasing power of Total Energy capacity to come efficiently, we have approved a very large solar module contract to cover part of our future needs leveraging our projecting power. So that's where we need to work in order to be more efficient than others. And I think this is what the stage of stakeholders are expecting from us to be efficient.

Operator

And again, the other point for us is that we consider a European electricity price because of all what happened in Europe. No Russian gas, more renewables, nuclear, even if it becomes more expensive in nuclear, so price will go on the right direction. So that's one we think fundamentally. And we've been very stable activity, of course, but price up. So we have.

Operator

It's up to us, you know, exactly the same as the other owner, we have to manage this CapEx side. Okay. Where do we see the refining margin? I would say could. Today on the 2.1st, the margin today, as I said, Jean Pierre said that, dollars 70 per share, which is more the average for It means that today we export gasoline from Europe to the U.

Operator

S, which is good for my European refineries. And I just hope that they have a good performance availability today of more than 80%. So that's what we think on the gasoline. So we are positive on the gasoline. On the Z door, the demand flow is true because it's more linked to the global macroeconomic environment.

Operator

But we can benefit also, you know, there is an effect in Europe when the Rhine is low level with low water. We have some problem of supplying Germany and then create some upside in our downstream business. So it's not a part of it. So I would say I mean, it's time I'm trying to get, I can make this day, but we are more positive on the refining margin for the Q3. Refinery and refinery do not like what weather.

Operator

The running of a refinery is not so good in particular in the U. S. When the weather is too hot. So it's good for margins as well. Next question maybe.

Speaker 3

The next question is from Alastair Syme of Citi. Please go ahead.

Speaker 4

Thanks. Patrick Jean Pierre, on Iraq, Yes, I understand it's confidential. But are you able to say maybe what your maximum capital employed exposure would be in the country? Revenue. We will see this $27,000,000,000 headline, so I just want to give it some context.

Speaker 4

And then I'm just interested in the fascinating Your comments about Germany having the highest power prices in the future, and that's quite a statement about 1 of the industrial powerhouses in Europe. How do you think about the issue of industrial competitiveness and affordability for consumers? Thank you.

Operator

We have EUR 3,000,000 maximum capital employed, EUR 3,000,000 We have 45% of CapEx, which around €10,000,000, €11,000,000,000 but we have also a volume production for the consumability. And the duty of the contract is that We work at this point in the year end, then we have a phase on improvement of the oil production up to RMB90, RMB120 per barrel per barrel for the E and then going to RMB200. So we have some cash coming in. So it's a way to generate a lower exposure, part of the team to whom we have in Iraq. So keep that in mind.

Operator

Generally, industry competitiveness, okay. I mean, it's a more global question. The question will be more for the state, which is how do we

Speaker 1

we could. What will be again

Operator

and we see that what will be supposed to state to energy sensitive interest rates, in fact, that's the question mark. We could. But you know, I think in Europe, thinking that price of electricity might be around We'll go through some industries. It's long term commitment. They're always the same problem, while answering to the government, to the by we could manage to the customers, if you are able to take some long term commitments, we can't go to price.

Operator

In fact, anything, you know, that's the question of could. So we think what we discovered last year is there. So I think the question for me is yes, there is room for industrial company business in Europe and Germany. Commit some of the capacities to this type of long term contract. And I think part of our intent with this offshore wind development will be 70, 30, but we have we know that this is the type of price we can update today in Europe and Central Europe and people are ready to commit on this level of pricing.

Speaker 4

Patrick, can I ask when you speak to politicians, are they surprised about a €70,000,000 to €80,000,000 megawatt ounce sort of number? I mean, that's Twice what it used to be, right?

Operator

Yes, but the world has changed again. The world has changed.

Speaker 1

I mean,

Operator

we have to be clear And I think I understand. The new nuclear is not under the prices I just gave you. I can tell you. And so do. We can ask to the U.

Operator

K. Investors or to the French government, I will tell you. So I think it's part of the transition. You know, I also as well in the U. S.

Operator

That today the contract, even the solar contracts in Texas begin to increase a little and to recover. So it's part of the we have to keep that in mind. The energy transition will happen if we have to accept some cost increase. And we have a super efficient system, which is the operating system. And we want to move to a system contribution.

Operator

Not as efficient in terms of energy efficiency, but as a cost, that as a price. And it's a real question for all of us is that which phase we make that transition in order for the customers to accept it. It's what we call the just transition. We have to manage the transition. If it's just Django, we will be rejected.

