TotalEnergies SE Ordinary Shares

Ladies and gentlemen, welcome to Total Energy's second quarter and first half 2025 results conference call. I now hand over to Patrick Pouyanné, Chairman and CEO, and Jean-Pierre Sbrer, CFO, who will lead you through this call. Sir, please go ahead.

Good afternoon or good morning, everyone. Before Jean-Pierre goes through the details of the second quarter financials, I would like to make some few opening comments. We are facing an unstable geopolitical and macroeconomic environment, which has been dominated by during the quarter by the Israel-Iran 12 days war and also the tariff war between the U.S. and some commercial partners. In this context, all markets have been volatile during the second quarter, with price broadly fluctuating between $60 and $70 per barrel, an average of $68 per barrel, with a short and ultimately modest increase during the Iran crisis, with crude prices reaching $81 per barrel at the highest point. We could consider, in our view, that this is quite a limited price response to this major crisis. And somewhere it is a signal that the whole market is well supplied, in particular fueled by OPEC Plus' decision to unwind some voluntary production cuts and also facing a weaker demand linked to the global slowdown of economic growth. In such a context, and Jean-Pierre will detail that in a few moments, this quarter Total Energy is once again demonstrating the company's robustness thanks to its balanced and consistent strategy, but also thanks, and it's more important, to its differentiated and unique energy production growth profile, both in oil and gas and in electricity. And that drives cash flow growth as well as attractive and is a basis for attractive shareholder returns through cycles. So starting first with our first pillar, oil and gas, The first half of 2025 production was up more than 3% year-on-year. Demonstrating that we are well on track to achieve our 2025 upstream production growth guidance of more than 3% versus 24%. And as you know, it will be even longer up to the end of the decade, this 3% growth. And it has been supported, and it's also very important, by startups of high-return projects, such as the Balimo Film in the U.S. or Meru4 in Brazil. which, by the way, was one quarter ahead of schedule. And now, Begonia and Clove Free in Angola just came on stream to further feed the Q3 and H2 growth. As I said, importantly, this production is coming from this new project is accretive, increasing the upstream cash flow CFFO per barrel by around $1 per barrel as an average during the quarter, which is, in fact, quite impressive given our large production base. We are also continuing to manage this portfolio, focusing on our projects on which we meet our low-cost, low-emission criteria, and divesting some non-core, higher-cost projects. And during Q2, we consistently, with this strategy, we divested non-proliferative interest in non-core, higher-cost projects in Nigeria, Bonga, and Brazil, Gato do Mato. During the second quarter, we have also reloaded the exploration portfolio, by acquiring exploration permits in the U.S., in the Gulf, in the U.S. Gulf, in Malaysia, in Indonesia, and Algeria. On the energy front, the big news of the second quarter that we continue to strengthen the portfolio by signing a $1.5 million energy off-take agreement from Rio Grande Energy Train 4. We will become the shareholder of this train as well. And we have also taken, I would say, an option potentially on the future projects located on the Pacific coast of Canada, which give access to Asian markets and will benefit, by the way, from very cheap gas in Canada, in Alberta, Canada. On the second pillar, as you can observe, the integrated power continues to deliver solid results and solid cash flows to close to $600 million. is in zone track to achieve also its annual guidance. In line with our strategy, we also continue to unlock value in our power business by progressing farm downs. We have sold, during a quarter, 50% of our 600-megawatt portfolio of renewable assets in Portugal, and there is more to come in the second half. The Q-downstream results benefited from a positive seasonal effect of marketing and services activities, which have done very well. which, in fact, are stronger, with stronger results year on year. Despite near-term improvements in refining margins, to be honest, it's a small improvement in the second quarter, refining chemicals are still facing some headwinds, either on the operational side. Two refineries were not at the optimum, I would say, efficiency, Donge and Port Arthur. And also on the market side, it's more for the polymer business, which is facing overcapacities in the market. Moving to CapEx, during the first half of 2025, net investments totaled $11.6 billion, including $2.2 billion of net acquisitions, in particular