TotalEnergies SE Ordinary Shares

Ladies and gentlemen, thank you for standing by and welcome to the Total first quarter 2021 results conference call. At this time, all participants are in a listener only mode. After the speaker presentation, 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. I would now like to hand the conference over to Mr. Jean-Pierre Spré, CFO of Total. Please go ahead, sir.

Thank you very much. And hello, everyone. So we began the year with a strong set of first quarter results that demonstrate total ability to fully leverage the upside of an improving environment. While Brent was up by 22% compared to Q1 2020, total first quarter 2021 adjusted net income jumped by about 70% to $3 billion, or $1.1 per share. We are back on track, and the $3 billion of adjusted net income is actually above the level of the pre-crisis first quarter 2019, despite a less favorable environment this year benefiting from the action plan delivered in 2020. Debt-adjusted cash flow was very strong at $5.8 billion, up by one-third compared to a year ago. And gearing, you know one of our key metrics, was brought back down to less than 20% by the end of the first quarter, which is a top priority for us in terms of restoring sustainable financial flexibility. We have indeed recovered significantly from a difficult and uncertain 2020 environment when brands dipped below $20 per barrel, and we have benefited from rebounding markets including Brent, which averaged more than $60 per barrel in the first quarter. However, to be clear, we credit mainly the Saudi-led OPEX Plus discipline for the current oil price. We note that many parts of the global economy are still struggling, with persistently weak demand for aviation fuel, and lockdowns are still in effect in many areas. We remain prudently optimistic and focus on the fundamentals that got us through the crisis and contributed to the strong first quarter results. As a reminder, the key actions and lessons learned from 2020 are the following. First, discipline on costs. With more than $1 billion of cost reduction in 2020, we target an additional $0.5 billion of cost saving this year. best-in-class production costs of $5.1 per barrel in 2020 with a target of $5 per barrel. Within the context of developing a world-class renewable power business, we managed CapEx down to $13 billion in 2020 and set a target between $12 and $13 billion for 2021. And I will give you more details on this later. We are continuing to high-grade the portfolio, and the organic breakeven was below $25 per barrel in the first quarter. And this allows us to capture the upside of the stronger environment. Operationally, the group's first quarter production was up slightly compared to previous quarter, by 0.8% to $2.86 million barrels per oil equivalent per day, and still reflect the impact of OPEX Plus quotas. This is in line with our guidance for stable production in 2021 compared to 2020. Production benefited mainly from the progressive return of Libya, as well as our project startups and ramp-ups, including North Ruskoie in Russia, Kulean in the UK, Ualverdrup in Norway, and Yara in Brazil. all largely offsetting the natural decline. Looking now at the operating segments, we are pleased with the performance of the IGRP segments, which set a new record high for adjusted net operating income in the first quarter of $1 billion and generated strong cash flow of more than $1 billion. Although LNG prices were down compared to a year ago, IGRP posted very strong results thanks to growing LNG sales and the positive contribution of renewable and electricity. The recent ramp-up in oil prices will continue to have a positive impact on our LNG prices over the coming six months due to the lag effect on pricing formulas. Regarding the situation at our Mozambique LNG project, Let me emphasize that security is our top priority. We reported last month that the security situation near Palma was very serious. And considering the evolution of the security situation in the north of the Cabo Delgado province in Mozambique, Total decided to withdraw all Mozambique LNG project personnels from the Afungi site. We have declared force majeure and we are managing the situation with contractors to minimize spending as long as we do not have clarity on the situation. We hope that the actions carried out by the government of Mozambique and its regional and international partners will enable the restoration of security and stabilize the Cabo Delgado province in a sustained manner. Obviously, these events will impact the project schedule, and at this stage, we estimate the impact of at least a year of delay. As we have a large portfolio of LNG projects, we will give priority to Cameron Energy Extension and Papua LNG projects. Turning now to the renewables and electricity activity, we are continuing to accelerate growth in 2021, notably with the recent acquired 20% stake in Adani Green Energy Limited Company. We are increasing our level of disclosure, so you can see that our proportional share of EBITDA for this activity increased by about 40% year over year, close to $350 million in the first quarter. Gross installed renewable power generation increased to 7.8 gigawatts from 3 gigawatts a year ago, and net power production grew to 4.7 terawatt hour from 3.2 terawatt hour over the same period. We are continuing to add to the portfolio, focusing on early-stage acquisition opportunities. And in 2021, we will allocate more than 20% of our capex to developing this activity. In addition to the acquisition of 20% of Adeni Green Energy, the largest solar developer in the world, And of 4 gigawatts of portfolios in the U.S. during the first quarter, we won Lizzie's rights of 1.5 gigawatts UK offshore wind project. And we farmed down our equity interest in more than 300 megawatts of renewable assets in France on the basis of a $600 billion enterprise value at 100%, in line with our capital-like model and also contributing to de-risking the portfolio. Moving to our oil