TotalEnergies SE Ordinary Shares

Hello, everybody. Good afternoon or good morning. I hope that all of you are well and staying safe. At the time, we are almost all of us back to Paris office, 75%, 80% of the staff, taking, of course, all the appropriate precautions, consistent with our safety culture. But it's good to be here again together. We are more innovative when we are collectively at the office. but in front of screens. And in the fields, all the business units are fully operational today. And that's, of course, our big priority, our main priority, keeping people safe, but at the same time maintaining all our business operational. I'm happy to welcome you this afternoon together with Jean-Pierre for his earning call. I'm joining you today because we felt important that in the These unprecedented times, the chairman and CEO of the company can directly give you the big picture of where the company stands, and Jean-Pierre will explain to you in detail all the Q2 results of resilience that have been, and before we go to the Q&A. So, during these quarters, I will not be very original. We faced some very exceptional circumstances, the worst since 2014. The COVID-related lockdown led to unprecedented global demand destruction, and this was made worse by the drop in oil and gas prices. The Brent fell by 60%, dipping below $20 per barrel in April and averaging less than $30 per barrel for the quarter, with high negative differentials between the Brent marker and the real crude prices, around $5 to $6 per barrel because of low demand. And the natural gas prices in Europe and Asia dropped by 60% to historic lows. Of course, the production restraint, mainly by OPEC plus countries, helped lead the way to a market recovery, but has seen rent come back to an average of more than $40 per barrel since the beginning of June. And I would say we are optimistic about the willingness of all these producing countries to take actions and maintain the quote price above $40, which is, in fact, a low floor for most of them, if not all. Of course, given our exposure to some of these countries, the impact of quotas in total was close to 100,000 barrels per day in the quarter, and so we have revised slightly our full-year production outlook to be in the 2.9 to 2.95 million barrels per day range because the discipline of OPEC Plus countries is stronger than ever. But again, that's good news for the market and for the crude price, and it is a matter of value over volume. In the downstream, refining margin collapsed at a very low, even negative, level during several weeks, and we had to limit the refining utilization rate under 60%. And marketing volumes fell by 30% in the quarter as an average. However, in Europe, we can give you some good news from Europe. Also since June, We have seen a rebound here in Europe, and activity in our marketing networks is back to, I would say, 90% of the pre-COVID levels. And our gas, electricity, business, and marketing are close to the pre-crisis levels. In face of all these extraordinary weak and volatile second quarter environment, I would say that the company has been quite resilient. During this quarter, we generated $3.6 billion of cash flows, and we reported positive adjusted debt income. And we preserved our balance sheet strength with a gearing of around 23.6% after this first half of the year. So what are the lessons that we can draw from this quarter for the group perspective? The first lesson is, there again, the value of the integrated business model. These resilient results are due in particular to the overperformance of trading activities around $500 million above the usual levels. So once again, we demonstrated the value of the integrated model. Upstream was impacted by price and lower production, refining by low demand, low margins, marketing by the low demand, but in the middle of the all-value chain, the trading business captured significant value from the high market volatility. That's the first lesson, and we must keep that in mind for thinking the future. The second lesson is is, of course, that we have the opportunity to demonstrate the reality of the low break-even portfolio and quality of the portfolio of total. The cash generation of $3.6 billion is implying an organic break-even close to $20 per barrel, so under the $25 per barrel. These results highlight the underlying strength of the portfolio. This is a benefit of following our strategy to focus on assets with low production costs And by the way, this quarter, we are at $5 per barrel. We reached the $5 per barrel with all the savings. And notably, the giant long plateau assets in the Middle East, which some could perceive as not giving some, I would say, increased returns when prices are high, but we are very resilient, and the contrary, when prices are lower. We also rely on an active portfolio management to continuously high-grade the portfolio and And the latest example being the announcement this morning of the divestment of our non-operated mature assets in Gabon, and beginning of the week, the sale and the divestment of the Lindsay Refinery in the UK. The third lesson is the effectiveness of our 2020 performance plan to control the spam. The fast and effective implementation of the action plan at the start of the crisis is is really the driving force behind the company-wide effort to maximize cash flow. Cap net investments will be maintained under $14 billion, and OPEC's savings of $1 billion are well underway. And efforts also to control working capital have given this quarter positive results. So the outcome is that the debt increase on this quarter has been limited to only $1.2 billion, with the payment of a stable quarterly dividend of 1.9 billion. The Board of Directors is comforted by this resilience and cash generation. And as I announced to you on May 5th, the Board maintains a second interim dividend of 66 cents of euro per share, the same level as the first interim dividend, and we will review the situation at the