the acquisition of ESB. I confirmed today, that was a full year, we anticipate the net investments will be within the $17.5 billion guidance range, given the disposal program planned for the second half of the year, which is already well engaged. In upstream, beyond our stake in Bonga, Nigeria, as announced, we have, in fact, this last week, approved some binding offers for our unconventional oil license in Argentina, and for two other E&P assets, which will represent globally $1 billion of cash flow. We are also working, and the E&P team is working hard, to close our divestments of onshore Nigeria before year-end. This represents next to $1 billion. In integrated power, we are very well advanced for the foundance of the 1.5 gigawatt portfolio in the U.S., a 250 megawatt portfolio in France, and 400 megawatt in Greece. which free farm downs will represent net divestments of CapEx of around $1.5 billion. The gearing stood by the end of June at 18%, increasing quarter to quarter, primarily due to net investments being weighted towards the first half of the year, in particular because of the disposal proceeds, but it was anticipated, and working capital more built on the first half and working capital built on the first half. Estimating the seasonal effects of working capital and the investment base, normalized gearing is 15%. I will conclude my remarks with the shareholder distributions. The message of the board is clear. We maintain shareholder distribution at a high level, I would say, as a payout could stand around 55% in 2025, which is, as you remember, quite above the guidance of more than 40% through cycles. First on dividends, the ordinary dividend is our number one capital allocation priority. We continue our track record of attractive growth. The board of directors approved a second interim dividend of 20.25 of 80 cents of euro per share, which is an increase of 7.6% compared to 24%. and it's up 25% versus pre-COVID. I would like to underline that in U.S. dollar terms, considering the evolution of the U.S. euro exchange rate, this increase of more than 10%, and it was 8% in 23, 8% in 24. So U.S. shareholders have the benefit of that. I would like also to underline that this dividend yield or dividend yield is the best among the majors. Then, comforted by the ability of the company to reach its 2025 underlying growth objective, in particular on energy productions on both sides, the upstream, which continues to deliver good results quarter after quarter, and also integrated power, while maintaining a strong balance sheet, the normalized gearing at 15%. The board has decided to continue share buybacks for up to $2 billion in the third quarter. The board will continue to monitor the buyback on a quarterly basis, looking to the evolution of the macro environment, but also on possible anticipations on the all-gas refining petrochemical markets. We intend to give you more colors on the buyback scheme at our investor day end of September. And now I will turn the call over to Jean-Pierre, who will go through the details of second quarter financials.

Thank you, Patrick. So I will start by commenting on the price environment in the second quarter. which was overall weaker quarter over quarter. Brent averaged $68 per barrel versus $76 per barrel in the first quarter, so down 10%. TTF, the European Gas Marker, averaged $11.9 per million per mTU versus $14.4 per million per mTU in the Q1, down 18%. And the average LNG price also decreased to $9.10 per million BTU versus $10 per million BTU in the first quarter, down again by 10%. For refining, the ERM, so European Refining Margin, slightly improved to $13.50 per ton during the second quarter, but, as mentioned by Patrick, still remained at low level. In this context, the company reported robust financial results, demonstrating the strength of our business model and of our operations, with adjusted net income of $3.6 billion and cash flow from operations of $6.6 billion for the second quarter, which were supported by attractive production growth. Profitability remains strong, with return on equity for the 12 months ending June at 14.1%. Now moving to the business segments, starting with hydrocarbons. As anticipated, second quarter production was slightly lower than the first quarter due to planned maintenance. However, on a year-over-year basis, the second quarter marked yet another increase in upstream production, which amounted to a strong 2.5% thanks to new projects, startups, and ramp-ups. On the cost side, the company continues to be a leading low-cost operator, which upstream operating costs at $4.9 per barrel for the first half of the year. Looking forward, we expect hydrocarbon production in the third quarter to increase by more than 3% compared to the third quarter, 24. Turning now to exploration and production. So this segment