TotalEnergies SE Ordinary Shares

Ladies and gentlemen, welcome to Total Energy's third quarter 2025 results conference call. At this time, all participants are in listen-only mode. After the speech, there will be a question and answer session. To ask a question during the session, you will need to press star and 1 on your telephone. I must advise you that this conference is being recorded today on the 30th of October 2025. Thank you for holding. The conference will begin shortly. Right after this message, please clearly announce your first name, surname, and cite your company name. Thank you. Thank you. Thank you. Ladies and gentlemen, welcome to Total Energy's third quarter 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. Good morning, everyone. Before Jean-Pierre goes through the details of the third quarter results, I would like to make a few opening comments. Almost exactly one month ago, we updated you for strategy during our Capital Markets Day in New York, and we had four key messages, consistency and resilience of our two-pillar strategy, strong and secure production growth in our oil and gas business, a creative cash flow generation, and capital discipline. I believe that this company has strong third quarter results, but again Jean-Pierre will detail with you, perfectly illustrates these key catalysts and highlights the value proposition of a consistent and profitable growth model. The strategy is still in motion and is translating into more cash flow, even in a more challenging environment. Indeed, despite oil pricing dropping by more than $10 per barrel year on year, the cash flow for the third quarter increased by 4%, and adjusted net income for the third quarter held steadily. Why? Primarily for two reasons. First, the hydrocarbon growth, production growth is a reality and is highly accretive. The new project barrels coming online, such as Mewfields in Brazil, deepwater projects in the U.S. offshore for oil, Tura and Phoenix for gas, have an average cash flow margin that is roughly twice higher than the base portfolio, and they have contributed 170,000 barrels per day during the first nine months of 2025 compared to 2024. These new barrels have generated around $400 million of additional cash flow year-on-year, so growth volume around $200 million and higher margin, another $200 million. And so they have contributed to absorb the equivalent of $6 per barrel of decrease in the Brent in terms of cash flow. So that's, I think, a strong demonstration that a disciplined investment framework that includes strict sanctioning criteria, less than $20 per barrel technical cost, or $30 per barrel break-even for E&P projects is delivering its fruits. And we expect, of course, that the cash flow tailoring from new high margin barrels will continue as we work our way through our deep project queue. As a reminder, starting from 25, continuing in 26, the company is growing upstream production by 3% per year for 2030. And what is the differentiation factor that stands out of our business model? is clearly that more than 95% of this production by 2030 is already either online or under construction, and largely under lump-sum EPC contracts, which means there is a cost. So projects are in hand, and we are executing them. And again, this year and this last quarter demonstrate that we are well in the delivery mode. Some people think we are boring, but we are boring for the good. Cash is growing. The second pillar of these good results have been the recovery of the downstream, which contributed to the company's resiliency, with cash flow up by almost $500 million. It is true that the refining markets were better, but it's also true that we managed to capture them. Thanks to a good availability of our assets, and in particular, there were several turnarounds during the quarter, but they were executed in time, in schedule, and in budget, and it allows us to reach our objective. And of course, marketing and services continue to deliver consistent results and demonstrate that the priority given to value over volume in this segment is the right approach. In addition to highlighting the strength of our consistent strategy, this third quarter demonstrates as well that we are delivering the short-term, specifically on the second half 2025 plan that we laid out during the July earnings call, which included four key elements. Again, the accretive production growth, giving more cash flows. A downward inflection in our net investments, coming back to the capital discipline, which decreased by $3.5 billion quarter over quarter. A reversal of the seasonal working capital, as we have released this quarter of $1.3 billion. And lastly, of course, all these elements improve the gearing, which is now classed to 70% compared to next to 18%. So the end result is that during the third quarter, at $69 per barrel, the company generated excess free cash flow, with cash flow including working capital