Operator

So that's

Speaker 1

so

Operator

I'm not sure they are so afraid. It's just a matter of accepting the reality and we have to be consistent. Then it's a question for industrial companies, for European manufacturers to be complete

Speaker 3

The next question is from Biraj Borkhataria of RBC. Please go ahead.

Speaker 9

Hi, thanks for taking my questions. First one is on your LNG business again. In the past, I think you used project financing to deliver some projects. But obviously, your balance sheet is extremely healthy at this point, and you probably have some capacity to take on some more CapEx, could you just talk about your plans and whether it's Rio Grande or Mozambique or otherwise and your intentions on financing And how you're thinking about that split between balance sheet and off balance sheet? And then second question is just following up on Al's point on competitiveness.

Speaker 9

Obviously, you have Yes, refinery in Germany and chemicals operations, with your view on higher power prices, Obviously, that will feed into gas prices. And then you've said you won't take Russian crude. How do you think about what more you can do in your operations to remain competitive in a global context? Thank you.

Operator

Okay. The project financing in LNG is part of, by the way, Rio Grande has been announced with the project financing. I think it's globally speaking, it's a it in billion dollar CapEx with and I think it has been announced as a 70%, 30% project with a package of low of lending, project financing as we announced as well. And we believe we helped them. We contributed to that.

Operator

GIP has strongly contributed to that as becoming a shareholder. So I think it's easy to finance. We still it's competitive in terms of interest rates. So because we are working hard on it and between GIP and the Panamax is in order to get good commercial results and this is the case. And in Mozambique, the package was already there and has been preserved, I would say, because if you remember, when we stopped the project, we stopped we maintain all the project financing.

Operator

We closed the final of the project

Speaker 1

financing, but it will I'm scheduling with the numbers. Of course, we will start could When the Nordic project will restart, of course, to unfreeze the project financing.

Operator

So the conditions are good. So as soon as conditions for project financing are okay and competitive towards equity, I would say, I think, PNG, I don't know, I'm not yet there, I think, today on these projects that we are working. Japanese banks are very determined to finance PMG, and you could have good conditions with Japanese banks in that part of the world. So from us, it's I think we are fine with that and it's part of the way to globally have the returns I mentioned to you on Rio Grande, for example, 15% to 20% are taking back into account. On the view, it's true, it's what you said perfectly too.

Operator

Yes, I can tell you when we look refining breakeven in Europe today, 2023 compared to 2021. No more Russian gas, no more CO2 pricing, less quota at the end, there is an impact. And I think the breakeven went probably up from $25 per tonne to $30, $35 per tonne. So at the end, the question is we have to work in order to find the efficiency ways to compensate it. And this is why, by the way, my position on refining in Eurofins it's a good base to transform to biorefineries.

Operator

And so the question is the pace of it. So we are managing that already. We have transform 2 refineries, next one will come. As I told you before, because we understand that the question of competitiveness and we take it into account in our industrial decisions. But that's obvious.

Operator

So I cannot hide it. And I think but again, the question will be then on this type of it's probably more complete for refineries in Europe because there are fossil fuels. We don't like that too much. But Again, it's a question of security of supply for the government, and this is the debate we'd like to do. If you want to maintain this activity in Europe because we

Speaker 1

still need

Operator

gasoline and diesel, and you don't give us conditions in order to have an attractive, I would say, returns, we might make decisions which might be detrimental. But again, there are also positive ways to look at it. We are working today to see how we can leverage all the red free directly in order to get the green hydrogen and could create additional revenues. In fact, when you look carefully to the new scheme, which has been established by Europe. So you can see it's a cost CO2 has a cost, but CO2 might be a source of revenue as well when you combine green hydrogen with 2 products.

Operator

And we are working on 2 projects, 1 in France, 1 in Germany, which will be additional revenues, which might compensate part the lack of competitiveness, I think it's 2 ways to look to the energy transition. I got to look at the cost of an opportunity. It's a price framework I put into in place, it seems to be the case for HydroGreen with HydroGen, there is a strong push. We put, then that might become a new source of competitiveness for refineries in Europe. And we are working on it.

Operator

And I think in September, we'll be able to come back to you and to give you 2 good examples where we created value from, I would say, these energy transition frameworks. And so that also I will see in the data the negative and the positive way to moving forward. By the way, I'm convinced that the transition will work only if we create opportunities and not just increasing cost and prices.