end of the third quarter. But equally important, the Board reaffirms the sustainability of this level of the dividend in a $40 per barrel brand environment, and as you know, we are above $40 per barrel since the beginning of June. The fourth lesson that I draw is that in such volatile environments, developing a portfolio of renewable long-term PPAs will not only contribute to to our strategy to become a broad energy company, but it also contributes to more stable results to our global business model. We may be recovering from this crisis, it's too soon to know, but in our business, we must always prepare for volatility, even exceptional volatility. And despite the short-term challenges, we are holding to our long-term strategy to invest in profitable growth, and this is why The group is implementing with confident resolve our new climate ambition to build a more diversified energy company with stronger positions in the low-carbon electricity sector. As you notice, during this quarter, we have been very active as well. We entered into the giant Seagreen Offshore Wind Project in the UK. I would just say in Scotland. And we acquired an integrated gas and electricity portfolio with 2.5 million customers in Spain, which includes gas-fired power generation. Globally, we will invest close to $2 billion this year, or about 15%, 1.5 of our capex, in low-carbon electricity to build the future. And our low-carbon electricity growth capacity has increased this quarter from 3 gigawatts to about 5 gigawatts, Thanks to our new Indian solar GV, we produced 2,900 gigawatts per hour during the quarter, and we sold more than 25 terawatts. The ambition being to be balanced between our own production and ourselves, and we will come back on this roadmap at our strategic presentation on September 30th. I would also underline that we are also preparing the future for our oil and gas businesses, The successes in exploration, and as you probably know, Woodmark has selected Total as the exploring company of the year. So I pay tribute to our explorers today. We have announced the nearby exploration success in Egypt, operated by ENI, with a potentially fast track to market gas discovery. And more importantly, maybe, we have also our explorations, exploring large deporter resources in Suriname with three discoveries, I would say with three significant discoveries in a row, and more to come. And we are also preparing to share our knowledge by some counter-psychological deals, like, of course, the one in Uganda, whereby acquiring the Tudor interest and putting us in charge of this process. We have relaunched all the calls for tender in Uganda for the next quarter to benefit from the depressing supply market, and we have the ambition to sanction the project as soon as possible. We have also this quarter finalized the acquisition of the Block 2021 in Angola, which is a development which will benefit from synergies with our large base of operations in Angola. As we announced yesterday, the dramatic change in the environment prompted the board to make a comprehensive review of the assets using a different price scenario for the next few years. We have been, I would say, quite stringent or pessimistic view or bearish view for $35 per barrel in 2020, $40 per barrel in 2021, then $50 in 2022, and $60 in 2023. We adjusted the gas prices accordingly. For the longer term, we maintain our analysis that the weakness of investments in the hydrocarbon sector since 2015, accentuated by the health and economic crisis of 2020, will result by 2025 in insufficient worldwide production capacity and potentially rebounding prices. Beyond 2030, given technological developments, and in particular the evolution of the transportation sector, we anticipate that oil demand might reach its peak and brand prices should tend towards a long-term price of $50 per barrel in line with the international energy agency below 2-degree scenario. As a result of this new price scenario, we recognize improvements of $2.6 billion, mainly linked to the Canadian oil sands for $1.5 billion and the Australian energy assets of $0.8 billion. These were, in fact, giant projects with very high production costs. You will notice that these 2.6 improvements due to the different new price scenarios are quite limited, less than 2% of the balance sheet, which demonstrates that, again, we have, I would say, a safe balance sheet. I would say that the board of directors has also decided, and maybe more important, which demonstrates our consistency and our willingness to implement So climate ambition that we announced on May 5th for our joint statement with the Climate 100 Plus Investors Initiative. In fact, we have decided to look to, and the board has made a review of the assets, to check which could be the stranded assets within our portfolio, keeping in mind our climate ambitions that I would look to 2050. Stranded assets, we gave them a definition where assets where we have more than 20 years of reserve life with high production costs, I would say, above $20 per barrel, 25. The only assets which have been qualified as stranded after this review were Forteels and Cermont in Canada, the two oil sands projects which remain in our portfolio. And this review resulted in a $5.5 billion additional impairment bringing the total impairment for the group of $8.1 billion. So I've given you, I think, the main elements of my introduction. I will turn over to Jean-Pierre. I would just like, finally, for his introductory comments, to commend all of the teams of Total for performing at such a high level during such a challenging period. And what I can tell you is why we are certainly more comfortable with a brand above $40 per barrel than we were when it was below $30. We'll continue with the same discipline, and I know that the teams will continue with the same discipline to execute and deliver on our four priorities, HSE, operational excellence, cost reduction, and cash flow generation. Now, Jean-Pierre, the floor is yours.

