TotalEnergies Q2 2024 Earnings Call Transcript

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Provided by Quartr
July 25, 2024

Key Takeaways

  • Sanctioned multiple major upstream projects including three FPSOs in Angola, the Camino and Atapu2 fields, the Marsa LNG plant in Oman, and the Obetagas project in Nigeria, while advancing an FID for Suriname Block 58 to support 2–3% annual upstream growth.
  • Reported robust Q2 results with adjusted net income of $4.7 billion and $7.8 billion of cash flow (H1 totals $10 billion and $16 billion), delivering a 16.6% ROACE and maintaining disciplined CapEx guidance of $17–18 billion for FY 2024.
  • Enhanced shareholder returns via $2 billion of buybacks executed in Q2, authorization of an additional $2 billion, and an interim dividend of €0.79 per share—up 7% yoy and 20% above pre‐COVID levels—representing a 45% payout of CFFO in H1 2024.
  • Integrated Power business drove profitable growth with H1 adjusted NOI up 36% to $1.1 billion, cash flow of $1.3 billion, ROACE above 10%, and strategic acquisitions of CCGTs in Texas and the UK plus battery storage developer Kyero in Germany to deliver clean firm power.
  • European refining margins normalized, falling 37% qoq to produce $640 million of refining NOI despite improved utilization at 84.5%, with Q3 utilization set to exceed 85% thanks to the restart of the Dons refinery in France.
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Earnings Conference Call
TotalEnergies Q2 2024
00:00 / 00:00

There are 17 speakers on the call.

Operator

Ladies and gentlemen, welcome to Total Energy's Second Quarter and First Half twenty twenty four Results Conference Call. I'll now hand over to Patrick Pouillane, Chairman and CEO and Jean Pierre Braere, CFO, who will lead you through this call. Sir, please go ahead.

Speaker 1

Good morning or good afternoon, everyone. Patrick Bouillen speaking. So before Jean Pierre will go through second quarter financials, I've put that media would be a good time to check-in on the progress that we have been making. I would say the great progress in just the last 10 months since we presented our strategy last September at our Investor Day in New York, or I would say balanced transition strategy. Equis is anchored on 2 fundamental pillars: the oil and gas on one side, with a perspective of growth and Integrated Power on the other side.

Speaker 1

And both are both pillars are driving the growth for the company. So during the last 1st semester and last quarter, beyond the excellent operational performance, which was delivered on our Oil and Gas pillar. We have sanctioned several major upstream projects, but I would like to remind the OIBDA side with the financial decisions on 3 Blanche FPSOs, Camino in Angola, CPA2 and Atapu2 and both which are world class well productivity projects with low technical operating costs under $20 per barrel sanctioning criteria and Angola is under $30 per barrel breakeven. So these are hopefully major oil projects, but we also have sanctions on the LNG side. 2 important projects, the Marsa plant in Oman, Marsa LNG, which is a very ultra low emissions plant and the Obetagas project in Nigeria, which will supply Nigeria then.

Speaker 1

So these projects will not only contribute to the objective to grow our upstream by 2% to 3% per year in next 5 years, but they will also boost the underlying free cash flow generation and ultimately shareholder distributions. On the 2nd pillar, our integrated Polar, where we have reached quite a compelling ROACE above 10% quarter and Jean Pierre will come back on it. We have also made some strong progress towards deploying and completing our Integrated Power business model by acquiring flexible assets that allows us to extract maximum value from the renewable assets in 3 key markets in Texas, in the UK and Germany. We closed off CCGT deal in Texas and also announced the acquisition of CCGT in the UK. Both of these markets, we now have all building blocks, but defined our integrated program model, assets, and of course trading and customers as well, in order to deliver clean firm power, which prices at a premium compared to a green intermittent renewable power.

Speaker 1

We also acquired flexible assets in Germany through our acquisition of Kyero Energy, a leading battery storage developer. And by the way, we just sanctioned the first 100 Megawatt battery storage project developed by Kyero. This complements our leading position in offshore wind in that country as well as the acquisition of Quadram, our renewable energy aggregator with a 9 gigawatt pipeline of irrigation to commercialize. So we are clearly, I would say, this first half in a strong execution mode of the strategy. So don't expect any change.

Speaker 1

We are and there is of course still more to come. In particular, we have also announced recently that we made some important steps towards the FID of our Suriname Block 58 projects by the end of the year, which is of course a key milestone for us, our partners and Suriname. And as a reminder, this is an operated 200,000 by development with more than 700,000,000 barrels of estimated recoverable oil. We have achieved, as I said, key steps, including the agreements on the steel development area with the authorities, but also securing the oil of the FPSO to be able to sanction the projects and should be, I would say, end of Q3, beginning of Q4. I'll wrap up my introduction by just saying that our balanced strategy is still clearly in motion, but we are pushing on all fronts.

Speaker 1

We are making progress delivering and executing our plan, which will allow us to reach our ambitious targets this year and delivering top tier performance, but also preparing the future of the company. So we position the company to lead the pack and we are determined to deliver to our shareholders of premium returns. And that's the program that I propose to show you at our next Investor Day, which will this year will be in New York on October 2. You put that can put that date in your calendar. And so I look forward to meeting you there.

Speaker 1

But in the meantime, Jean Pierre will give you all the details of the Q2 results and I will be happy to answer your question today together with Jean Pierre.

Speaker 2

Thank you, Patrick. So let's move to the financials. So the crude market remained supportive in the 2nd quarter with Brent slightly increasing by 2% quarter to quarter to average 18 $5 per barrel, while the company average LNG price decreased by 3%. In refining margins, continue to normalize with our European refining margin market down 37% quarter to quarter. In this context, Total Energy reported 2nd quarter 2020 4 adjusted net income of $4,700,000,000 with the first half twenty twenty four totaling close to $10,000,000,000 The company generated $7,800,000,000 of cash flow during the Q2 of twenty twenty four and close to $16,000,000,000 for the first half of the year.

Speaker 2

Importantly, profitability remained robust with ROACE return on capital average capital employed of close to 16% close to 17% at 16.6%. And we maintained strong CapEx discipline and reiterated our net investment guidance of $17,000,000,000 to $18,000,000,000 for the year. But last but not least, we continue to build on our strong track record of attractive shareholder distribution with $2,000,000,000 of buybacks executed during the Q2 and up to $2,000,000,000 of buybacks authorized quarter of 'twenty four. Also, the Board has maintained the 2nd interim dividend at 0.79 euros per share, which is nearly a 7% increase year over year and is 20% higher compared to pre COVID levels. First half twenty twenty four shareholder payout stands at 45% of CFFO.