Speaker 3

The next question is from Tim Feustier of HSBC. Please go ahead.

Speaker 7

Hi, good afternoon. Thanks for taking my question. Firstly, just on your existing targets on renewable capacity. I was just wondering what is the acquisition of the 71% stake in Total Air and then other deals as well that you've announced? So what do those do to your targets, particularly the 2025 target of 35 gigawatts?

Speaker 7

If I recall, you'd already reached a pipeline of over 35 gigawatts More than a year ago. So does that mean there's upside to that 35 gigawatt target? Or do you have the opportunity now to pick and choose the best projects You'd like to talk about with respect to LNG and high grade your project portfolio. My second question is around reports a few months ago that Total was looking at a major gas development in Saudi Arabia together with Saudi Aramco. I just wondered what the angle is here.

Speaker 7

Is this about the domestic market or more about exports in the form of either LNG or blue hydrogen or ammonia? Thank you.

Operator

Put. It was just in our mind, but the acquisition of Tullaryen will be part of our road map. So when we said the €35,000,000,000, the acquisition of Tullaryen was for Element. The capital and that is the initial element. We knew that total element was working well.

Operator

We knew what we have our conditions to leverage our options. And with the figure I gave you €400,000,000 you can understand that we can I think that to have in my portfolio more opportunities to reach a target by removing the target up and deducting all the volumes, revenue? We know that we're having that when you do that, it's value over volume. So I'm happy that the teams are able to generate opportunities and then We might we select the ones which are the best for us. And more importantly, but the bigger ones by the way at the end for me, which is important is Because it's clear we're focused on it.

Operator

It's how much TerraMarin will look like for oil and gas. Oil and gas, you log by 2,500,000 barrels of oil per day. Could put. The revenues, the reserve and the profit and the cash flow. So I think we should move in that

Speaker 3

The next question is from Lucas Herman of Exane BNP Paribas. Please go ahead.

Speaker 4

Yes. Thanks very much. And that's been answered a couple, if I might. But first, Patrick, Arctic 2, do you have any interest the revenue in that project, I'm just conscious of Novicek's comments around the S-nineteen start up, so on and so forth and the original position even though you obviously I'm not being funding anything. And the second question was just around going back to balance sheet and How you think about gearing debt levels absolute at this time?

Speaker 4

Is the range still 10% to 20%, something you're comfortable with?

Operator

Then it's a question of arbitration. And you remember the scheme we gave you is very clear, dividend, CapEx and then so we have the Board looking to all of that. Recently, by the way, Jean Pierre has bought back €1,000,000,000 of hybrid debt. We could do. As we have said in March 22, we don't bring any capital from Total Energy Agency to this project.

Operator

We put. You know the project when we left was in fact the equity was already injected and it was more project financing in fact. So the project is moving on. Have put. I have a few more information because as you know, our governance is trying to leave all the Russian assets.

Operator

So I cannot tell you what is really happening there.

Speaker 4

And did you have remind me, did you have any legal liability to offtake volume? Remember, you were 2,000,000 tons of agreement. We could

Operator

If the plant is produced, we have some of the equity. I don't remember exactly what it is, but the contract It's not Yamal. We have a long term contract, 25 years. It's a take off contract, and we have one on Yamal. Today, we only offtake the long term contract on Yamal, there is absolutely nothing else than the long term contracts, no spot, no additional product.

Operator

We have reduced our Russian activity to the only long term contract and that's the reality of what we do. And if RP2 came on stream without a commitment, I don't remember exactly, I should read that. To be honest, I didn't spend much time on RP2 for the last year, Van Hijk will be able to tell you exactly what is the volume. We have Lower share and not the joint, but 10% and not 20% of them out. So I think it's worth proportionate.

Operator

And by the way, So we'll see, but we can come back to you. But again, it's the same policy with the price. We have a contract. We have a contract. We have to execute and choose a contract as long as sanctions what is the stake volume with the 10%.

Operator

So independently of our shareholding, what happens to our equity, the contract year of take contract is

Speaker 3

The next question is from Jason Gabelman of TD Cowen. Please go ahead.

Speaker 2

Yes. Hey, thanks for taking my questions. First, just on the Novatek dividend. I believe historically you guys got it in 2Q and 4Q. So wondering if you received the Novotek dividend this quarter and if not, what the certainty is you'll receive them moving forward?

