TotalEnergies SE Ordinary Shares

Ladies and gentlemen, welcome to Total Energy's second quarter and first half 2023 results conference call. I now hand over to Patrick Pouyanné, Chairman and CEO, and Jean-Pierre Dreyer, CFO, who will lead you through this call. Sir, please go ahead.

Good morning, good afternoon, wherever you are. Patrick Pouyanné speaking. Before Jean-Pierre will go through the details of whether he could characterize a solid set of numbers, I would like to come back on the major investments that we have announced in this last quarter, which are good illustration of oil and gas and electricity strategy, which in fact are based on these two fundamental growth pillars, on one side growing on hydrocarbon base, mainly driven by energy, but all, of course, is our cash engine of today, and secondly, developing a profitable and integrated power business, which is key for the future cash engine of the company. The results, I should characterize them as good cash flows, good ROH and good distribution, strong distribution for buybacks. So continuity and strong and solid set of numbers, but Jean-Pierre will come back on it. So first, on the first panel, I would like to highlight some few important projects. The first one, of course, is our project in Iraq called GGIB. You know that the company is born in Iraq 100 years ago, but it's not a matter of emotion. It's a matter of creating value, let's be clear. And the DGIP, in fact, providing for us access to exactly the type of hydrocarbons we are looking for, low-cost, low-emission oil and gas, because both projects are targeting both, triad gas being, of course, a source of gas for But all, as a RATA repeal, will have to increase in production of RATA repeal over a second objective, who I would say a breakthrough contractual, breakthrough innovative contractual conditions compared to previous service contracts, which were signed by others in the past. This contract offers an attractive reward, well-balancing, of course, the RATA rates. We are fully aware of that. Second, of course, example, a very major example of the strategy in motion is our new project in LNG project in the U.S., the Rio Grande LNG project, which we have announced in June and which now it gets ID. You know that we are very committed to LNG. We think that it's a growing demand and that, of course, the U.S. position is very important because we have the lowest cost, a very low cost source of gas there. And I would say this is a project on which is attractive, because it's one of the most competitive energy plants with $850 per ton. And your kind of project benefits from a very good location outside, I would say, of the Louisiana area. And more importantly, access to skilled forces with no competition. So again, it's a capex-competitive project, and I know it's a matter to deliver it. More importantly, of course, for us, we have decided to integrate Bright Project by different angles. And why do we integrate it by different angles? Becoming equity or the shareholder of Mexican, the company or promoter of the project, but direct investor in the project with 16% and also, of course, a no-staker. We've done that because, in fact, we are leveraging this integration in order to have access to the most competitive pricing for US energy, and which would give us a clear competitive advantage on the market. So it's not only a matter of taking, but the integration gave us the capacity to negotiate better price than others. And that, of course, is a source of value. We might also ensure the value of the project by further integrating the upstream in order to protect our gas feedstock costs in the future. And other upsides will come also for expanding the plant from three to five frames. So that's why we consider that Not only being an off-taker, but more importantly also to contribute directly to the investments is a way to leverage and to create different sources of value from this project. Last project, of course, emblematic from oil and gas is the final award of the contract for the AMIRAR project in Saudi Arabia in petrochemicals. In fact, it's really, I would say, leveraging the Sator platform, an integrated platform, a world-class petrochemical facility, well supported by the kingdom of Saudi Arabia in order to get advantage feedstocks and a very competitive project. Then we have also, during the quarter, continued to deploy, I would say, the second growth pillar of the company, which is building the profitable integrated model in electricity, so integrated power. So it's all gas on one side, integrated power on the other side, on which we focus, I would say, our transition strategy. Two events. So two projects that happened during this past quarter, very recently, by the way. One is the food acquisition of Total Energy, which has been announced for quite a long time. You've seen through the figures that it's $400 million EBITDA. It's a company and cash flow for additional cash flow next year for Total Energy. The multiple is quite attractive. It was negotiated five years ago. It's 3.5 gigawatts, and mainly, by the way, to further them being in what I call the unregulated country, so feeding on integrated power business model. So it's also a lot of competencies which will join