Thank you, Patrick. For the second quarter, Total resisted an exceptionally weak environment and reported positive adjusted net income. And I think more importantly, the cash generation was good, even better than expected. Indeed, we generated $3.6 billion of debt-adjusted cash flow, a decrease of 50% compared to the same quarter last year. Despite, as mentioned by Patrick, the 60% drop in Brent, as well as in European and Asian natural gas prices. Net debt increase was limited to $1.2 billion. This reflects the successful implementation of the action plan that Patrick mentioned that helped to drive the organic cash flow break-even to less than $25 per barrel in the second quarter. Let's look at the result by segment now. Operationally, the group upstream production in the second quarter was 2.85 million barrel oil equivalent per day. That means a decrease of 4% compared to the second quarter last year. New startups and ramp-ups, mainly Kulins in the UK, Johan Verhoef in Norway, Yara in Brazil, and Temparosa in Italy, were more than upset by reductions linked to OPEC Plus production discipline, notably in the Emirates, in Nigeria, in Angola, or in Kazakhstan, as well as the curtailment in Canada, disruption in Libya, and natural declines. As highlighted by Patrick, we fully support the production discipline, particularly by OPEC Plus, recognizing the positive effects it has on the oil price. Given this OPEC-less quota, as well as the situation in Libya, we now anticipate production in the summer season during the third quarter will be the low point. So we now expect to average between 2.9 and 2.95 million barrels of oil equivalent per day for the full year 2020. For the IJRP segment, Integrated Gas Renewable and Power segment, We reported an average LNG price of $4.4 per million BTU in the second quarter, a decrease of 30% compared to the previous quarter, and 23% compared to a year ago, mainly due to three factors. The long-term LNG contract price declined by 16% compared to the first quarter, reflecting the lower oil price, and given the time lag effect, we anticipate the low Also, in recent months, some of our long-term contract buyers exercised their contractual flexibility to reduce their outtakes. So the share of spot volumes in the sales mix was 35% in the second quarter, compared to 17.17% in the first quarter and 33.33% in the second quarter last year. I remind you that last year, the early Yamal LNG cargoes were sold on spots. And you know, spot prices were particularly low during this quarter, deflecting the weak environment. So impacted by the lower LNG prices, IJRP reported second quarter adjusted net operating income of something like $30-26 million, and cash flow from operation before working cap, the CFFO, close to $560 million. This demonstrates that our global integrated portfolio, including regard, including trading, was able to mitigate the weak second quarter environment. Going forward, the low oil prices observed during the first half will have an impact on LNG contract price in the second half of the year. At the same time, we also anticipate that third quarter contract LNG liftings will be harder hit, but deferral, than they were in the second quarter, by an estimate between 20 to 25 cargoes in the third quarter, compared to nine in the second quarter. So this will be likely a low point as well. However, during the fourth quarter, a number of deferred cargo will be lifted, and combined with normal seasonality and a possible improvement in brands, we can expect some recovery later in the year. Despite the volatility, we confirm our strategy for profitable growth in this segment for both LNG and low-carbon electricity, which is consistent with the energy transition and our climate ambitions. Mozambique LNG and Arctic LNG2 are underway, and Nigeria LNG27 has been affected. So our position as the second largest player in the LNG business is solid for the long run. Also, as part of our partnership in LNG with Sonatrac, we have agreed to renew and extend the agreement for LNG supply from Algeria. As Patrick said, expanding our integrated low-carbon electricity activity is key to our long-term strategy to more broadly diversify the group's energy offering and to achieve net zero ambition by 2050 together with societies. In the UK, in a move that changed the scale of our offshore wind activity, we acquired a 51% stake in the giant Sea Green One project. In Spain, we have become a key player in the integrated gas and low-carbon electricity market by acquiring 2 gigawatts of solar power generation capacity in the first quarter, and in the second quarter, by acquiring a portfolio of 2.5 billion B2C gas and power customers along with two CCGT representing nearly 850 megawatt capacity. Growth installed renewable power generation capacity rose to 5.1 gigawatts, essentially doubling in the second quarter compared to the previous quarter, thanks mainly to the acquisition mentioned by Pratik in India of 50% of the portfolio of more than 2 gigawatts from the ADNI group. And we have increased the number of gas and electricity customers in Europe as well during the quarter to nearly 6 million, up 7% compared to a year ago. These important steps allow us to confirm our goal of 25 gigawatts of gross capacity for low-carbon electricity by 2025. As part of our net zero ambition, we took the additional step of making the decision to join the