Speaker 2

My second question is on global gas. There's a lot of concerns around European gas storage actually filling over the coming months ahead of winter draw season and given your unique position in operating European gas assets, Just wondering what your outlook is for the European gas market in the fall and kind of an extension of that, how These tighter gas oil spreads have impacted your outlook for trading given Last year, integrated LNG trading was particularly strong in part because of the wide gas oil spreads. Thank you.

Operator

Put. In your gas storage bill, it's clear that the storage will be full by October. So today, that's why you have a soft gas price and dollar per 1,000,000 BTU, we don't anticipate difficulties because We exited the winter with high inventories, so it's easy to replenish it and so it will be down. So that's why today, at the end, as I always explained, if the winter is cold, if the Ukrainian pipeline, the gas Russia going through Ukraine, it stops. The situation will be quickly intentioned.

Operator

So cold weather, So that's the very piece. So that's why, by the way, the full price of European gas is $15 So the pricing at $15 next week, next January, next Q1, the first half twenty twenty three one. What we're going to put. So what happens? What will happen?

Operator

We'll see what will happen, but part of the element of tension. Shifting from fuel to gas. Last year, we've seen a little because the price was very high in 2022, manufacturing industries are what I can tell you.

Speaker 2

Sorry, just thanks for that color. Just to clarify on the first one

Speaker 9

on the NOVYTECH revenue. Should we assume

Speaker 2

that you stop receiving it moving forward?

Operator

I don't know. We are that does depend on the owners, it depends on others. So I think I just answered you. Honestly, I have decided the Board and the CEO of Total and as a Chairman and CEO of Italy, but Russia what we put, no more in my account, not clear. We do not have any distribution or any shareholder returns link to any cash flow coming from Russia, to be honest.

Operator

So the way we think is we think about Russia, the board of the figures, I'm showing the Board and revised pressure. That's all. Because anything could happen. So I prefer to show could. Okay.

Operator

If something is coming, it's coming, but we are not changing it. It's more that the way we think the total energy. So the consolidation was a very clear decision by the Board in December 22 and this is doing managed content.

Speaker 3

The next question is from Henri Tarr of Berenberg. Please go ahead.

Speaker 10

Hi, and thanks for taking my questions. I had 2. 1, just coming back on the hybrid debt. Why did you choose to buy back some of the debt? And would you think about buying back more in the future?

Speaker 10

And then kind of what did you have to pay for it? And then the second question is on the downstream. If you're talking about changing refineries into biofuels and biofuels platforms, how do you see profitability for the biofuels platforms in Europe, how are you getting on sort of securing feedstock for those platforms? And Are you seeing increasing government support for sustainable aviation fuel and renewable diesel and other biofuels within Europe at the moment. Thank you.

Speaker 1

Yes. First question regarding hybrid. So at the same time, our hybrid portfolio has very low cost, diminish the global level of high grade. So we have the flexibility offered by S and P to Diminish the global level of hybrid, minus 10% on a yearly basis. In the May, we have a tranche naturally.

Speaker 1

And so we decided to use this flexibility. Otherwise, in the market at present time, the hybrid does increase Compared to the 2.4% I mentioned to you, it's around 5%. So given the cash flow to get the right at present time, So with Patrick, with the Board, we think we

Operator

do not use we

Speaker 1

do not need to renew this hybrid tranche. And so that's the main driver behind the decision, not to renew this tranche. And so we decided to get rid of this €1,000,000,000

Operator

first two because we don't want to repurchase the lines of flights. It's just the management of the cash and the balance sheet of the company. So I think it's an obvious decision, if it makes sense. On the downstream, no, we have changed. So we finally can do biofuels with Jean and Chalamet, which are pricing, which will integrate the CO2 cost.

Operator

So I'm comfortable to invest because I think really Europe is very serious about a 6% mandate by 2,030,

Speaker 4

which is increasing to 15%

Operator

mandate in 2,035. So it creates a market, positive market.

Speaker 1

Then the big question is how

Operator

do you produce it? So you have so we like old refineries because we have the CapEx per ton, which is lower, but we do make it greenfield. So you will not see that Alenesis is investing in mid third refineries to make start to be clear. I prefer to convert the whole refinery, by the way, as part of the transition. We are well net, the demand for gasoline and diesel will diminish in Europe.

Operator

We are more EVs in 2025, so we need to prepare the transition. And transforming we can reuse some units to make a biorefinery. So and the CapEx per ton is around $500,000,000 percent, it's Greenfield 1, it's around 1,000. So let's convert rather than creating new Greenfield refinery. That's fundamentally our view.

