TotalEnergies SE Ordinary Shares

Ladies and gentlemen, thank you for standing by and welcome to the total third quarter 2020 results conference call hosted by Jean-Pierre Spreire. At this time, all participants are in a listen-only mode. After the speaker's presentations, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. I must advise you that this conference is being recorded today and I would now like to hand the conference over to Jean-Pierre Spreire Chief Financial Officer of Total. Please go ahead, sir.

Thank you. Good morning or good afternoon. Let me start by saying that I hope that you are all doing well and keeping safe, even more as we have entered the second wave of the COVID-19 pandemic in Europe and are not yet over with the first wave in the United States. So let's move to the results. Total reported third quarter results, that reflects the resilience of the portfolio and demonstrates, again, the group's ability to capture the benefits of improving oil prices and market conditions. Adjusted net income rose to $848 million, or $0.29 per share. Debt-adjusted cash flow, DACF, increased to 4.3%. Leveraging strict capital discipline, we strengthened the balance sheet and reduced gearing to 22%. And, based on the strong fundamentals of the company, we confirmed the group's support for the dividend with the announcement of our third interim distribution maintained at €0.66 per share. We saw mixed signs of recoveries in the third quarter, and we note in particular that volatility, particularly in oil prices, was lower than in the second quarter. Brent rebounded from less than $30 per barrel in the second quarter to more than $40 per barrel in the third quarter, thanks mainly to OPEC Plus production discipline. Sales in our European marketing network came back to nearly pre-crisis levels. However, refining margins collapsed to negative levels during the quarter. Gas prices remained low, but we saw them rebounding to higher levels in September in Europe and Asia, and as it is transitional, the case for the winter season. The group is continuing to execute and deliver on the strategy and objectives presented since the start of the COVID crisis. We have kept the organic breakeven below $25 per barrel, reduced OPEX to $5 per barrel equivalent, and we are on track to cut costs this year by more than $1 billion objectives. In this environment, capital discipline is key, and we are limiting CAPEX to less than $13 billion this year, $1 billion lower than previous guidance, while still continuing to invest $2 billion for our fast-growing renewable power generation business. Operationally, oil and gas production decreased to 2.7 million barrels per oil equivalent per day in the third quarter. Mainly, this reflects strong compliance with OPEC Plus quotas, as well as the voluntary reduction in Canada and disruptions in Libya. To a lesser degree, there is also the net effect of seasonal maintenance, natural declines, and asset sales, which were partially offset by ramp-ups on new projects. Based on the level of OPEC Plus compliance and the return of Libyan production only since October, we now anticipate full year 2020 production will average less than 2.9 million barrels per oil equivalent per day. Turning to the results by segment, IJRP, Integrated Gas Renewable Land Power segment, reported $285 million of adjusted net operating income and close to $700 million of cash flow in the third quarter. This segment includes our integrated LNG business, as you know, where we are the second largest player worldwide and well-positioned to participate in the global energy transition. LNG sales volumes were 8.1 million tons in the third quarter, a 9% increase year-on-year, mainly due to growth in our trading activities. LNG prices averaged $3.6 per million BTU, reflecting mainly the three to six-month lag effect on oil-linked contracts. But this effect is beginning to reverse, and we anticipate a rebound in LNG prices to more than $4 per million BTU in the fourth quarter. We'll continue to grow our LNG business from 28 million tons of sales to through the first nine months of this year, to 50 million tons per year by 2025 from projects already in our portfolio or under construction. Our integrated electricity business is a fast-growing part of the IGRP segment. Gross installed renewable power generation was 5.1 gigawatts, nearly double compared to a year ago. And worldwide electricity production increased by more than 40% in the third quarter, and we are continuing to expand the number of gas and power customers in our European network. We are accelerating the growth of our renewable power generation, notably with the acquisition of a free energy 3 gigawatt portfolio of solar projects in Spain, plus agreements to develop more than 2 gigawatts of floating offshore wind in South Korea and France. We also announced that we have signed a 6 terawatt-hour power purchase agreement, the largest corporate PPA to date, to cover all of our electricity needs for the group's industrial sites in Europe by 2025. using solar assets in Spain that we will develop. Consistent with the acceleration of the growth in renewables, we have added disclosures for our renewable business. We now report gross renewable capacities in operation and in development that benefit from long-term