Speaker 2

Moving to the business segments, starting with hydrocarbons. So production was 2,440,000 barrels per hour equivalent per day in the Q2 of 2024, close to the high end of the guidance range. We continue to see good performance from project start ups and ramp ups, including Meru 2 in Brazil, APO West in Nigeria, Blok 10 in Oman, Absheren in Azerbaijan and multiple projects in North. Looking forward, production for the Q3 of 2024 is expected to be stable between 2.40000002 point 49,000,000 barrels per oil equivalent per day with the expected start up of the Encore project in the U. S.

Speaker 2

Gulf of Mexico in the Q3. Exploration and production continues to perform well. We've reported adjusted net operating income of $2,700,000,000 and cash flow of $4,400,000,000 The company maintained its costs leadership with upstream OpEx per barrel below $5 per barrel during the Q2. In Integrated LNG Business, we continue to increase our structural resiliency by advancing commercialization of LNG through new medium term brand linked contracts with Asian buyers having recently signed 2 contracts for a total of 1,300,000 tons a year. Turning to the results now.

Speaker 2

Hydrocarbon production for LAG increased 1% quarter to quarter, which includes entry into the Dorado upstream gas field in the Eagle Ford Basin in the United States. And we progress on our objectives to increase upstream integration in the U. S. To further improve resiliency. LNG sales decreased by 18% quarter over quarter, notably due to lower spots purchase in the context of lower LNG demand in Europe.

Speaker 2

Integrated LNG adjusted net operating income and cash flow were both $1,200,000,000 in the 2nd quarter. The results reflect lower average LNG price and lower sales as well as the impact of gas trading not really benefiting in the continued low volatility environment. LNG trading continues to perform well. Given the evolution of oil and gas price in the recent months and the lag effect on price formula, we anticipate that our average LNG selling price should be around $10 per 1,000,000 TEU in the Q3 of 2024, which is higher compared to the Q2. Moving now to Integrated Power.

Speaker 2

As mentioned by Patrick, we recently enhanced our asset integration with several flexible capacity additions. Integrating Power once again delivered profitable growth with first half twenty twenty four adjusted net operating income of $1,100,000,000 up 36% compared to the first half of twenty twenty three due to activity growth. First half twenty twenty four cash flow totaled $1,300,000,000 which is in line with the annual guidance of more than $2,500,000,000 In addition, return on capital employed for the 12 months ending June 13 increased to both 10%. In Downstream, Refining and Chemicals reported $640,000,000 of adjusted net operating income and $1,900,000,000 of cash flow during the 2nd quarter. Results reflect the sharp decrease in global refining margins since the end of the first quarter, which remain impacted by low diesel demand in Europe and market normalization following the disruption in Russian supply.

Speaker 2

The company's utilization rates improved to 84.5% from 79% in the Q1 of 2024, mainly due to lower planned maintenance, which partially compensated the decrease in refining margins. For the Q3 of 2024, we anticipate that the refining utilization rates will benefit from the restart of the Dons refinery in France and will average above 85%. Marketing and services benefited from the lower refining margins environment in the Q2 with adjusted net operating income increasing to $380,000,000 and cash flow increased by 38 percent sequentially to $660,000,000 At the company level, we have been as usual active in M and A on both sides with $1,900,000,000 of divestments and $1,600,000,000 of acquisition over the first half of twenty twenty four. Our net investment stands at $8,200,000,000 at midyear, and we confirm our 24 net investment guidance of $17,000,000 to $18,000,000 During the Q2, we reported a $1,200,000,000 working cap release and we anticipate that the working cap bills reported during the Q1 will continue to reverse over the coming quarters. Gearing was stable quarter to quarter and improved by nearly 1% year on year at 10.2% at the end of the Q2 2024.

Speaker 2

As a reminder, we continue to anticipate structural gearing of around 7% to 8%, all else being equal. During the quarter, Total Energy successfully issued center bonds on the U. S. Markets totaling 4 point $25,000,000,000 using conventional formats and privileging on maturity. The average maturity of this insurance was indeed 27 years.

Speaker 2

Indeed, the Board of Directors decided to return flexibility on the format of the bond insurance and to give priority to loan maturity. Lastly, I'm pleased to announce that after the capital increase reserves for employees earlier this year, employee ownership in the company is now more than 8%. We also have strong support from our shareholders who supported all resolutions submitted to the votes at the restaurant Annual General Meeting. I will stop here and let the

Operator

floor The first question is from Lydia Rainforth of Barclays. Please go ahead.

Speaker 3

Thank you and good afternoon.

Operator

Two questions, if I could. The first one, Patrick,

Speaker 3

I think it's obviously 100 year anniversary for Total. And I know that you've kind of been very good at giving shares to the employees and things like that. Would you consider a special dividend for 100 years to celebrate the Total? And then the second one, actually, if I could just do more macro stuff at the moment, clearly, there's a lot of moving parts as to the cash flows towards the end of the year. Can you just walk us through both where refining is and where you see that going?

Speaker 3

And then also on LNG, just where you're signing some of the slopes on the contracts? Thank you.

Speaker 1

Okay. Good question, Lydia. Maybe I should give to you a special gift of $1,000,000 share to ask the question. But I'm afraid that today we are not as we already set up in our cash flow allocation. The privilege is dividend and buyback more than special dividend.

Speaker 1

We don't consider today. We are in an exceptional environment as the one which we benefited in 2022. So it was exceptional. We are not there. It's a good environment, but not exceptional.

Speaker 1

So I would say sorry to disappoint you, but I'm afraid we prefer to continue to maintain to increase the dividend year after year and to have a good buyback program. 2nd, where do we go refining? Refining, I think it's clear, but I think there is a form of it benefited during the last 2 years of some imbalances in the market created by the Russian flows, which were distracted from Europe, from the U. S, from the normal flows. We have the feeling that now in fact the market has more or less restabilizing and there's a sort of normalization mode from this perspective, even if we can observe that the U.

Speaker 1

S. Are more and more chasing against all this great fleet of Russian oil. So it could have again some influence. So that's one part. The other part is that the demand was not to was lower this year than the last 2 years, in fact.

Speaker 1

So the inventories are not so exceptional, in fact. I expect that with the driving season during summertime generally there is more demand. So we could see, I would say, a better margin. If we see today, it's quite low. And in fact, we are and when I say quite low, in fact, it's back to what it was normal before all these exceptional years.

Speaker 1

So I think our refiners now they have to come back to reality and to deliver good results with lower margins. But again, it's part at the same time, it's true that we benefit from a good oil price. In fact, dollars 84, dollars 85 per barrel is good. So you come back to a traditional integration between, I would say, when the price of oil is low, the margins in the refining are lower. But then generally when it's the case, the marketing is benefiting of it.

Speaker 1

By the way, we've seen that in our during the last quarter. So I'm not I would say, I think we are more going in a normalization of refining margins. And when we make our long term plan, we are more on $35, dollars 40 per ton, pounds 70 or $80 per ton. So maybe because I was in charge of this segment, I know that what is the hard reality from time to time. But again, this is typically the type of business, which is you need to have your machine, your refineries running when the margin is good and then you make the cash in and then you need to be resilient when the margin is more normal.

