TotalEnergies SE Ordinary Shares

Good morning and hello to everyone. Welcome to this conference call for the first quarter of 2022. Given the geopolitical turmoil and the market volatility, I am joining the call to talk about how we are navigating this environment and to answer your question from this perspective of management and the board. I am today with Jean-Pierre and he will present you the results after my initial remarks and then the Q&A. So to that point, it was a month ago, on February 24, that Russia invaded Ukraine, triggering violence and destruction that has killed thousands and displaced millions. TotalEnergies condemns this military aggression. And in response, we have outlined on March 22 our principles of conduct to manage our Russian-related activities, including our full support to current and future sanctions, whatever the consequences on our assets will be. Going beyond the sanctions, we have also announced our decision to stop the flow of capital to new projects in Russia, initiated a gradual suspension of our activities there while ensuring the safety of our staff. In doing so, we are exercising our duty of vigilance in line with our corporate responsibility. We have begun to end our activities related to Russian oil and petroleum products, We stopped spot trading transactions linked to Russian oil or natural gas. On March 22nd, we announced that given the uncertainty created by the technological and financial sanctions on the ability to carry out the Arctic LNG2 project currently under construction and the probable tightening with the forth-worsening conflict We had decided to no longer book a reserve for this project. Since then, on April 8th, new sanctions have effectively been adopted by European authorities, notably prohibiting export from European Union countries of goods and technologies for the use in the LNG-benefiting Russian companies. These new prohibitions constitute additional risks on the execution of the Arctic LNG2 project, and as a result, we decided to record in the accounts of Total Energy SE as of March 31, 2022, an improvement of $4.1 billion concerning notably Arctic LNG2. Our activity related to Russia is essentially, in fact, centered around LNG supply from Yamal LNG, which the EU has deemed necessary until now. And so until there is a change through possible sanctions, we will continue to honor our contractual obligations and protect the company from potential significant liabilities. For Russia, we also apply our principle of transparency. On March 24th, We communicate to you the 2021 results and cash related to Russian businesses. And today, you probably noticed in our press release that we have added a special table related to results, cash flows of our extreme assets, as well as to capital employed in Russia. Russia is material in terms of volume, but represents indeed only a very limited part of the generation of Revenues and cash flows. In the first quarter, Russia's extreme assets accounted for $300 million, or about 2.5% of our cash flow, mainly from Riemann and Engie, as there was no dividend from Novatec, and $1 billion, or about 10% of our net operating income. Capital employed is now less than $10 billion after the impairment, out of more $140 billion from the company. The consequences of Russia's actions are going beyond the Russian-related businesses and will have a significant impact on the global economy, potentially more serious than the COVID pandemic and related shutdowns. The immediate impact, of course, has been the significant disruptions to energy markets that pushed oil prices above $100 per barrel and gas prices in Europe and Asia to more than $30 per million BTU. Oil prices could remain high, particularly if additional production capacity from OPEC or U.S. unconventional fail to compensate for the potential loss of 2 to 3 million barrels per day of Russian crude production, plus a drop in refining capacities from Russia for petroleum products. Gas prices are likely to remain high and volatile as Europe seeks to rebuild inventories and reduce independence on Russian gas, which puts Europe into competition with Asia for LNG. But the most important big part is also the need for Europe to diversify its energy supply, which will be a massive effort over many years, and this will permanently alter the global supply chain for oil and even for more gas. It also created, of course, new opportunities for North Sea natural gas businesses as well as for LNG business, and our transition to electricity and renewables. To respond to this new situation, during this quarter, TotalEnergies mobilized its full capacities and leveraged its integrated midstream LNG business to saturate all our European regas capacities with a record 4.7 million tons of spot LNG purchases. In addition, we are mobilizing additional investments to support short-term gas production in the North Sea assets. Two rigs have been mobilized in Denmark for infill wells and well simulation. I remind you that TIRA redevelopment startup is planned by mid-2023. We have also the bottleneck of Kool-Aid asset by 10%. We are drilling in-field wells on Halloween, and we are taking actions to boost the production west of Shetlands by 10% by lowering pressures in some pipelines. And of course, we are supporting actions launched by Equinor in Norway. It's important, however, to recognize that oil and gas prices started to move higher in the second half of last year before the invasion of Ukraine. The post-COVID rebound in energy demand made it clear that supply-demand balance was already tight, even with China partially locked down, and then inventories were low. Years of underinvestment in