the company in order to be efficient and more efficient. With this integration and all the, now the next step, and I think we'll come back to you on that in September, is to We have all these assets around the world, now it's a matter of industrializing the way we operate them in order to deliver more value for the integrated power business. We also won some American business in Germany, Frigge-Gerrard Offshore. Some people think it's too expensive, it's not, because I think it's exactly, I think, what we are looking for in integrated power. It's fitting, it's a perfect illustration of our business model. Why? It's the first in the market, the German market, which will offer the best price for electricity in the future. Germany has decided not to go to nuclear, so you know in the end the price of electricity in Germany will be supported. Secondly, it's like an oil and gas concession. No, we pay only with amounts that are important, but in fact, it's an upfront payment, like we pay a bonus in an oil and gas concession, plus a royalty. In fact, we fix exactly our fiscal terms by what do we pay upfront, 10%, so for all these 3 gigawatts, it's something around 500 million euros, and then we repay royalty among 20 years, and the royalty, by the way, avoids us to pay any connection fee So when you look to the map, I can tell you I'm very happy that we have managed to get access to the 3 gigawatts of offshore wind, because it's exactly the model we want to put in place. The price is not controlled. It's up to us to decide which part we will sell to EPA, to German manufacturing industries, and which part we keep motion in order to trade around and do asset integration. So my answer to the ones who have criticized us is that, in fact, we are exactly in the model, not an infrastructure model, but an integrated power model, exactly what we do in Olinga. And you will see us continuing to deploy this strategy. And by the way, I might be, because Jean-Pierre, it is easy for me to explain that, because Jean-Pierre will explain to you that these results in integrated power are surprising you quarter after quarter, and they will continue to surprise you in a positive way. So that's what we want to do. That's my introduction, I would say. My last comment, of course, is that the board is very comfortable with the cash generation of the company. So yesterday reiterated its trust in the future by increasing the interim dividend by 7.25% year-on-year and maintaining the $2 billion buyback program for the third quarter. It's the fifth quarter in a row that we stay at $2 billion, despite the softening environment. The payout for the first part is more than 42% in line with the commitment of the board to distribute more than 40% for 2023. And so I can only reiterate my commitment. And all the transactions and projects, of course, will be the highlights of our presentation to you on September 27 in New York. And then I will leave the floor to Jean-Pierre into the reserves. Thank you, Patrick. So let's move to the financials. The commodity environment in the second quarter, but still at high levels. Quarter over quarter Brent was down 4% to $78 per barrel, and European gas dropped by around 35% to $10.5 per million BTC. In this context, Total Energy Report's second quarter of 23 adjusted net income of $5 billion, a decrease of only 24% quarter over quarter, and was able to generate a strong $8.5 billion of cash flow. Over the first half of 23, adjusted net income was $11.5 billion and cash flow was $18 billion. We continue to deliver excellent profitability, proportioning the 22% for the 12 months ended June 23. And we continue to share our success with our shareholders, as explained by Patrick. During the second quarter, we paid $1.8 billion in ordinary interest payments and executed $2 billion in buybacks, which is consistent with the first quarter distribution, despite the suffering commodity environment as described. As a result, payroll to shareholders, as mentioned by Patrick, was more than 42% over the first quarter, the first half of 2023. Our balance sheet remains strong, with gearing at 11.1% in the second quarter. Moving now on to the segment results. Operationally, our island gas reduction was 2.47 billion barrels of oil equivalent per day, up 2% year-on-year, thanks to new project partners, Johan Verbroek in Norway, EKK in Nigeria, Meruan in Brazil, and Bluestem in Oman. The production also benefited from the integration of Saab and Umlu-Luclis in the United Arab Emirates. Note that our oil production was a 12% year-on-year, reaching above 1.4 billion barrels per day. Production for the third quarter is expected at around 2.5 billion barrels of oil equivalent per day, notably supported by a startup on the upsharing field in Azerbaijan. Exploration and production reported adjusted net operating income of $2.3 billion, down 11% quarter over quarter, primarily due to the lower only guide prices. Similarly, cash flow of $4.4 billion was also down 11% quarter on quarter. These are quite resilient set of results compared to the lower diamonds. I already mentioned the minus 4% for Brent and around 35% drop for European gas taxes. As previously announced, we are now reporting integrated energy and integrated power as in