Speaker 1

On the LNG, I would say, again, on the LNG, we negotiate quite a lot of new LNG contracts, because all the strategy of the company is to buy and rear rent to sell rent, in fact. So we are in the middle of that. It's difficult to answer to you because there is a lot of discussions around the world. I would say it's more commercial secret. So but again, the transformation of Almirall to brand is good for the cash flow of the company, including in the market, which we can think by the end of the decade, it will be a softener market.

Speaker 1

So this is all the strategy of the company.

Speaker 3

Brilliant. Thank you very much.

Operator

The next question is from Doug Leggate of Wolfe Research. Please go ahead.

Speaker 1

Thank you. Good morning, good afternoon, everyone.

Speaker 4

Thanks for having me on. Patrick and Jean Pierre, I wonder if I could ask you about your Suriname progress. My understanding is that when you laid out the strategy last year, Suriname was did not have a meaningful contribution to your 20 28 cash flow. But now you have an SBM fast forward how and obviously things look like they're moving a little quicker. It seems to me that Suriname could be a meaningful step up in your cash flow in 2028, Full calendar year at current oil prices probably around $4,000,000,000 Can you give us some color as to what you think the progress is?

Speaker 1

That's true. But in fact, we have decided, as I said last year, that Suriname, we try to execute it in a quick mode, I would say, moving from the end of the appraisal by September last year to the FID. My objective is 1 year from appraisal to FID. All the teams are being mobilized. By the way, we are using the innovative approach, including using the design of a good operator, which is developing projects next to Suriname, which first they have a good design.

Speaker 1

So trying to build on this FPSO, in fact, taking the design, which has design of Guyana, in fact, to apply it and it's quite efficient. So we move forward quickly. And so that means that the first order of Suriname is targeted by, I would say, somewhere in mid-twenty 8 or beginning Q1, beginning of 20 28. So it could be quite significant. To be clear, cash flow from Suriname, as you know, will be big, yes, because we have, in fact, financing almost a full of it.

Speaker 1

So we'll benefit from the cash flows in a very large way. So the contribution of Surinam, not only to 'twenty eight, but 'twenty nine, 'twenty and 'thirty, 'thirty, 'thirty one, 'twenty and 'thirty two will be important. That's why I'm insisting. By the way, I can tell you that in September, we will extend our guidance up to 2,030, because with the rich portfolio we have, we can extend it. And Suriname, of course, will be part of the new because the good color we'll give to our perspective by 2,030.

Speaker 4

That is very helpful. Could I ask a quick follow-up on a separate topic in the U. S? After your Lewis Energy acquisition, are you now comfortable that you have enough hedged gas exposure for your LNG? Or do you still intend to do further acquisitions in the Lower forty eight?

Speaker 1

No, no. We don't have enough. We are clear. You can make the math. We will take something like almost we have 10,000,000 tons.

Speaker 1

We have 5,000,000 in Rio Grande, so we need to increase. And by the way, I can tell you that we are working on another deal. So it will be step by step deals. It's not a big one, but we are working on another one. And we should have news as well for you by and we'll give more color to you by September as well.

Speaker 1

I think an important topic on which for me is important is to show you how we in fact all these LNG position on one spot on the upstream, but on the other side on the downstream will be resilient and whatever the underpriced environment will be. I think it's very important to demonstrate it and we are acting on it. And on the upstream there will be more to come for sure.

Speaker 4

Thank you so much guys.

Operator

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

Speaker 5

Thank you. Good afternoon. My first question is on marketing. In the Q2, Nopad declined about 16% year on year for a 2% lower sales volume. How should we think around the impact of your disposal to Coustard versus underlying performance?

Speaker 5

So what happened if we exclude the sold assets? And my second question, Patrick, French politics has been quite volatile recently, and sovereign states can do a lot of things, impose windfall taxes, even golden shares. So I wanted to ask, is there something in particular that concerns you in terms of a potential action by the French state that might be against the company's interests? Thank you.

Speaker 1

First question is quite easy. In fact, it was more or less $20,000,000 per month. So on the quarter, it's $60,000,000 the impact of Couche Tard, the assets in Germany and Netherlands and half of Belgium. So you can make the math. And in fact, we manage in terms of cash flow more or less to we are okay in this cash flow or it's net results.

Speaker 1

EUR 20,000,000 what is it? Net result, sorry, net cash flow, net result. So €20,000,000 per month. So you can find that you are it would be reduced to 3%. So it's in line in fact.

Speaker 1

So globally, the marketing has a I would say a very a performance equivalent to the one of last year if you deduct this Kushta impact, okay? First point.

Speaker 6

Thank you.

Speaker 1

And second one, honestly, is a French politics. I think, first, I would say that TotalEnergies is more stable, which is good, or is a stable company. No, honestly, I think there is a lot of noise around all that. On the Golden Share, by the way, as if to be very clear on it, there was a judgment which was in 2002 by the European Court of Justice which has obliged the French government, which previously had the golden share in Total Energy's equity to cancel it, because it was against a fundamental principle of a clean move of capital within the European Union. So it has been already judged.

Speaker 1

So I know that some politicians are speaking to thinking against about it. And by the way, with the present law in France, just to clarify with you, it would require at least the French state to invest 5% of shares in Total Energy. So I understand that they have more better use of their money than investing billions in the company. So that's politics. But again, this is not the point.

Speaker 1

I think as I told you before already, you could see IDs like the one in the U. S. By the way, which is taxation on the buyback. The French politicians have all read, but something is happening there. So sometimes it's a little difficult to argue for us again, even if we have done it.

Speaker 1

But again, we will engage with where the new government is. And that's I think again, I don't think you should consider it will fundamentally affect the interest of TotalEnergies.

Speaker 5

Thank you, Patrick.

Operator

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

Speaker 7

Hi, thanks for My first one was on the deal you did with OMB in Malaysia. I noticed that you listed that in the upstream bullets rather than integrated gas. But in the press release, you mentioned the deal will be an anchor for future growth in the country. Just wondering if there's any potential here to integrate yourselves into the LNG facility and whether that's being discussed? And if not, could you just talk a bit about your growth plans there and the strategic rationale for that deal if you can't integrate into LNG?

Speaker 7

And then the second question is just again on projects on LNG. So Mozambique, there was an article recently around potential cost escalations. Could you just give us an update on where we are and expected budget and what the next steps are from here? Thank you.

Speaker 1

Okay. On Malaysia, no, I think maybe it will be fundamentally the gas revenues from the license in Malaysia is LNG netback, just to be clear. So for me, it's integrated to the LNG value chain, just to be clear, even if we don't have so it's a way that the price gas price is settled. So, first clarification. So, the idea, of course, is to continue beyond it to have access to and we are already in discussions with some other actors, players, including by the way Petronas to beyond and they just started by the way the Geron gas field, which just started this week, last week.