variation, more than covering net investment, plus $4.5 billion of shareholder returns in the form of dividends and buyback. It's leading me to shareholder returns. The company, of course, continues its strong track record of dividend growth. The board of directors decided to increase the third interim dividend of close to 8% in euro and more than 10% in dollars compared to 2024. On the buyback side, as announced on September 24, the Board of Directors authorized up to $1.5 billion of share buybacks for the fourth quarter of 2025. And therefore, assuming annual cash flow between $27.5 and $28 billion, in particular supported by the better refining margin that we observe currently, the 2025 payout ratio is expected to remain around 56%. Looking forward, we expect to maintain a strong momentum for the fourth quarter. Upstream production is anticipated to grow more than 4% year on year, like this quarter. The net investments are expected to decrease quarter over quarter in particular because we will deliver the disposal proceeds, $2 billion expected, and at the end, the net of acquisition will represent $1.5 billion of cash inflow in the balance sheet, and that with another anticipated positive contribution from the seasonal working capital, we anticipate to continue to strengthen the balance sheet with gearing forecasted further decline to 15%, 16% at year-end. Last but not least, we have approved the roadmap to transform our ADRs into ordinary shares, and we're happy to announce that we ordered today J.P. Morgan to launch the termination process of the ADR program with the objective that ordinary shares are expected to begin trading on the New York Stock Exchange from December 8th. This is, of course, an important milestone for the company, as it will allow for a single class of total energy shares to trade with extended hours. It will be essentially a continuous listing from Paris 9 a.m. to New York 4 p.m., 10 p.m. Paris time. And we hope that this ordinary shares listing will be a clear catalyst for the stock in 2026 in both Paris and New York markets, and in turn, to market his ordinary shares on the U.S. market even more actively than today. I will now turn the call over to Jean-Pierre, who will go through the details of these first quarter financials.

Thank you, Patrick. I will start by commenting on the price environment in the first quarter versus the second quarter. Brent averaged $59 per barrel during the first quarter versus $68 per barrel in the second quarter, up 2%, but down more than $10 per barrel compared to the third quarter, 24%. EDF averaged $11.3 per million BTU versus $11.9 per million BTU, down 5%. And the average LNG price decreased to $8. $9 per million BTU versus $9.1 per million BTU, down 2%. On the other side, for refining, the European refining margin significantly improved to $63 per tonne compared to $35 per tonne during the second quarter, up close to 80%. In this price environment, the company reported strong financial results with third quarter 25 cash flow increasing by 7% compared to the second quarter, and adjusted net income increasing by 11% thanks to the continued positive impact of the new attractive upstream barriers and strong downstream results that reflect the company's ability to capture higher refining margins in Europe. Overall, profitability remains strong, with return on equity for the 12th month ending September 30th at 14.2% and Roacher close to 12.5%. Moving now to the business segment, starting with hydrocarbons. On a year-on-year basis, third quarter hydrocarbons production exceeded expectations and increased by more than 4%, making it the company's highest growth quarter so far this year. We anticipate that this trend will continue with fourth quarter hydrocarbon production expected to grow more than 4% compared to the fourth quarter of 24, notably benefiting from the restart of XSLMD in Australia. Turning to the quarterly results and starting with exploration and production, this segment generated during the third quarter of 25 an adjusted net income of $2.2 billion, up 10% quarter over quarter, in a similar price environment and outpacing quarter-over-quarter EMP production growth of around 4%. Similarly, cash flow growth was strong at $4 billion, up 6% quarter-over-quarter. Importantly, our project portfolio is delivering new low-cost, low-emission oil and gas production that is attractive, with an average upstream CFO per barrel that is roughly two times the base portfolio. Regarding an ENP project, we are progressing on all fronts. On the project side, we have achieved first oil in Begonia and close to three offshore fields in Angola, and we sanctioned phase two of the redevelopment of the Ratawi oil field in Iraq, which is part of the GGIP project. As we have now launched all phases of GGIP, we are looking forward to the first oil for phase one of the redevelopment early 26th. On M&A, the company is consistently high-grading