TotalEnergies SE Ordinary Shares

Ladies and gentlemen, welcome to the third quarter 2022 results conference call. At any time during the presentation, you may press star and one to enter the queue for the question and answer session. I now hand over to Jean-Pierre Vraire, CFO, who will lead you through this call. Sir, please go ahead.

Thank you. Hello, everyone. Jean-Pierre speaking. We reported solid third quarter results. that continue to demonstrate Total Energy's ability to successfully leverage the very strong and volatile environment. This success allows us to further strengthen the balance sheets and to share the benefits with our employees and with our shareholders. The third quarter environment was marked by volatility at a very high level. Brands remained strong, averaging more than 100 dollar per barrel in the third quarter, and reversed a decline late in the quarter after OPEC Plus announced a 2 million per barrel quota reduction in early October, which demonstrates that OPECs want to remain in control despite the risk of lower world economic growth. European gas prices were pushed to the roof by increasing geopolitical tensions and the of not enough supply during winter periods, even if this risk is limited as gas storages in Europe are full. As a consequence, NBP nearly doubled in the third quarter to more than $42 per million BTU. A strong driver for the results is our average LNG price, of course. It was lifted by the spike in natural gas prices and reached a record $21.5 per million in the third quarter, an increase of more than 50% quarter to quarter. We captured the full benefits of this LNG price thanks to our integrated strategy. European Refining Margins, MCV, despite an increase in energy costs, reached $100 per tonne in the third quarter, still among the highest we have ever seen, but down for their record-setting second quarter levels, close to $150. In this context, the company generated third quarter adjusted net income of $9.9 billion, or $3.83 per share in the third quarter, in line with the previous quarter. These strong results were achieved despite the increase in taxes. I will tell you more on the UK tax in a minute. And the decrease in production and oil prices, but mitigated by higher integrated LNG results. Debt adjusted cash flow came in at $12 billion for the first quarter, down 12% from the second quarter. mainly due to a lag effect in the dividends received by equity affiliates. Year-to-date, the STF is $38 billion, an increase of 80% compared to last year. Cash flow generation of this order of magnitude marks the start of a new area for the company, an area that would be marked in the quarter head by a zero net debt balance sheet an accelerated transition for the multi-energy future, and an upgraded through-cycle cash flow payouts for shareholders of 35% to 40% from 2022. These were the main messages from the strategy and outlook presentation last month, and the first quarter results confirm these messages. As part of the environment, the effective tax rate of the company increased to 44% in the first quarter from 39% in the second quarter. This is largely due to a higher tax rate for EMP activities as a result of the Yuki Energy profit levy, $0.6 billion impact on the quarter for four months of taxation. Despite increased taxes, $26 billion paid in aggregates by end of September, mostly in producing countries. Our cash flow generation is, in any case, far stronger than we had projected a year ago, thanks to the favorable price environment. We estimate the impact of the EU solidarity tax at around 1 billion euros. Operationally, the company's hydrocarbons production was 2.7 million barrels per day, a 2.5% decrease from the previous quarter, mainly due to planned maintenance, notably at Ictis, and unplanned downtime at Cachagan, partially offset by the entry into production of Sepia and Atapu, and the ramp-up of Meruan, all this field being in Brazil. Year-to-date, OPEX are trending up to $5.6 per barrel on average. This includes higher costs of energy, representing $0.25 per barrel. Except these higher energy costs, we do not observe any cost inflation at OPEX level. Cost discipline is a constant priority. We are in a commodity business, and maintaining a low break-even is essential to weathering the cycle. Looking at the results segment by segment now. Integrated gas, renewable and power, IGRP, posted record adjusted net operating income of $3.6 billion this quarter, up $1.1 billion from the second quarter, and cash flow of $2.7 billion, driven by higher energy prices and strong trading activities, in line with previous quotas. The favorable environment allows us to overcome the quarter-to-quarter 10% decrease in LNG sales that resulted mainly from the Freeport LNG OTH and planned maintenance at ICTIS LNG. We expect fourth quarter LNG prices to be above $17 per million BTU, still at high level. I remind you that 70% is linked to Brent Formula and 30% to Gas Spot Index. The company continued to execute on its LNG growth strategy by acquiring a stake in Northfield South LNG project in Qatar after the Northfield East LNG last June. In the electricity business, gross renewable power generation capacity reached 16 gigawatts at the end of the third quarter, up 4.4 gigawatts over the quarter, including 3.8 gigawatts from the Clearway acquisition and the startup of the Sea Green Offshore Wind Farm in Scotland. We indeed closed the acquisition of 50% of Clearway Energy in the U.S. and announced another key acquisition in renewable in Brazil yesterday. It was yesterday. Net electricity production was 8.8 TWh in the first quarter, up 10% from the second quarter, thanks to the high CCGT utilization rates and growth in renewable power generation. EBITDA from the electricity and renewable business was $160 million in the third quarter, stable compared to the previous quarter. Operating cash flow for IDRP was $4.4 billion in the first quarter, including the positive impact on working capital due to the reduced margin costs and seasonality in the gas and power supply business. The EMP segment generated adjusted net operating income of $4.2 billion and cash flow of $6.4 billion in the third quarter, down about $0.5 billion to and $1 billion, respectively, from the second quarter because of lower production. Quarter to quarter, our average realized liquid price fell by almost $10 per barrel, but our average realized gas price increased by around $6 per million BTU. We are ramping up activities in E&P. notably the startup of production at the ITK field in Nigeria, the launch of the Begonia project in Angola and the Phoenix project in Argentina, and a significant gas discovery in Cyprus. The combined downstream segments generated $2.4 billion of adjusted net income and $2.9 billion of cash flow in the third quarter, an outstanding performance even if decreased compared to the record-setting second quarter, thanks to strong distillate margin and a good trading performance comparable to previous quarter. To put this into perspective, over the first nine months, the downstream generated $8.4 billion of cash flow, twice the level of the same period last year. and more than enough to cover the entire regular dividend for the year. Our expectation is that refining margins should remain strong, particularly for distillates, given the ban on imports of Russian petroleum products into Europe, effective February 23. At the company level, over the first nine months of 22, we generated operating cash flows before working cap changes occurred. of around $37 billion, an increase of 85% over the same period last year. Year-to-date net investments of $12.5 billion are in line with our guidance of $16 billion for the year, including $4 billion in decarbonized energy. We bought back $5 billion of our shares over the first nine months and plan to buy back another $2 billion in the fourth quarter. Our dealing rate ratio is down to 4% at the end of the third quarter. Given our solid financial position and a strong cash flow generation, the company is expecting a balanced value-sharing policy that includes an exceptional bonus of one-month salary to all our worldwide employees, and a new shareholder return policy announced in September that targets 35-40% cash flow payouts. In addition to the regular third interest dividend of €0.69 per share, which represents a 5% increase from a year ago, the Board decided to set the ex-dividends and payment dates for the interim special dividends of 1 euro per share in December 2022. That concludes my comments, my remarks, and now we can go to the Q&A.

Ladies and gentlemen, if you wish to ask a question, please press star 1 on your telephone keypad. That's star 1. The first question is from Irene Jimona with Societe Generale. Please go ahead.