Speaker 1

So, it's quite a large field. It's producing 600,000,000 stuff per day, I think. So, we will have a nice share of it. And so, beyond it, there is more opportunities to develop. And so, we have some plans.

Speaker 1

And of course, at the end, the more we can link that to the LNG world and to LNG pricing, this is the objective of the company. So we'll work on it. On the Mozambique, I can tell you that everything has been settled with the contractors. So we are clear. We know where we are.

Speaker 1

In fact, it was more a matter, to be honest, of the cost of the, I would say, frozen period, which was to be absorbed and discussed because since 2020 to 2024, we have frozen some works, we have some equipments, which were, I would say, kept in different locations. So, all that has been discussed, all that is settled with them. And so we are on the way to move forward. And we will as soon as we can update you, we will do it. But the progress has been done in many directions, including on security.

Speaker 1

Now, we try to regroup all the financial finances around the project. So as you know as well, there are some presidential elections in Mozambique coming soon. And so, of course, for us, it's important to be to have the confirmation, but the new President will follow the same policy regarding these large projects. And so that's where we are. So, say, by end of the year, we should clarify all that.

Speaker 1

We should be able to move forward. Okay. Thank you.

Operator

The next question is from Martin Ratz of Morgan Stanley. Please go ahead.

Speaker 8

Yes. Hi. Hello. I have 2, if I may. My attention was drawn to the comments in the outlook statement where you talked about European gas prices in the range of $8 to $10 per MMBtu for the Q3.

Speaker 8

And that struck me as somewhat of an unusual comment because I don't know total to call that often on near term commodity prices. So from that perspective, it stood out, but it also stood out because it seems quite low. TTF is a little bit more than $10 prime MBtu at the moment. So I was wondering if you could elaborate a bit on that expectation and broadly where it comes from and the drivers behind it. And then the second thing I wanted to ask is on the previous earnings call.

Speaker 8

We talked a lot, of course, about the potential to either move the listing to the U. S. Or maybe not for the full headquarters, but at least to move the main listing to the U. S. And a quarter has passed.

Speaker 8

And I was wondering if you have an update on those thoughts.

Speaker 1

Okay. Sorry to surprise you. Sometimes you tell me that we are a growing company. So today we try to make honestly, there is no we've seen when we made the statements. Beginning of the year was $8 we moved up to $10,000,000 $10.5 So to give you a range of $8 to $10 in summertime, there is nothing extraordinary because it's not the best season.

Speaker 1

The Q3 is not the peak of the demand generally. And so as you know, the inventory is storages in Europe are quite full. We don't anticipate a big rebound unless there is an event. So that's I think giving you this guidance is more reflecting what happens since the beginning of the year. So it's a way to tell you.

Speaker 1

But again, when you say it's low, dollars 8 it's quite high compared to what we were experiencing before 2021. And it was more we had years at around $4 to 6 dollars per million BTU. So $8 for European gas price. Even today, it's $10.3 yesterday evening. It's a good price for not only for us, including for Norwegian operations and UK operations.

Speaker 1

So I would say it's good for us. It's okay. It's lower than what you were we had in 2022 and 2023, but we made no miracle on that. But there has been a landing. And unless the weather will come against cold next winter, we don't anticipate any winter.

Speaker 1

Having said that, we could have a lot of disruptions coming from other parts of the world, because the main driver today will be, if there is any tension, the LNG supply, because the plants could have a problem somewhere in the world, then this market is very volatile because we don't have much margins between the supply and the demand on the LNG. So, sorry to have surprised you, Martin. On the U. S. Listing, no, I mean, it's not I clarified that in a French newspaper, maybe it was in French, so we should translate it and distribute it to everybody, which I will ask Renaud and his team to do, because we clarify what we want to do.

Speaker 1

What we want to do is fundamentally to transform the ADRs in shares, in ordinary shares. That's all. And that means at the end and we want these shares to be cross listed, I would say, if you want between Paris and New York. That's fundamentally what we'd like to do. There is no nothing else.

Speaker 1

So transforming the ADRs in shares. The ADRs, we made a test to we had questions with a quiz or questions to almost 40 long term investors in the U. S. They see some positive, nothing negative because some investors do not like the complexity of the ADRs in terms of back office, in terms of managing it. Some investors could prefer to invest directly on the New York market and not going to European market, Paris or London or Brussels.

Speaker 1

So that's what we do. So we are more in a technical we are in a technical move. We progress, just to tell you, we progress positively until now. And Jean Pierre and his teams will work on it. We will update you probably end of September.

Speaker 1

But technically, there is some technical matters between the different depository, in fact, firms between Europe or European on one side, DTCC on the other side. And so we made progress and we'd be able to have a scheme. So it's fundamentally transforming the ADRs in shares. And so having giving more liquidity to the shares, which the shares could be in fact acquired either in price or on the New York market. That's what we want to do.

Speaker 1

It will help the liquidity and so we help it will help attracting more U. S. Investors. And as you know, today we have a larger a stronger flow of U. S.

Speaker 1

Buyers than on the European side. That's what we want to do.

Speaker 8

Wonderful. That's crystal clear.

Operator

The next question is from Michele Della Vigna of Goldman Sachs.

Speaker 9

Thank you very much for the time. I've seen that you've been very active in adding more low cost LNG supply to your portfolio in the last few months with the Huwais, with Marsa LNG. I'm wondering you must be marketing these volumes to customers at the moment. How do you find the demand appetite for more LNG? And are you comfortable to add more spot volumes to your portfolio, especially if the market starts to become more supplied in 2026, 2027?

Speaker 9

Thank you.

Speaker 1

Yes. Good question. Thank you, Michele. Clearly, we have been successful in the last month. And the answer to previous question, our strategy is to be able, in fact, to transform some gas, I would say gas volumes into brand volumes.

Speaker 1

And so we are active on the Asian markets. We have already announced 2,000,000 tons of new LNG contracts since the beginning of the year, 2 different. And there will be more to come. So you will see, I can tell you, more deals to be announced in the next months. We are quite active.

Speaker 1

As I said to as Ansel, look, we have more or less 10,000,000 tons today of U. S. LNG, which is linked to Henry Hub. We sell part of it on the Henry Hub formula, and we want the rest to be installed on the brand formula in fact. And the brand formula and so the answer to your first question, there is an appetite today for Asian buyers and still at a good percentage.

Speaker 1

We don't, I would say, discount RNG. Why? Because I think the lesson of these Asian buyers is that they have been afraid by what happened in 2022, 2023. So even if they could anticipate that there would be a suffering on the market by 2,070 and 30, they think for them it's better to edge part of their own, I would say, purchase linked to the brand. In fact, I think today there is more confidence in the buyers' side on the brand and the stability of the old market than on the LNG GKM index, which is by the way don't have the same depth as the TTF.