new supply of oil and gas production and storage helped to create this situation, and there is no quick and easy fix for it. The industry needs to invest more, but I'm also convinced that our industry will avoid triggering the runaway cost inflation that marked the last commodity super cycle, as we will keep this lesson in mind. At Total Energy, we continue to invest with discipline. We just acquired deep offshore oil production in Brazil. We signed yesterday the Atapu and Sepia contract, and production will flow from today in our accounts. And I remember we acquired them last December on a very reasonable price deck of assumptions. And we have made promising oil discoveries in Suriname and Namibia. Plus, of course, we are moving forward with partners in North America to further expand our LNG business. Energy is a commodity, and commodity markets tend to move cyclically in and out of balance, usually accompanied by periods of uncertainty and high availability. The current geopolitical turmoil and market volatility illustrate the challenge that we describe as the energy triangle. We must stick to balance security of supply with affordability to the customer and impact on climate. Climate is an imperative, but other emphasizing any one of these three factors typically comes at the expense of the two others. In our case, oil and gas will continue to be a significant source of cash for the company. It will continue to fund our growth in low-carbon energies, which we will provide to our customers so that they have access to cleaner, more reliable, and affordable energy. At this point in the commodity cycle, high oil and gas prices are flowing into the company, generating strong results and cash flows, which is a completely reversal of our situation from just two years ago. In the first quarter, we generated free cash flow after investment, dividends, and buyback of $5.8 billion, and we were able to reduce our net debt so that the giving fell to 12.5%. Jean-Pierre will come back on the results in detail. Given the strong cash flow generations and the strong balance sheet, the board reviewed our cash flow cash allocation principles And Peerle reaffirmed its willingness to give priority to accelerate the company's transformation through counter-cycle opportunities. It is, however, in fact, a matter of patience. The Board confirms a 5% increase in the first interim 2022 dividend to €2.69 per share. And it authorized the company to buy back up to $3 billion of its shares in the first half, so an increase of $1 billion compared to the guidance for this first half, which was given in last February. $2 billion will be bought back in the second quarter, twice more than in the first quarter. We will maintain capital discipline as we look for opportunities to profitably grow the company, mainly, of course, in LNG and renewables and power, And we may, at the same time, move counter-psychically to divest some non-strategic oil in this favorable environment, particularly production that has high carbon intensity to further rebalance our energy mix. In particular, we will put for sale our 10% interest in the oil licenses of SPDC onshore Nigeria, as the disruptions by local communities are a source of great concerns not only for the operator but also for us as non-operator. We will keep, however, the onshore gas licenses of SPDC onshore Nigeria as they are critical to feed an LNG expansion. Expanding our integrated LNG activities along with our renewables and electricity business is central to our strategy And we plan to play an important role in Europe's plan to diversify its energy supply away from Russian gas. We have announced the expansion of our partnership with SEMPRA in North America. First, we launched this last month a feed of Cameroon LNG extension. I think it represents a 6.5 million ton additional capacity. And second, we extend our partnership to a new potential project in Mexico called Vista Pacifico. And third, we will develop together with SEMPRA some onshore renewables and offshore wind in California. TotalEGRG is investing around about 25% of its capex to develop renewable electricity and similar amounts to grow energy and what we call the new molecules. Both are critical to the energy transition. In certain times, we remain confident that DCP investment to support a multi-energy strategy will create long-term shareholder value. In 2022, this might be close to $15 billion inside the previous guidance of 2014-2015. A last word before I give the floor to Jean-Pierre about the preparation of our annual shareholders' meetings on May 26th. You probably noticed that we had a constructive dialogue with some shareholders and that after our sustainability and climate progress report 22 issued on March 24th, in line with our principle of transparency, we took some new commitment to extend the scope of our reporting to enable investors to fully assess the company's energy transition strategy. In particular, this report will be published each year and submitted to a yearly advisory vote. The Board has decided not to accept a resolution submitted by FollowV that it contravenes French legal rules, setting the prerogatives of the company's governance body. The Board is in charge of the strategy, not the AGM. but invited both supporting the proposed resolution to express their views, either through a verbal or written question, which will be addressed as a matter of priority at our next annual shareholder meeting. We are definitely open to a transparent and constructive dialogue with all our shareholders. And now I will turn it over to Jean-Pierre for a review of the results, and we'll come back to join you for the Q&A.

