TotalEnergies SE Ordinary Shares

Ladies and gentlemen, welcome to the Total Energy's third quarter 2023 results conference call. I will now hand over to Patrick Pouyennet, Chief Executive Officer, and Jean-Pierre Sprart, CFO, who will lead you through this call. Please go ahead, gentlemen.

Hello, everyone. Good afternoon, or good morning if you are in the U.S. I will present with Jean-Pierre our third quarter results, which once again demonstrate the relevance of our strategy. Indeed, our transition strategy is anchored on both pillars, as we explained to you last September, oil and gas on one side, integrated power on the other side, and it allows us to fully leverage upside in supportive energy environments like the one we are experiencing today. As explained in our total strategy and outlook presentation at the end of September, we have stayed the course, and this quarter illustrates all these strategies in motion in all our business segments. Oil and gas, first. As you know, we have developed organically a deep portfolio of projects that are low-cost and low-emissions, which will offer a growth of production of 2% to 3% per year for the next five years. Thanks to this strategy, this quarter, we delivered a 5% increase of production compared to Q3 2022. Several new projects have been put into production, like Meruan in Brazil, Abshalon in Azerbaijan, Block10 in Oman, or Ratawi in Iraq. And they are more than offsetting our natural decline of 3% per year. The downstream is also contributing to this oil and gas business, in particular thanks to our capacity to combine an excellent utilization rate of our refineries with very robust refining margins. On the energy side, the recent price volatility in European gas markets, spiking as much as 28% in a single day during the quarter, is the most obvious example of real-time markets in tension. We capture value along the entire value chain and maximize the margins on both our dominant US and European positions. We are the largest US energy exporters, and we have reinforced This position this quarter with the sanction of Rio Grande LNG in Texas. And the largest, we are also the largest European gas capacity holders. And there again, we are enforcing this position this quarter with the commissioning of our second FSIU in France after the one in Germany earlier this year. The same integrated strategy extends, as you understood, to our integrated power business since the electricity market in Europe follows the gas market. as natural gas plus CO2 sets a marginal power price for many years to come. This market is again once characterized by growing demand and constrained supply, which creates opportunities in the market. As Jean-Pierre will explain to you, integrated power achieved a new milestone this quarter, with both adjusted net income and cash flow exceeding $500 million. We are well on our way to achieving our $2 billion cash flow target for the year in this business. We have announced this morning an interesting acquisition of the German market, which illustrates our integrated power strategy. Quadra is the second largest aggregator of renewable energy in Germany, with 9 gigawatts of virtual onshore wind farm, and offers a very interesting platform for getting value out of a power market dominated by renewables without capital implied in the asset, and so contributes to our profitability in this attractive market. I will write up my introduction by just saying again that the relevance of a balanced transition strategy between oil and gas on one side, integrated power on the other side has never been clearer. More energy, less emission, more cash flows, and this quarter illustrates this relevance with adjusted net income increased to $6.5 billion and CFO increased to $9.3 billion. Total generated $4.2 billion of free cash flow after net investments. Based on the strength of these results and the trust in Companies Outlook, our board approved a third interim dividend in up 7.25% year-on-year at €0.74 per share. Having said that, I turn it to Jean-Pierre who will give you more details through these solid third quarter financial results.