business, the E&P segment successfully leveraged the rebound in oil and gas prices and increased first quarter adjusted net operating income to $2 billion, nearly tripled the same quarter last year, and cash flow to $3.8 billion, up by about 50% compared to a year ago. E&P continues to be the cash flow engine that is powering the group through the transition and into the future, and total clearly benefits from the leverage on the oil price. We, the signature of definitive agreements Enabling to launch of Tilanga and Kingfisher upstream oil projects and construction of East African crude oil pipeline in Uganda and Tanzania, the group is implementing a strategy to invest in resilient, low break-even projects that reduce the carbon intensity of its portfolio. Unlike the upstream, the downstream continues to face a tough environment, generating net adjusted operating income of $527 million and a cash flow of close to $900 million. European refining margins remain in the single digits, reflecting mainly the still depressed demand for aviation fuel, impacting the whole distillate market, but also the global level of demand. 13 million barrels per day in the first quarter of 2021 versus 15 million barrels per day in the first quarter of 2021. In contrast, petrochemical margins were strong, showing improvements year over year and quarter to quarter. Marketing results were resilient despite ongoing lockdowns that decreased volume by about 5%, mainly in Europe. We started production of sustainable aviation fuel, SAF, at Lamed and our facility at Undal in France. Early stage, but demonstrating the group ability to transform and adjust to the changing environment across its different business units. Finally, at the group level, we generated $5.8 billion of cash flow, debt-adjusted cash flow, in the first quarter. So, for now, we are back on track at pre-crisis levels. In the first quarter, we also benefited from a working capital release of about $0.3 billion. For the full year, if we maintain a hydrocarbon environment like the first quarter, we rent around $60 per barrel, European gas around $6 per million BTU, and assuming European refining margins around $10 to $15 per ton, then we would expect to generate around $24 billion of debt-adjusted cash flow. First quarter net investments, which include acquisition and asset sales, was $4 billion. Our guidance for the year 2021 net investments is a range between $12 and $13 billion, which is split roughly as half for maintaining the existing business activities and half for sustainable growth. Our strategy is to invest responsibly in profitable projects that reduce the carbon intensity of the portfolio, and achieve the transformation of the group to a broad energy company. To this end, half of the net investments will be allocated to maintain the group's activities and half for growth. Nearly 50% of these growth investments will be allocated to renewable and electricity. Our gearing was 19.5% at the end of the first quarter. by the insurance of the hybrids to finance the renewable acquisition in India in Adeni Green. The current environment is allowing us to restore balance sheet strength faster than expected. We confirm that our priorities for cash flow allocation are to invest in growing and transforming the company, to support the dividend through the economic cycle, and to maintain a strong balance sheet and a minimum long-term single aid debt rating with gearing sustainably anchored below 20%. I remind you that at the end of 2018, the gearing was about around 15%. And, of course, 15% is better than 20% to face volatility. With a strong start to the year and confidence in the fundamentals of the group, the board of directors decided to distribute a first interim dividend fund of 0.66 euro per share. That means that the first interim dividend will be stable in euro. But considering the foreign exchange rates, compared to a year ago, this interim dividend represents an increase of about 9% in dollar. Overcoming the challenges of 2020 has made us a stronger company, and the market rebound is allowing us to accelerate our transformation to Total Energies. At our shareholder meeting in May, we will propose the adoption of Total Energies as the new name of the company to mark our expansion into the renewable power generation business on a worldwide scale, transforming the group into a broadly diversified energy company And we will submit to the advisory board of shareholders a resolution about our energy transition strategy towards carbon neutrality. This move demonstrates our commitment to the energy transition and to carbon neutrality that we have presented in a number of targets. First, we reaffirm the clear ambition to get to net zero emissions by 2050. across our worldwide production and energy products used by our customers, scope one, plus two, plus three, together with society. Specific commitments are taken by 2030. The next decade is key. Minus 40% net emissions on operated oil and gas operations worldwide by 2030 compared to 2015, the date of the Paris Agreement. Reduction in absolute terms of COP3 worldwide emissions by 2030 versus 2015, we are the only ones among our peers having set an absolute figure target. Minus 20% carbon intensity reduction for energy products sold to our customer, COP3, this is a more stringent target than the one announced previously. In Europe, 30% reduction of absolute emissions by 2030 extended to scope 1 plus 2 plus 3 versus 2015. Our climate ambitions are well, as other sustainable developments are embedded in the strategies of the group, and like our name, mark the beginning of a new phase in the development of the company. And now, let's go to the Q&A.

Thank you. If you would like to ask a question, please press star and 1 on your telephone keypad and wait for your name to be announced. And to cancel your request, you can press the hash key. Once again, that's star and 1 to ask a question. Your first question today is from the line of John Rigby from UBS. Please go ahead.