Thank you, Patrick. So reported IFRS net income for the first quarter of 2022 was $4.9 billion, which takes into account the $4.1 billion impairment related to our Russian exposure. So adjusted net income was $9 billion for this quarter, the highest quarterly result in the history of the company, up 32% from the previous quarter, mainly due to the 24% increase in our average realized oil price, as well as an 8% increase in our average realized gas price and strong results from our midstream and downstream activities. Adjusted earnings per share was $2.4 in the first quarter, a one-third increase from the fourth quarter. Debt adjusted cash flow was $12 billion, up 23% from the previous quarter, ahead of expectations. Patrick explain you how we allocate this strong cash flow. Going now through the results by segment. The Integrated Gas, Renewable and Power segment reported adjusted net operating income of more than $3 billion in the first quarter, up 11% from the previous quarter, and a threefold increase from a year ago. Thanks to its ability to capture higher energy prices, and leveraged strong performance from gas, LNG, and electricity trading activities. Operating cash flows before working capital changes was $2.6 billion, up 6% from the previous quarter, and 2.4 times higher than the first quarter last year. Cash flow from operations was $315 million, reflecting the increase in working capital linked to the seasonability and to the price effect on receivables for the gas and power supply business. LNG sales were 13.3 million tonnes in the first quarter, up 15% from the previous quarter, and more than 30% from a year ago. LNG sales from our equity production were stable at 4.4 million tonnes, So, the main driver was record-level third-party volumes sold on the spot market, notably in Europe, as Patrick mentioned. Our average price for energy in the first quarter remains strong at $13.6 per minimum ECU, and we anticipate that it will be above $14 per minimum ECU in the second quarter. Our ability to execute and deliver along the entire gas value chain including our midstream energy trading activities, have continued to outperform expectations. IDFP increased gross renewable power generation to 10.7 gigawatts at the end of the first quarter, up 400 million watts from the previous quarter, thanks in part to startups in India. Gross power generation capacity under development increased to nearly 2%. 25 gigawatts, mainly due to the award of concession for offshore wind farms, including 3 gigawatts off the cost of New York and New Jersey and 2 gigawatts off the cost of Scotland. Net electricity generation grew to 7.6 terawatt-hour in the first quarter, up 61% year-on-year, thanks to higher utilization from our CCGT power plants in a strong mountain environment, as well as continued growth in electricity generation from renewable sources. EBITDA from the renewable and electricity business was $175 million in the first quarter in the context of power price volatility and the mechanism for setting the regulated electricity sales tariffs in France. The ENP segments reported adjusted net operating income of $5 billion, up 42% from the previous quarter and 2.5 times higher than the same quarter last year, far above the increase in oil and gas prices, demonstrating strong leverage to the environment. Operating cash flow before working capital changes was $7.3 billion in the first quarter, up 28% from the previous quarter, and nearly doubled the same quarter last year, reflecting the higher commodity price environment. Operationally, the EMP segment's oil and gas production grew by 3% compared to the previous quarter and was stable compared to the year ago. Startups and ramp-ups of projects, mainly in Angola and Brazil, plus an increase in OPEC production quotas, offset the natural decline, the price effect, and other negative impacts, including the 25,000 barrels per day equivalent decrease in Nigeria, related to security concerns about SPDC, which we are considering for divestment, as Patrick explained. Looking ahead, including the startup of Meruan and our entry in Atapu and Sepia, We expect production in Brazil to grow by 30,000 barrels per day in the second quarter and then by 60,000 barrels per day in the fourth quarter. Our downstream activities generated $1.4 billion of adjusted net operating income in the first quarter, up 35% from the previous quarter, and 2.6 times higher than the same quarter a year ago. Operating cash flow before working cap changes was 1.9 billion, up 22% from the previous quarter, and more than two times higher than a year ago. The strong downstream performance was mainly due to higher distillate margins in Europe, in the context of reduced imports of Russian petroleum products, as well as outperformance of around 400 million compared to standard results in the quarter by our crude and products industries. Trading activities. Refinery throughput increased to 1.1 million barrels per day in the first quarter, reflecting demand recovery, particularly in the US and in Europe, and the restart of the distillation units at the Normandy refinery. Petrochemical production volumes were stable. Petroleum product sales were 1.4 million barrels per day equivalent in the first quarter, stable compared to a year ago, as the demand recovery in aviation was offset by lower sales in Asia due to pandemic lockdowns. At the company level, operating cash flows before working cap changes was $11.6 billion in the first quarter. This was a working capital build of $3.5 billion in the first quarter, mainly due to price effects on inventories, an increase in inventory levels to ensure the security of supply for refineries, and the seasonality of the gas and electricity business. This was partially offset by a $0.9 billion release of margin costs and $1.9 billion of receivable payables variation, including an increase in tax payables. Net investments were $2.9 billion in the first quarter, including $900 million for renewable and electricity, in line with the 22 targets of 25% of our capex for the full year. We are maintaining capital, discipline, and full-year capex may trend towards $15 billion, still inside the previous guidance of $14 to $15 billion, as Patrick mentioned. including the mobilization of additional investments to support short-term gas production in the North Sea and additional opportunities that may arrive in line with our strategy of transformation. We reduced net debt by $3.7 billion, which lowered the gearing ratio to 12.5% at the end of the first quarter, and we bought back $1 billion of our shares during the quarter. We reaffirmed the company's priority in terms of cash flow allocation in this context of higher oil and gas prices, investing in profitable projects to implement the strategy to transform Total Energy into a sustainable multi-energy company, linking dividend growth to structural cash flow growth, maintaining a strong balance sheet and a long-term debt rating with a minimum A-level by permanently anchoring during below 20%, and allocating a share of the surplus cash flow from high hydrocarbon prices to share by lives. That may conclude my remarks, and so we are ready with Patrick to begin the Q&A.

Thank you. 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... Please kindly mute any audio sources while asking questions. If you wish to cancel your request, please press the hash key. Once again, please press star 1 if you wish to ask a question. And the first question comes from the line of Irene Jimona from Societe Generale. Please go ahead.