Speaker 1

So I think this is why you have some appetite on different countries. There are more countries buying energy. In fact, it's not only China, Japan and Korea, Taiwan, Vietnam, India. India has poor appetite. So adding more spot we have added already.

Speaker 1

We have added with Rio Grande. We took 5,000,000 tonnes. Marsa is smaller. It's 1,000,000 tonnes. So, but this is the one where we want also to develop a local barging, I would say, market within the Gulf with a specific market.

Speaker 1

And so, yes, we are comfortable, but I think I would tell you, Michele, what the objective we'll have in end of September is to show you exactly what you said. How do we manage this potentially softening of the market from 27 to 2,030? What is the remaining exposure from Total Energies? And you will realize that downstream, in fact, fundamentally, we will transform and we are transforming and we have into brand. And I think this is good for our shareholders and for the future cash flows of the company.

Speaker 9

Very clear. Thank you.

Operator

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

Speaker 6

Thanks very much for your time. 2, if I might. 1, the first is just to JP hybrids, you've redeemed a portion again this quarter. Can you just remind us what the redemption possibilities are going forward, what the time frames are? And Patrick, apologies, but a general question for you, just on your own thoughts on China and Chinese oil demand development, if you look out over the next few years.

Speaker 6

I guess I've been it's been a fascination to see the extent to which gasoline demand is perhaps causing to come under pressure from EV. You've obviously had a fair amount of switching diesel into gas, LNG trucks, etcetera, And demand increasingly feels as though it's coming from the chemicals industry and perhaps negating crude. But just your own thoughts and insights into how you see Chinese oil demand developing next few years? Thank you.

Speaker 2

Yes. So concerning the Irish, you're right. So we decided not to renew €1,500,000,000 in the Q2 because we use the flexibility offered by the credit rating agencies. If you can demonstrate that without renewing your hybrids, your rating, your credit is not affected, so you can use this flexibility. So we see because we have another €2,500,000,000 next year as in the hybrid in our hybrid portfolio.

Speaker 2

So we have to discuss with the rating agencies to see what we can do and so we should again continue to lower the hybrid portfolio.

Speaker 6

Thank you.

Speaker 1

Thank you. On the China, Noah, having insights on the forecast of the Chinese markets, it's not so easy for when you are out. I would say I think we should not exaggerate as well what happens. I think my view is that the old market for the time being, the old demand globally continue to be driven by China, even if India is part also is a growing country. I would take the assumption of 0.81 percent per year is a good assumption until we will see a real reverse.

Speaker 1

Does it affect China? I think we are today a little in the western side over, I would say, there's a little of China bashing, I would say, to try to say that the economy in China is slowing down. My view is that it's continuing to be quite active. And it's true that you have there some more of the EV sales are impressive. But that was recently discussing with the CEO of the number 5 car manufacturer company.

Speaker 1

And when I ask you his figures, it was still up 20%, 30%, it's not at 70%. And in fact, it's a little like in Europe where our EVs are also hybrid cars. And so and the hybrid cars are also because the customers in fact are looking to the same issues wherever they are in China or in Europe. In fact, they want to have a, I would say, a reliable car for most of the time. That's important to keep in mind.

Speaker 1

So, yes, we are in the trend. That's true. We see some we see also LNG becoming for trucks, a new market. But fundamentally, I think for me, it will not affect quickly the oil market. So keeping 1% of demand off per year, I think, is reasonable, which is where we are more or less.

Speaker 1

That's what we think what we take into account.

Speaker 10

Okay.

Speaker 6

Thanks very much for the comments.

Operator

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

Speaker 11

Thank you. Patrick, just one question. I just wanted to get your sense on the competitiveness of opportunities in renewables. I know there was another German lease bid auction recently that you are one of the 2 bidders or winning bidders. But it was quite strange.

Speaker 11

I think your German partner probably pulled out because they thought the auction had become too expensive. And I get it the markets always have a different sort of opinion. But can you give us a sense of where that difference lies?

Speaker 1

Okay. If we make the bid, but if we think it's competitive otherwise we don't do it, first comment. 2nd comment, in fact, when you look and you will understand what we've done in few weeks, we are trying to just I think one of my colleagues in Germany has made it public in an interview. In fact, fundamentally, we think that this block that we have acquired is just this license is just next to the one we acquired in the first round. So, we want to make synergies of development in order to be more efficient.

Speaker 1

And so, that's the objective. And this could go by the way that the fact that we will structure all the properties we have in offshore wind in Germany. So you will see the story coming later. So but again, what you think fundamentally and the German partner, by the way, is a nice partner, but we have announced yesterday that we went with him in Netherlands. So portfolio in Germany.

Speaker 1

So we are building the portfolio in Germany. In fact, he has a different view because he has another past portfolio in Germany. So we are building the portfolio not exactly the same approach. But if we do it, it's because and it's literally linked to the German power market in fact. Because in Germany, German government has decided a policy with no nuclear exiting coal.

Speaker 1

So, it's fundamentally renewable in gas markets. So, the gas the power price will be driven by the gas, in fact. And when you look to the perspective of the gas price in Europe, you can be optimistic on the electricity price in Germany. So that's part of the link that we want to do. And so that's why we are building today a full integrated portfolio in Germany.

Speaker 1

It's not only the offshore wind. And so, you should never and I know Alastair, it's difficult for me to convince you, but you will see and why we are more profitable than others. You should not look to the renewable opportunity only. It doesn't work like that. A green intermittent electron has no value or little value.

Speaker 1

What is good is to have a clean firm power for customers. That's what we do in Germany. Yes, we need some renewable sources to have the clean part, but we need to combine them with flexible assets and flexible assets are batteries. The Telenasys should participate to have a will find a way to have access to gas pipe plants in Germany. Otherwise, my speech will not be consistent.

Speaker 1

And so, you can I can announce you the next steps of what we want to develop? That's why also we bought with aggregators Renewables to give flexibility in trading the system. So, the fundamental business model we have is not renewable. Renewable profitability, it is what it is and you know it. But where you make money is when you combine these green electrons with the flexible asset gas plants and you deliver to the customer a clean firm power, then you increase a lot of value.

Speaker 1

And the renewable so do you allocate this profit, this value to the renewables or to the gas plants or to the batteries? I don't care. At the end, this is the integrated model. And this is what we deliver to you quarter after quarter and we'll increase it. So that's the business plan.

Speaker 1

So it's not a matter only of opportunity of renewable, it's a matter of integration. And that's why today, we have a return on capital employed above 10%. The renewable assets alone will not be there. I admit it, but it's not but we are looking to. Okay.

Speaker 1

Well, I look forward to October and in

Speaker 11

the meantime, enjoy the Olympics.

Speaker 1

And you need to listen to me a little bit. Okay.

Operator

The next

Speaker 12

Let's see whether I've listened enough, Patrick.