Northern Light CCS project in Norway. Now moving to E&P. So this segment reported an adjusted net operating loss in the second quarter of $209 million, reflecting the drop in commodity prices and the impact of the lower volumes that were mentioned before. In line with the weaker environment, FFO, cash flow from operation, from E&P fell to $1.8 billion, but, of course, still the single largest cash flow contribution among all the segments, and more than enough to cover, by the way, its net investment of $1.4 billion in the second quarter. We are committed to profitably developing and upgrading the E&P portfolios, We'll give you some illustration. In the second quarter, we started up the second SPSO on Yara, the low break-even deep offshore field in Presol, Brazil. In terms of M&A, we have continued to move counter-cyclically and acquired true interest in the LAC Albert project in Uganda. We have completed the Angola Block 2021 acquisition announced last year. We closed the sale of Brunei Block CA1, and we announced recently today that we were successful in divesting our non-operated material assets in Gabon. Although we have implemented strict discipline in capital spending this year, we continue to explore with some success, notably in offshore Egypt or in Suriname. We made a third discovery, Kaskwasi, after Maka well in January and the discovery, Sapakara, in April. Turning now to downstream, adjusted net operating income was $704 million, down 38% compared to a year ago, and second quarter CFFO, cash flow from operation, was remarkably strong at $1.5 billion. The decrease was primarily due to weaker refining, driven by the 48% drop in the variable cost margin and the low 60% utilization rates. which resulted mainly from prolonged outstage at the Faison, the Normandie, the Grands Fleurs refineries in response to weak product demands. Marketing was weaker as well, with refined product sales volumes down by 30% due to the demand destruction during the lockdown. On the other side, our trading activities did very well in the volatile second quarter environment and overperformed by about $500 million, and at the same time, petrochemicals were resilient due to a higher utilization rate, as well as resilient margins this year. Downstream safe FO in the first half was $2.6 billion. High inventories levels continue to wait on refining margins and utilization rates. The recovery will largely depend on the speed and extent of the post-COVID global economic rebound. So our guidance of a range between $5 to $6 billion for the year can be reached. Finally, at the group level, our adjusted net income was $126 million in the second quarter, and reported net income was negative given the $8.1 billion impairments recorded this quarter. The effective tax rate for the group was negative 7% in the second quarter compared to 30% in the previous quarter, essentially due to the adjusted net operating loss in E&P with a high tax rate, which was not offset by the positive result in the downstream, which has a lower tax rate. Second quarter nest investments were $2.9 billion, including organic capex of $2.2 billion. For the first half, net investments were $6.5 billion, and our guidance for the full year in net investments of less than $13 billion. We confirm capital discipline is part of the action plan. We implemented the action plan at the start of the crisis, and since then, there is a strong company-wide effort to preserve cash flow this year. Notably, by saving $1 billion in operating expenses compared to last year, and I can tell you that in the second quarter, we reduced OPEC per barrel to $5 per barrel from $5.2 per barrel in the first quarter, as well as strictly controlling at all levels spending to keep a break-even low and maximize the cash flow. As part of the action plan, we also concentrate on turning working capital into a source of funds. And in the second quarter, we had a release of $0.4 billion of additional cash flow through working capital. For the final 2019 dividend payment, we offered, as you know, a script option that was subscribed at 62%. and this will reduce our third quarter cash outlay by about $1.2 billion. But as you know, the three dividends will not be possible for the next three interim 22 dividends. We were very active on increasing liquidity during the quarter, and as announced in May, we have improved our position by more than $30 billion, largely by securing $9 billion in long maturity bonds and more than $6 billion through syndicated loan agreements. We are net cash flow positive year to year, so we have preserved our balance sheet strength. And gearing was below 24% at the end of the second quarter, taking into account a 1.3% impact associated with the impairment we have recorded. To conclude, I would like to emphasize that our priority going forward is to deliver our action plan, generating a level of cash flow that allows us to continue investing in profitable projects. while preserving, at the same time, an attractive return to shareholders and a strong balance sheet. I think now we can move to the Q&A.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star and 1 on your telephone. And if you'd like to cancel the request, then it's the hash key. So once again, that's star and 1 to ask a question and the hash key to cancel. Your first question today is from the line of Irina Himona from Societe Generale. Please go ahead.