Thank you, Patrick. So now we're moving on to the detailed financial results, starting with our first pillar, oil and gas, which is the cash engine of today. Third quarter hydrocarbon production was nearly 2.5 million barrels of oil equivalent per day, which is notably up 5% year on year, as already mentioned by Patrick, thanks to the startup of several oil and gas projects. On oil, production benefited from new production from the first FPSO on Meru in Brazil, IKK in Nigeria, and our entry in the Hatawi oil field in mid-August in Iraq. Speaking of projects, Meru 2 should be online by the end of the year. Production also benefited for our entry in January into the Saab and Ululu concession in Abu Dhabi. On the gas side, production benefited from the startup of Blacktail in Oman and in Azerbaijan of the Absheron field. Although production was flat quarter-to-quarter, exploration and production posted strong quarterly results, with adjusted net income of $3.1 billion and FFO of $5.2 billion. The 34% increase in adjusted net operating income quarter-to-quarter was primarily driven by higher oil prices and a lower effective tax rate, which is a result of two effects. First, It results from the lower taxation rates on new barrels, Brazil, Azerbaijan, Iraq, compared to declining historic levels barrels, and it results also as a lower weight of North Sea barrels in the segment results for this quarter. Operating costs decreased to $5.5 per barrel this quarter. For the integrated LNG segments, we continue to demonstrate our leadership as a top global LNG player. Integrated LNG production is up 18% year-on-year and stable quarter-to-quarter. LNG sales were down by 5% quarter-to-quarter due to decrease in spot trading volumes in a less volatile environment, and LNG price sales was down 3% quarter-to-quarter linked to a softened environment. However, After our results have landed last quarter from the historic high exceptional results experienced in 2022, Integrated LNG maintained this quarter robust results with adjusted net operating income flats quarter to quarter at $1.3 billion and CFFO at $1.6 billion, down 8% compared to previous quarter, in line with sales down by 5% and prices by 3%. Despite entering the winter period with high natural gas inventories in Europe, in a tense market, gas prices remain at good levels and very reactive to production disruption, as we have seen over the last several months. Given the evolution of oil and gas prices in recent months and the lag effect on price formulas, we anticipate that our average LNG selling price should be above $10 per million BTU in the fourth quarter of 2023. For the combined downstream, adjusted net upper income and safe FO increased sequentially to $1.8 billion and $2.2 billion, respectively. Despite lower petrochemical results due to the European environment, our results reflect higher refining margins in Europe and a higher utilization rate during the third quarter, which was supported by greater availability of our French refineries to be noticed for once. The utilization rate on processed crude increased quarter to quarter to 84%, despite having an unplanned shutdown at the Poartour refinery in the U.S. For the fourth quarter, the utilization rate should be above 80% and includes the restart of Poartour in mid-November. Moving now to the second pillar. We continue to develop a profitable and differentiated integrated power model. building a world-class, cost-competitive portfolio that combines renewable assets, solar, offshore, wind, onshore wind, and flexible assets, such as CCGTs and storage, to deliver clean, firm power. As mentioned by Patrick, this quarter will achieve a milestone in the integrated power business segment, with adjusted net income and cash flow both exceeding $500 million, and we are well prepared on our way to achieving our targets of generating $2 billion cash flow in 2023, having already generated close to $1.5 billion through the first three quarters. All the value chains contributed this quarter to these $508 million results, renewables, flexible assets, and trading, supply to customers as well. During the third quarter, we also acquired 100% of TotalRN, which contributed to the growth of our electricity productions, and results. Early October, we signed a corporate PPA with Saint-Gobain in the US to supply clean power from our Danish field solar farm in Texas. The agreement is a good illustration of our strategy in integrated power, as it includes an upside-sharing mechanism under which both companies share potential upside arising from spot market prices over the contract term. We recently achieved another milestone Earlier this month, our Seagreen offshore wind farm in Scotland became fully operational and is running at the design capacity of more than 1 gigawatt. This project was delivered within budget, only 5% cost of the run, and is Total Energy's biggest offshore wind farm globally. I'll wrap up with CapEx and shareholder returns. Year-to-date net investments as of the end of the third quarter, totaled $16.1 billion. As a reminder, we expect to receive cash proceeds from the sales of our Canadian assets and from the deal with Alimentation Couchetard in the fourth quarter. Therefore, we reiterate full year guidance of $16 to $17 billion of capex this year. Our balance sheet is strong. Our gearing slightly increased from 11.1% at the end of the second quarter to 12.3% at the end of the third quarter. That is mainly due to the consolidation in our accounts of total errand debts. Proceeds from disposals should bring gearing back below 8% by end of the year. Over the last 12 months, ROHHA was 20.1% and return on equity was more than 22%. In September, we raised our annual payout guidance from 35-40% of cash flow to more than 40%. We're on track for 2023, having paid out a cumulative 43% through the third quarter. Our payout is a combination of ordinary dividends and buybacks, as we believe our stock, despite having reached its historical high this quarter, is still undervalued by the markets. We bought back $6.1 billion of stock through the third quarter, and so we are well underway in executing our $9 billion buy-buy program for full year 2023, as the Board decided to allocate $1.5 billion of Canadian sale proceeds to this buy-buy program in 2023. This concludes my comments, and now we can move to the Q&A.