the balance segment. So let's move on to integrated energy. In the second quarter of 2023, energy sales were stable at 11 billion tons quarter of a quarter, benefiting from the restart of free-force energy that decreased year over year due to lower demand in Europe because of mild weather and high inventories. Integrated LNG generated adjusted net operating income of $1.3 billion, down 36% quarter from quarter, reflecting lower LNG price, averaging $10 per million BTU in the second quarter, and softer trading results compared to the exceptional ones we benefited in the first quarter, in less volatile markets. Operating cash flow was down only 13% quarter-on-quarter, also due to lower energy prices, but partially affected by higher margins secured in 2022 on energy cargoes to be delivered in 2023. Given the evolution of oil and gas prices in recent months and the lag effect on price formula, Total Energy anticipates that its average energy selling price should be between $9 and $10 per million in the third quarter of 2023. For Integrative Power, in the second quarter, we met our target of double-digit returns, building a traffic core as an integrative and profitable player in the electricity business. So, for the 12 months ended June 23, we achieved the ROHA at 10.1%. The proof is in the results. Our integrated approach to the business is working, which combines renewable projects, flexible power generation, energy storage, asset optimization, trading, and B2B, B2C supply. Integrative power, second quarter, adjusted net operating income is $450 million, and cash flow is $491 million, up 22% and 12% respectively, quarter on quarter, due to the good performance of our integrated electricity portfolio. Integrated power generated $930 million of cash flow in the first half of 2023 versus only $340 million in the first half of 2022. The different segments have performed well and contributed to this robust first half of 2023 results. gas-fired power plants within wool trading and supply, demonstrating the strength of our integrated power strategy. Net power generation was 8.2 TWh in the second quarter of 2023, up 8% year-on-year, as growing electricity generation from renewables was partly offset by lower generation from flexible capacity in the context of lower European demands. Road installed renewable power generation capacity is now at 19 gigawatts at the end of the second quarter, up by more than 1 gigawatt quarter on quarter, including 0.5 gigawatts installed in the US and the connection of 0.3 gigawatts from our offshore wind project in the UK. Let's move to count three. Downstream contributed $1.5 billion of adjusted net operating income, down 23% quarter over quarter, recollecting clearly lower resigning margins, particularly in Europe, partially compensated by higher marketing and services results, quarter over quarter, due to the termination of in-businesses. The refining margins were impacted at the start of the period by Chinese exports and the quicker than anticipated reorganization of Russian flows following the European embargo. They were also supported at the end of the quarter by higher gasoline exports to the U.S. and lower diesel imports in Europe from China. Our refinery utilization rates on processed goods improved to 82% in the second quarter which is a good performance, compared to 78% in the first quarter. We expect some operational performance, above 80% in Q3. And since the beginning of July, the average refining margin is higher, above 70%. On company working capital requirements, last quarter we had an exceptionally high bill of $4.5 billion, mainly related to higher crude and petroleum product inventories of water, and to the technology of our power and gas marketing business. I said last quarter that we are expecting $1.4 billion with reverse, and indeed we have a $1.5 billion working capital release, mainly due to the effects of lower inventories, seasonality of payments of the gas and power marketing business. Of course, we continue to monitor closely and take action to minimize the working capital requirements, while facing in the next quarter some working cap release coming from exploration and production tax payment schedules. Our net investment second quarter amounted to $8.6 billion, and our guidance for 23 net investments is unchanged in the range $16 to $18 billion. The Board of Directors, as mentioned by Patrick Conqueror, for 23 is a shareholder distribution of more than 30% of cash flow, supported by our Canadian didactics, as expressed by the paper. The Board decided the distribution of the second interim dividend for the 23 financial year in the amount of €0.74 per share, up 7.25% year-on-year and authorize the company to buy back shares for an additional $2 billion in the third quarter of 2023. And with that, let's move to the Q&A. Thank you, Jean-Pierre.

Thank you, ladies and gentlemen. We will now begin the question and answer sessions. As a reminder, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. Please kindly mute any audio sources while asking a question. If you wish to cancel your request, please press star 2. Once again, please press star 1 if you wish to ask a question. The first question is from Christian Malek of JP Morgan. Please go ahead.