Operator

Put. But we need to find a feedstock, yes, you're right. And the feedstock in Europe is an issue because they don't want 1 gs. There is new 1 gs vegetable oil in SaaS, so we need to secure it. We don't want to impose used scoops from far away and being trapped into I don't know which story about waste imports, I think it's not good, not good approach.

Operator

But there are ways we have secured free stock on country by achieving with a German company who produce ethanol fast. So we are looking to that segment. We're looking at. And we are also beginning to look to another technology, which is high core to jet, which might be the next one. Because when you look to, in fact, the balance of the European markets were directly 35 to reach a 15% mandate.

Operator

It will be difficult to be done only with lipid feedstock. I mean, we've used cocoa or animal fats. We could have to be obliged. So it opens the room to add this next technology. So we try to select the ones which don't need the most expensive.

Operator

We don't need issues, but we Mitra in between providing the SaaS in, I would say, a little more expensive, but not the most expensive one. So this is the way we approach the project issue. But again, for me, it's for us, the focus will be in Europe again because we have the assets. We know we have to make the transition. It's an opportunity, which is in fact given to us by this transition in all these famous European Green Gate Framework, so let's see the opportunity.

Operator

Like I said, green hydrogen is the other way to the cost of CO2 and the cost of energy in a positive way to create new markets and to decarbonize the the airline. So that's the way we look at it. So we work and we are doing 2 projects. We are working on the first one.

Speaker 2

Great. Thanks.

Speaker 3

The next question is from Henri Ricaut of UBS. Please go ahead.

Speaker 4

Yes, Natasha Jean Pierre. Thank you for the update. Two questions, please. The first one, I want to come back to Integral Care and the strong performance in the Q2 with the earnings at Securit. I was hoping you can give us some Details on the driver of the sequential improvement because for instance, the next step, like for production is done quarter on quarter, so it's just a year What was driving the improvement here sequentially?

Speaker 4

And then secondly, on Mozambique LNG, if you have an update to provide On the timeline next milestone 2 for the project before we can fully start. Thank you.

Operator

What we put. Mondelez LNG, we are working on both parts. One is with the contractors, and I expect that to be done in the second half of this year, so we'll have the answers and hope to be positive for them. And then we are working also, like Jean Pierre told you, on the relaunching decreasing the financing. So I think my objective or objective for us is return to you and to have before year end, we should have a clarity on the way forward.

Operator

But again, we need to notably, of course, before and I think let's do it step by step properly, but I would say as effective we are, but if we need to wait internal anyway. Actually put, I think Jean Pierre in his speech gave you some indications. He told you it's coming from everywhere. I can give you another general why. We put.

Operator

In market, for example, in supply business, the winter is always more tough in terms of business because we have an average cost of supply, more demand, so you have a sort of seasonal effect. I think when you look, you are following flexible generation capacities because of, I would say, the gas to gas the spread between gas and electricity, we have some good results from trading as well and we have positive results from renewables. So everything is increasing, I would say. So there is not one. It's everybody contributed.

Operator

And by the way, it's why the more we look at it, the more we think our approach of integrated power. And this is why we propose to you these results in this way, as I propose the results of Refining and Chemicals in an effective way. And so I think put, nothing special, everything was positive, which is a good source of, I would say, confidence for the future on this one.

Speaker 3

The next question is from Paul Cheng of Scotiabank. Please go ahead.

Speaker 7

Thank you. Two questions please. Patrick, any update you can provide on share and your feedback? I 2nd is that, just want to see if you can share over the past several months, what's Your investor feedback given the changing market conditions about your change of investment

Operator

Paul, I captured the first question. The line is not very sorry, the line is not very good here in Paris on this one. I captured the first question, I think, is about Suriname, I'm sure. And the second is that investor feedback on our integrated or our renewable integrated power businesses. I understood carefully.

Operator

Yes. Okay, good. So, Suneil, okay, I told you that We are just finalizing the test of the last half of the world. So I will give you a meeting point in September because my teams are working. I gave you a positive indication that seems that we are moving forward with development, but I want the teams working in the to take work in reserves together, to put that together, to have a case.

Operator

I think we'll have a case for development for sure. Exactly what we have just signed, the bid I gave, I'll turn to my bid to take few of these and then you come back to me end of August, September. So we'll answer to you with a clear timing. We have a clear idea by 7. So come to New York and we'll have the answer to your question, if not before.