Speaker 1

Sure.

Speaker 12

Can I Can I come back to the topic of green hydrogen and that deal that you've announced with RWE? Can you comment a little bit about the competitiveness of the industry? You were instrumental in trying to create a clean hydrogen market. And it seems that deal in the Netherlands suggests you feel you're better off creating the value chain yourself rather than buying it at currently available prices. So be interested to see what you feel you can give to us here.

Speaker 12

And if I may go back to the U. S. And ask you a little bit around the idea of M and A and how attractive or not you feel your current acquisition currency is if it's not cash in terms of being able to do deals? Is that one element behind, let's say, improving that you have in New York? If I can sneak in a third question, I would expect net debt to fall as the net working capital position drops into year end?

Speaker 12

How much room do you give yourself to surprise us with what more than 40% of CFFO means in terms of shareholder distributions? Thank you.

Speaker 1

On the last question, I think you have the answer in the speech of Jean Pierre. Jean Pierre told you that we are confident we could come back to a gearing of 7%, 8 percent. So that's in spite of the working capital build during the Q1, which will be released along the year. More than 40%, more than 40%. I confirm more than 40%.

Speaker 1

That's I think you have the figure for this quarter, whether it's 45%, more than 40%, 45% today. So, it's the guidance will not be changed. But the delivery will be real. You will see it. First question, Tom.

Speaker 1

Again, no, I think you are it's more complex than that. When you we have different ways to provide green hydrogen to our refineries, which again because of the RFNB regulation in Europe creates an economic scope to make an added value because you avoid the ETS on one side and you create an additional new product. And this new product, according to the IFNBU regulation in Europe as added value. The question is about you pay for the hydrogen, obviously, green hydrogen. In fact, we are looking to both ways.

Speaker 1

Either we there are different ways by the way. In Normandy, in France, we have made a turning of green electrons. It was a turning agreement with our liquid. We tour Green Electronics. We don't invest in the electrolyzer.

Speaker 1

They run it and we tool it. So we have a tolling fee and we will get the green hydrogen outside for out of the electrolyzer. That's a tolling one. We could have as we explained by the way yesterday, we have again just made a deal with the RWE to share to invest offshore wind and assets and to get 50% of the electrons in order to transform them into electrolyzers. It could be it will be in local electrolyzer either through tolling or we are looking to maybe part of it could be invest by ourselves in order to compare the difference because it's an infant industry.

Speaker 1

So we want to invest and compare the different ways between tolling, investing and that's where these electronics will go. And then you have a third rule, which is to purchase with electronics from abroad. And then it's a question purely of competition, market. And being the 1st mover, we announced a deal with our products. Being the 1st mover, from this perspective, I think you have access to a good price.

Speaker 1

And so when one day today, it's premature because all these discussions are moving on. But when we compare the different routes, and again, it's more or less equivalent, of course, as a question of when you input, it's a question of competitiveness of your supplier. And they will take part more risk probably because we are taking, but that's part of the discussion we have with some suppliers. So that I can tell you at the end all the deals we will sign will allow us to create value not only to avoid the ETFs, but on the top of it to capture part of the added value of these RFNBO products which are the results of the European regulations. And again, this match well with this FFBO framework, which is a sort of regulated economy, which creates a bubble where you can develop some green hydrogen.

Speaker 1

I don't tell you through my demonstration that green hydrogen is cheap. But you can create an economic framework and some value for refineries and at least reducing the emissions and avoiding to pay these EPS. That's where we think about it. No, U. S.

Speaker 1

M and A you are too smart. No, no. We just want to we want to improve the value of the shares for you. So it's obviously not to make M and A here directly, none of us. That's the point.

Speaker 1

Again, as you know, we have a large and rich portfolio of projects. Or actually, we would like to make more M and A with shares. So it's not the main driver. The main driver is fundamentally, as I answered previously, to transfer the ADAs in shares because it could be attractive to some U. S.

Speaker 1

Investors to invest directly in New York in our shares. And it's just giving more liquidity. And if it's more attractive, we could think that it could help not, I think, to fill the famous gap, but part of it. So that's contribution to, I would say, the TSR of the company, which is already one of the best of the year. If not the best, it's a number 1 or 2 or 1, I think, since December 23, December 24.

Speaker 1

So it's improving the TSR of TotalEnergies to be more attractive. That's the objective fundamentally of this move.

Speaker 12

Thanks very much, Patrick. Thank you.

Operator

The next question is from Matt Lofting of JPMorgan. Please go ahead.

Speaker 13

Hi, thanks for taking the questions. 2 please if I could. First, just coming back to longer term growth proposition of the company. I think you highlighted earlier some of the strides that you've made during the first half of the year in advancing projects and strategic execution. If you think about in the context of oil and gas growth 2% 2% to 3% CAGR to 28% or the 4% energy production growth to 2,030.

Speaker 13

How significant is the derisking of those objectives been through the last sort of 6, 9 months? And what sort of key projects apart from Suriname outstanding for the second half of the year? And then secondly, I wanted to just come back on gas and LNG. I think in the press release this morning, you called out sort of strength around sort of China and India from a demand perspective. Just to what degree does Total LNG see that strength as seasonal versus structural?

Speaker 13

Thank you.

Speaker 1

Okay. On the first one, thank you for the question first. No, I think again we set this objective for next 5 years in September 23, 2% to 3%. We knew and we were very clear about the number of projects we had to sanction. And I think we've done a lot.

Speaker 1

I think most of the work has been done during the 1st 6 months. It's important because it's for us it's clear, but it's a way to capture quickly the costs and not to see more inflation coming tomorrow. So it was a key priority. So we have the 2 projects in Brazil, the one in Angola. Suriname will come soon again.

Speaker 1

So I would say and you had also part I could add that on Iraq, we are also progressing. But the other one on which we progress quickly to go to the first phase of Iraq. So that's for Yore. On the LNG, we postponed PNG Papua LNG because it was too expensive, so it must be volume driven. But we had the opportunity to sanction Maersk LNG to rebound, but we just joined the realized LNG projects for 10%.

Speaker 1

So all that being less, so we have multiple options in the portfolio. And so I'm very confident to deliver this cash flow. But I'm even more confident in July 24th and September 23 because most of the work of sanction has been done. And so it's progressing. And again, I think in September in October, October 2nd let's say September, it's October 2nd in New York, Of course, it will be part of the presentation to update you on the progress to this objective of 2% to 3% and even again to speak to you about after 2,030 because we have a portfolio which is rich.

Speaker 1

And so, we can we are confident about the growth we can deliver by this timeline. So that's the point. So Suriname is a big one. Honestly, I think we are is the main one to come in 2024, I think in mind. And Iraq Phase 1 going to 110,000 barrels per day, which is progressing very quickly as well.