generated second quarter, 25 adjusted net operating income of $2 billion and a cash flow of $3.8 billion. Importantly, our project Q is delivering new, low-cost, low-emission oil and gas that is accretive with an average upstream CFFO per barrel equivalent that is roughly two times the base portfolio. In fact, during the second quarter, production from the new project improved the upstream CFFO per barrel equivalent by around $1 per barrel equivalent, generating something like $180 million more than if they had come from the base portfolio. On a cumulative basis of the first half of 2025, the extra CFFO generated by new projects totaled close to $300 million. An integrated LNG business. Our sales were stable at 10.6 million tons for the second quarter, and the company achieved $1 billion of adjusted net operating income and cash flow of $1.2 billion for the second quarter, reflecting the 10% increase in the average LNG selling price. related to declining crude price, as well as low market volatility for gas trading activities. Forward, European gas prices continue to be sustained at around $12 per million for the first quarter and for 25-26 winter periods due to storage replenishment in Europe. Given the evolution of oil and gas prices in the recent months and the lag effect on pricing formulas, the company anticipates an average energy selling price of $9 to $9.5 per million BTU in the third quarter. On integrated power, the net power generation increased 28% year-on-year to 11.6 TWh due to growth in renewable sources and the impact of the 1.3 GW CCGT acquisition in the UK closed in 2014. Integrated power adjusted net operating income was close to $580 million, up 14% year-on-year, and cash flow was $562 million. First half 25 cash flow total $1.2 billion, and we're on track to achieve the annual cash flow guidance. Lastly, we're progressing on the company's countdown strategy, which optimized, as you know, capital allocation. During the second quarter, the company sold 50% of a 600 million-watt portfolio of renewable assets in Portugal. And as Patrick mentioned, there is more to come, with the 50% farm-down of a 1.5-gigawatt portfolio in the U.S., 400 megawatts in Greece, and 250 megawatts in France. Moving now to downstream. Although we find the market improved during the second quarter, $35 per ton, overall will remain in a global weak price environment. In this context, downstream reported second quarter adjusted net operating income of $0.8 billion and cash flow of $1.5 billion. Results benefited from positive seasonality in marketing and services business with results higher year on year. In refining, the utilization rate increased in the second quarter due to improved efficiency and low maintenance. But the result suffers from some operational difficulties at Port Arthur and those refineries, as well as weak petrochemical margins as the polymers business is facing a global glut of new capacity in China and in the US. Looking ahead, we anticipate refining utilization in the range 80% to 85% in the third quarter, 2025, which reflects scheduled maintenance at Antwerp, Port Arthur, and HTC in Korea. In terms of downstream environments, in petrochemicals, we see continued pressure on pricing from the record incremental production capacity that was placed in operation in 22 and 23. And in SAF business, imports to Europe have significantly increased, pushing prices down and likely impacting value margin for the rest of the year. Moving now to the company On working cap, the company reported a $0.5 billion increase in working cap requirements, mainly due to the unfavorable effects of declining prices on tax liabilities and payments during the quarter of the capital gain tax from divesting the German distribution networks to alimentation costs. This was partially offset by the seasonal release on gas and electricity supply activities in Europe after a strong build in the first quarter. Note that the increase in the first half 25 working cap requirements of $4.9 billion is essentially at the same level that was reported one year ago in the first half 24. Looking ahead, the company expects that most of the seasonal working cap built that was observed in the first quarter 25 should be released in the second half of the year. On net investment sides, So net investment totaled $6.6 billion in the second quarter, which notably included the closing of the GSD acquisition for 1.6 billion euros and $11.6 billion for the first half of the year. We anticipate full-year net investments to be within the guidance range based on planned disposal during the second quarter half of the year at Patrick's pension. That means that the gearing by end of June is impacted by something like $2.6, $2.8 billion of capex. With that, Patrick and I are now available to answer your question. And now we can open the line.