Operator

But Obviously, we worked on it. I can tell you, we have an integrated group of departments. So even for the these sanctions might be targeted by end of 2024, situation of execution. But more or less what I have in mind, but again, I want to there are still some debate about what could be time exactly the bit. The news that I read about the test seems to be quite good.

Operator

So that's answering that. So just a little patience, it will come. On I mean, our investors are now. They are just investors. You know, they want to have the cash.

Operator

They want to have dividends and cash flow. So if we demonstrate that this business it's contributing. And so that's the question mark of that I think before I resigned to publish this results with the month, but it is profitable. But you mentioned the cash flow. And the question for us will be when does it become net cash flow positive.

Operator

So and again, we are working hard on that because our objective is that this should be a positive cash positive generator. So we invest more or less in this IT ready for business €4,000,000,000 per year. So when do we we could put. At the threshold of €4,000,000,000 And that again will come back to you in September on that because it's also part of the One thing, let's focus on it. So that's my message.

Operator

Let's simplify. And again, I think it's a matter for us to could. I guess, yes, in the last what we clarified in the last year, which is in fact we want for the domestic to apply to be integrated for our business. The same way we think in owning the capturing information, I think it's a driving answer to investors. And so that's where we are today.

Operator

So we'll think on our strategy to be clear. We might simplify it from some molecule spot, but we are

Speaker 4

Thank you.

Speaker 3

The last question is from Giacomo Romeo of Jefferies. Please go ahead.

Speaker 4

Yes. Thank you. I have one last just strong cash flow this quarter and obviously showing

Operator

the impact of put your hedging position in integrated LNG, just want to check if you can remind us sort of what sort of the hedging level for the remaining quarters of the year and whether you're still continuing to your rolling hedging program given where current gas prices are looking for next year? Our revenue contribution. It's a strong it's a clear policy. We are hedging more or less 80% of the portfolio. So what has been done in 2022, for 2024, for 2024, and we do the same for 2024 and 2024, for 2025, and that's it.

Operator

Would put, we have a merchant exposure on our balance sheet in LNG and we assume it, but we try to, I would say, to cover part of it and to keep some of it much. And by the way, you know that we have decided that all the Russian energy should not be yet because I'm not sure that that will continue. So I mean, so it's part of the answer. So it's continuing and so that's why you should expect the next quarter in terms of cash would be remain more or less positive because if I remember well, the forward for Q3 and Q4 'twenty three were higher the one for Q2. The war begins in March.

Operator

And remember, the peak of the prices were in Q3, Q4, not in Q2. So we should have good cash flows. Although, my question is something I did not understand by business, but I think we understand it. No, I'm clear. So I'm very clear.

Operator

I'm joking. Yes, I don't know. But no, it's clear. So the goal of the hedges will come on the second half of twenty twenty three more in the first

Speaker 1

half. Okay.

Operator

So thank you to all of you for your answers and all your just again, the key, I think, on the results of the first to second quarter, we demonstrated that we are profitable, 22% for R and D. We have a strong cash flow, including from LNG, dollars 8,500,000,000 much stronger than I would say the decrease of the environment. And third, of course, we are committed to the distribution of shareholder by maintaining the buyback at €2,000,000,000 for 5th quarter in a row despite the softening development. Presentation, have a good day, have a good summer, and I hope we meet all of you on September 27 in New York our updated strategy. Just to remind you,

Speaker 1

we took your lesson, but

Operator

you don't want to listen too much to us. So it

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Key Takeaways

  • Management reiterated its strategy built on two fundamental growth pillars, expanding its low-cost, low-emission LNG base as today’s cash engine and growing a profitable integrated power business for future cash flows.
  • The quarter saw key oil and gas investments including a low-emission service contract in Iraq’s JGIB project, FID on the Rio Grande LNG project (16% stake), and final award of the AMI petrochemical contract in Saudi Arabia.
  • In power, TotalEnergies completed the acquisition of Total Eren (3.5 GW, €400 million EBITDA) and secured 3 GW of offshore wind leases in Germany to feed its integrated power model.
  • Q2 results were resilient with $5 billion adjusted net income (-24% q-o-q), $8.5 billion cash flow, 22% ROACE for the 12 months to June, and upstream production up 2% year-on-year.
  • The Board raised the interim dividend by 7.25% and approved a $2 billion buyback for Q3, keeping the H1 payout ratio above 42% in line with its commitment to distribute over 40% of cash flow.
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Earnings Conference Call
TotalEnergies Q2 2023
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