Speaker 1

And by the way, very well. So the teams are doing an excellent job there in Iraq. On the LNG India China strength, it is no, I think you see something more fundamental in India. The investment you see an industry demand in India in fact coming. The Indian government has really, I would say, invested in some gas infrastructure around the country.

Speaker 1

And you have more and more industries, not only refineries, but others who are going to come to LNG and to gas. And I think it's a trend, even surprisingly at higher price than before 2021. In 2021, I think I answered questions tell you that in India, it's difficult to sell beyond $6,000,000 $7 per 1,000,000 BTU. In fact, we continue to develop the business at $8,000,000 $9,000,000 10 dollars per 1,000,000 BTU. So I think there is a fundamental structural demand coming from India And we are convinced that the Indian market will take the delay, I would say, from the traditional Korea, Japan and even China.

Speaker 1

On China, probably it's more seasonal today. I think because there are already a lot of infrastructure. China is moving very quickly on these renewables, continue to increase its coal production. And again, the gas is more driven by transportation like it was mentioned by Lucas or by industries. So the gas demand, LNG demand in China is not really driven by power today, because the power is mainly coal and renewable.

Speaker 1

So that's but there are some decisions. So Chinese recently have again spoke again about their equivalent of ETS CO2 market. But today it's quite small and limited, but they want to expand it to all the industries. So this type of drivers could really have an impact. So we see more of the Chinese market going, thanks to LNG Industry and Transportation more than power, in fact, on the LNG.

Speaker 1

So honestly, I think today we have 400,000,000 ton market. We become 600,000,000 ton market. But this 200 this 50% of demand increase will be absorbed quickly in 4, 5 years. I think part of it today would already be absorbed in Southeast Asia if we are not constrained by supply, in fact. Today, we are because I remind you that we took 50,000,000 tons from Asia to Europe.

Speaker 1

And since 2022, we did not increase the LNG production. It's quite stable. So this will be easy to go. So this growth will come and you have also many more countries open to LNG, this year Vietnam as a terminal Philippines, we have a terminal. So you are in fact, in Southeast Asia, most of the countries will have be able to receive LNG.

Speaker 1

So then and if you can think that you will have a good supply, so price will soften. It would even incentivize the demand and accelerate the demand by the end of this decade. So I think and it's not just seasonal, it probably is for sure.

Speaker 11

Super. Thanks very much.

Operator

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

Speaker 14

Yes, everyone. Thank you for the update. Two questions, please. David, the first one, just coming back on cost. I was wondering if you can comment on the inflationary pressure that you're seeing.

Speaker 14

You mentioned PNG LNG where

Speaker 1

you saw on a cost and then for the project, is that

Speaker 14

quite specific? Or are you seeing more fully have some inflationary pressure? And then secondly, just a quick question on the CapEx guidance for the year and whether we should expect the cash outflows related to acquisitions to be offset by cash inflows from disposals this year? Thank you.

Speaker 1

The first question, I know there is nothing to write. There is an inflation in our industry compared to the low point where we were in 2020. Today, I'd say we are 20% higher in most of the costs. But at 20%, we can manage it and

Speaker 12

that's why we can sanction our

Speaker 1

projects like the ones we have down, even if we can also take some innovative measures like making engineering in order to manage this cost for the future. Remote areas, not really project in that part. So, as we said before, we consulted traditional Western, I would say, suppliers. They are not very interested. They are some limited resource.

Speaker 1

They think they could deliver more margins for them to make a project in the U. S. Than in Papua. So what we are doing is looking to we have decided to go to a larger, let's say, supply over suppliers, in particular Asian ones, Indian, Chinese. So we could I think we should be able to come back to something more CapEx, which would be reasonable in this environment.

Speaker 1

But again, by the way, another point is that it wasn't inflation, but today it's more stabilizing, in fact, because by example, in the rig market, in the drilling market, you begin the drilling contractors because we are facing also some supply chain equipment problems. So it does not impart there is still some rigs which are not used in fact. So it's so in fact, we don't have they don't have the full value chain, the full supply chain ready to execute towards what they would like to do. So yes, there is inflation, but we manage it. And we'll come back on that topic as well in the beginning of October.

Speaker 1

The second one, yes, we always gave a guidance of $17,000,000,000 $18,000,000,000 of net CapEx and this will be again as Jean Pierre told you, we reiterate this guidance. And I would say last year for the 5 years business plan, we gave you $16,000,000,000 $18,000,000,000 if I remember mine well. And I would be surprised that we will not confirm $16,000,000,000 $18,000,000,000 on October 2nd.

Speaker 14

Okay. And CapEx module should be also within that range? Okay. Thank you.

Operator

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

Speaker 15

Hi, good morning. Two questions, please. I think this the first one is for Jean Pierre. In your press release, you said that the integrated power result was impacted by some seasonality like in Europe, the Chesapeake seasonal demand. Can you help us to understand that how big is that impact and maybe in general that what kind of other visible seasonal pattern we should expect in the integrated power business for you?

Speaker 15

2nd question, I think this is for Patrick. Any update for Venus? Thank you.

Speaker 2

Main driver behind my comment is in relation with the CCGT that are less used in summer for obvious reasons compared to winter. That's

Speaker 15

Can you quantify how big is that impact? And also other than that, is there any other seasonal pattern in the other quarters that we should be aware?

Speaker 1

No, no. We are young in the integrated power, so we don't have enough long history of results to answer precisely to your question. So we just we have to explain why 500 is a little lower than the previous quarter. And when we look to the figures, one of the main explanation was just that the gas power plant level of use in Europe was very lower, less than 10% compared to something around 40%. So that's one explanation.

Speaker 1

And the first explanation is this one, okay? Namibia, I mean, on business, just to tell you, I know we have, again, finished the appraisal of VINES. So now we have some reserves. We are now working on the development scheme. As you know, we have been quite clear with you, it's positive.

Speaker 1

We have a lot of oil, but based also from gas. So the question will be, can we find a way to develop this oil pool, managing the gas and I would say reinjection in an economic way because of course all that demand needs to fit our criteria of breakeven less than $30 per barrel or cost less than $20 Our engineers are working on it. It's a little more complex to develop business than Carribadu in Suriname, to be clear, because there is a the gas quantity to manage is larger. But I think we have a key it's a clear objective to the teams to deliver some value. And so we'll update you today.

Speaker 1

The agenda is again by end of 2020 we are in mid-twenty 24, by end of 2025 to have a clarity probably before to say what where we are with this development. So we are working on it.

Speaker 15

Patrick, we know that's a lot of gas as you mentioned. But other than that, is the geological structure just complex or that is more than strict forward, let's say, comparing to a certain name or Diana?

Speaker 1

Now on Venus, I would say, I know the comments of one of my peers who say there is a lot of heterogeneity difficult to find the whole pool. We have the whole pool. Of course, we have a core of the pool, which is a better quality like always in all the fields that I know since I'm in the industry. And then you have the fracs of the pool which are degraded quality which is always like that. But I think we have the pool.