power purchase agreements. This should help the market assign value to the business as it becomes more material. As you know, we have the objective to grow renewable power generation to 35 gigawatts of gross installed capacity by 2025. We already have about 24 gigawatts in our portfolio, 5 gigawatts installed, 4 gigawatts in construction, and 15 gigawatts under development. Install capacity of 5.1 gigawatts at end of September is fully covered by PPAs. And out of the capacity in construction or under development, we'd say 20 gigawatts, 9 gigawatts are already covered by long-term PPAs. We are capital disciplined in our project selection and confident that we can generate long-term double-digit profitability while growing stable cash flows in this business. At our investors' day last month, we concentrated on the transition of Total into a broad energy company, so I will not go into more details here. Let's turn to E&P. Our conventional oil and gas segment generated adjusted net operating income of $800 million and, more importantly, I think, carried the group with cash flow generation of more than $2.6 billion in the third quarter. Average realized liquid price recovered to $40 per barrel A 70% increase quarter-to-quarter, more than offsetting lower volumes and weaker natural gas realizations. We continue to put pressure on costs with OPEX at $5 per oil equivalent. Cash flow increased by more than 800 million tons quarter-to-quarter, thanks to our resilient E&P portfolio and our sensitivity to oil prices. The downstream faced a more challenging environment in the third quarter, with refining margins in Europe negative on average for the quarter, and a less exceptionally favorable environment for trading activity than in the second quarter. We call, we mentioned that trading generated an exceptional surplus of around 5% And with $1 million of cash in Q2, due to huge volatility, the third quarter was in fact very stable, with Brent remaining in the range between $40 and $45 per barrel. Faced with operating losses, we reduced our refinery utilization rate to 57% in the third quarter from 59% in the second quarter. Petrochemicals resisted well, despite weaker margins quarter-to-quarter in Europe and in Asia, as well as utilization rates that declined to 75% in the third quarter from 84% in the second quarter. Marketing rebounded from the second quarter low, generating more than $400 million of adjusted net income returns, Net operating income well above the pre-COVID third quarter of last year as lockdowns were lifted in Europe and in Asia. Downstream as a whole generated $373 million of adjusted net operating income and close to $1 billion of cash flow. With a low level of investment required, the downstream has provided $2.4 billion of free cash flow to the group over the first nine months of the year. The trailing 12-month ROEF share for the downstream is 14%. Consistent with our outlook for oil product demand in Europe and the strong growth in the renewable diesel market, we announced in July the sale of the Lindsay Refinery in the UK, and in September, the conversion of the Grand Prix Refinery to a zero-oil platform, producing renewable diesel and bioplastics. This further streamlines our refining footprint and builds on the successful conversion of Flamette into a biorefinery. These are steps toward achieving our net-zero climate ambitions that have been the added benefits of improving the long-term profitability and resilience of our downstream. And finally, at the group level, in the third quarter, net investments were $1.9 billion, bringing the total for the first nine months to $8.5 billion. We anticipate that our net investments will be lower than $13 billion this year, and because of uncertainty, will be prudent for 2021 budget, and capex should be limited to less than $12 billion. Despite this difficult environment, and mainly due to our capital discipline, Total generated positive net cash flow of $1.9 billion in the first quarter and $2.7 billion in the first nine months. Although the third quarter was more stable than the second quarter, the overall market environment remains absent, and the way forward will depend on the speed of the recovery in global demand affected by the COVID pandemic. It is clear that heavy inventories of oil and refined products will have to be addressed before a sustained rebound can take place. We are prudent about the coming years, so we are using a $40 per barrel brand scenario as our base case. Longer term, we recognize that the growing world population will demand more energy of every type, and the many years of underinvestment have set the stage for a more constructive supply-demand balance. Our priority is to generate a level of cash flow that allows us to continue to invest in profitable projects, support the dividend, and maintain a strong balance sheet. And, of course, we'll continue to concentrate on the things we control, safety, operational excellence, cost reduction, and cash generation. And now I'm ready to go to the Q&A.

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. You can cancel your request at any time with the hash key. And once again, Eristar want to ask a question. Your first question comes from the line of Irene Mona of Societe Generale. Please go ahead, your line is open.