Speaker 1

The question is more again the capacity management of the so we have a pool of oil, which is big enough to make a development. The question is to manage with acceptable costs all the gas, which will come to the oil and to be able to reinject it in good conditions. Knowing that we are I remind you about 5,000 3,000 meter weather depth. So it's not it's part of the challenge. And the deeper it is, the more expenses will be.

Speaker 1

So that's the only thing. So that's more now today for me, it's a question of commercial, finding a way to make it profitable as per our criteria. And I think I'm always optimistic, but I'm optimistic. So we have the right oil pool.

Speaker 15

Very good. Thank you.

Operator

The next question is from ODDE of Kepler Cheuvreux. Please go ahead.

Speaker 10

2, if I may. First on Suriname, can you confirm and I suggest suppose your earlier comment points to an FIT for 2024. But can you do you believe you can achieve still the $9,000,000,000 budget you've earlier penciled last year? And the second question is on LNG. You've signed 2,000,000 ton long term contract to Asian customers, but you have stake a lot of offtake commitment in the last, let's say, 15 months, including Rio Grande for 5,000,000,000 ton QSE, QFS.

Speaker 10

And now Ruwais, do you have a target in terms of volumes you would like to secure on a long term basis for Asian customers?

Speaker 1

Pretty. On the Suriname part, we are in the process to make the FID. So I don't have today The figure what I can tell you is at the end is this development will be sanctioned because the cost CapEx for the OpEx will be lower than $20 per barrel. That's a strict criteria. We are committed to it.

Speaker 1

So we'll meet that target. This is and if I say you that, it's because I'm optimistic that we will reach it. So that's a point. Secondly, on the LNG, okay. I described what we want to do fundamentally.

Speaker 1

We have some annual exposure. Part of it, we can sell it as anaerob. In particular, we have a good exposure. We have a good customer in South America on a very high anaerob basis. So this part anaerob to anaerob is fine for me.

Speaker 1

And then the rest of the anaerial, the objective is to be able to secure as much as we can on the brand basis and on medium long term, medium long term basis we want to transform and we have been brand. So if we reach 100% perfect, if we reach 80%, 80% is the minimum we want to reach of this conversion just to be clear. Because as we analyze the market to soften by the end of the decade, we want to protect the company. It's not necessarily 15, 20 years. As you know, it's a question we could have also 5, 7 years contract, which will help us to swallow a software market and then to rebound.

Speaker 1

So that's more about the idea fundamentally. And it's true that what is behind is that my view and our view is that the old market because of OpEx position is probably more stable than the gas market from this perspective on medium and long term. So we are more bullish on the oil and on the Brent and I would say on some volatility we could have in this LNG market.

Speaker 10

Very clear. Thank you.

Speaker 1

We like the oil.

Operator

The next question is from Jean Luc Cromart of CIC Market Solutions. Please go ahead.

Speaker 10

You have built an interesting value chain in Integrated Power in Texas. And in the last quarter, there have been very big volatility amongst very warm days. I was wondering how you can capture those? And the second question was you explained us your utilization rate for the European natural gas power plants was very low. Or was it in the U.

Speaker 10

S?

Speaker 1

No. I think on the contrary, we know that the gas fired plant that we have acquired most of their use is they need the climatization. The heating, it's heatwave. And the heatwave today in the U. S.

Speaker 1

Has been very strong in the last month. And so I think the results of the Q1 will be even better. So I can tell you these gas plants are used at a very high rate today. So it was an excellent acquisitions. And by the way, they are used as they are driving the price at a point where the price of electricity is quite good.

Speaker 1

So that's really I think the demonstration. And of course, we have some solar plants, we have some batteries and also we can benefit with the batteries in the integration. So you will see the positive impact of this, I would say, flexible assets, I think even more in the Q3. Because the Q2, I think we closed the deal. We don't have a full quarter yet.

Speaker 1

And by the way, the heat wave did not come in April, but a little later in June, July, etcetera. So that's clear. But it was clear in the model that when we study this acquisition, but the summertime was the best part of the year. By the way, it's compared to the wintertime in Europe, there is a sort of counter seasonal effect between the Texas and Europe from this gas fire plant point

Speaker 14

of view.

Speaker 10

Thank you very much.

Operator

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

Speaker 16

Hey, thanks for squeezing me in. I wanted to ask 2 questions. The first one is on the gearing level. It was stable quarter over quarter and I know you discussed an expectation it's going to decline. But I'm wondering if it stays at this level for longer or is there a level that it increases to that impacts the decisions around the distributions that you're paying out, specifically the buyback pace?

Speaker 16

And then my other question is just on the quarter we saw, E and P OpEx move a few $100,000,000 higher quarter over quarter, despite production being relatively flat. I was wondering what drove that if that's structural or if that's a reverse next quarter? Thanks.

Speaker 1

The OpEx of E and P, we are lower than $5 per barrel. And I think I will come back to you, I think. On the gearing, no, honestly, 10%, 8%, it has no impact on the decision on the buyback, to be clear. So 10% gearing or 8% gearing. It's not making a difference.

Speaker 1

The 8% is more like again we had a working capital build which was quite big. We know there are some fiscal and other matters behind it. So we know that along the year it will come back. So that's why Jean Pierre told you 8%. Last year it was 6%, but the 5%, 6% was really exceptional from a very big working capital release, which is very exceptional.

Speaker 1

The balance sheet is strong enough to maintain that policy. There will be more than 40% more than 40% it is what is driving us, More than 40%. No, there is no gearing in there.

Speaker 7

Is there a gearing level? Yes.

Speaker 15

No. Okay. All right.

Speaker 1

More than 40% payout. That's the objective.

Speaker 12

Okay. Thanks.

Speaker 1

Yeah. No, just I have the answer to your OpEx question more precisely. My teams wrote me on the paper, but in fact it's linked to some seasonal. We have some turnaround I think in U. K.

Speaker 1

And Denmark. We have some more work programs of seasonal effects in the North Sea generally in the Q2. That's the reason why. But no, honestly, there is no monthly inflation. We'll be able to deliver at least $5 per barrel on OpEx.

Speaker 1

Between today and at any time, we'll maintain these OpEx $5 per barrel until the end of the decade. It's deeply rooted in the portfolio and in the projects in which we invest.

Speaker 10

Great. Thanks.

Operator

This was the last question. Back to you for any closing remarks you may have.

Speaker 1

Well, thank you again. I think again this quarter I think we have delivered our road map for the year. As we insisted, we have made a lot of progress on our I would say, on our strategy and the execution of our growth from 2023 to 2028 and we'll be able to demonstrate to you how the portfolio is growing, but also is resilient with the volatility. It's a fundamental strategy, it's resilient with the volatility of LNG, also inflation of cost, and happy to meet you in New York.

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