its portfolio. During the last earnings call, we mentioned that we are expecting several E&P divestments in the second half of the year. And during the third quarter, we divested two international blocks in Vaca Muerta in Argentina, which closed this quarter, and three satellite fields on Ecofisc in Norway, out of our strict investment criteria, which is expected to close in the fourth quarter. And lastly, on exploration, We continue to reload the hopper to complement existing opportunities. And this quarter, we announced new license awards in Nigeria, in the Republic of the Congo, and in Liberia. Moving to integrated LNG. Third-quarter LNG sales of 10.4 million tons were essentially flat quarter over quarter as third-party purchases offset lower sales from equity production. Cash flow of $1.1 billion was in line with the second quarter in a stable price environment with an average energy price of around $9 per million. Adjusting net operating income of $0.9 billion was down 18% quarter over quarter, primarily due to the plant surrounds at ICTIS LNG in Australia that impacted production, but by around 50,000 barrels of oil equivalent per day for the quarter. On the price outlook, forward European gas prices continue to be sustained at around $11 per million BTU for the first quarter of 2025, as winter 2025-2026 due to anticipated winter demand. 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 saving price of around $8.5 per million BTU for the first quarter of 2025. On the adjustment of our LNG strategy, we are pleased to continue to grow our U.S. presence with the recent FID on Rio Grande LNG 24 in South Texas, and we enhanced resilience in our LNG and gas-to-power strategy by acquiring interest in shale gas assets from continental resources in the Anadarko Basin in the US. Turning to integrated power. Net power generation increased 9% quarter over quarter to 12.6 terawatt hour due to increased outputs from flexible generation capacity in Europe. The value of total energy unique integrated model is illustrated in the third quarter financials. Total cash flow from operations was $0.6 billion, up 9% quarter over quarter, and in line with annual guidance. To provide more granularity in the integrated power financial performance, this quarter, we disclosed the splits in cash flow between production assets, renewable and gas-fired power plants on one side, and sales activity, B2B, B2C, and trading on the other side, showing that each contributed equally During the third quarter, the company has executed well on the farm downside of its integrated power business model, which contributes capital recycling and will generate a tailwind for free cash flow in the fourth quarter. The company signed an agreement for the sale of 50% of the 1.4 gigawatt renewable portfolio in North America. and close the sale of 50% of 270 megawatts renewable portfolio in France. These deals have combined cash impact of around $1.5 billion, and in this deal, Total Energy retains a 50% stake in the assets and will continue to be the operator after closing and to offtake 100% of the electrons. This is in line with our business model. As an important reminder, our effective upstream growth is not the only contributor to the company's resilience. Integrated power will take a key role in this too, since it is a differentiated and growing cash flow stream that is outside of crude cycles and with strong demand fundamentals. Moving to downstream, as Patrick mentioned, during the third quarter, downstream efficiently captured the high retaining margins in Europe and contributed to the company's resilient financials. Third quarter adjusted net operating income of $1.1 billion was up more than 30% quarter over quarter. Cash flow of $1.7 billion was up 11% quarter over quarter, thanks to good availability of assets that allowed us to successfully capture improved European margins. In terms of free cash flow during the third quarter, downstream cash flow from operating activities exceeded net investment by over $2.5 billion. In refining, the European refining margin marker strengthened during the third quarter due to the tension on the diesel supply chain in the context of low inventories. Utilization was 84%, which was towards the high end of the guidance range of 80% to 85%. and it reflects efficient operations and planned turnarounds at Porastur in the U.S. and HTC in Korea. In marketing and services, results remain consistently strong, with high-margin activities offsetting lower volumes. Looking ahead, we anticipate refined utilization of 80% to 84% in the fourth quarter, which accounts for scheduled turnarounds at Antwerp and Satop. Moving now to the company level and starting with working capital. As expected, we benefited from the working cap release during the first quarter, which was $1.3 billion, positive contribution to cash. Furthermore, for the fourth quarter, we anticipate another positive contribution. On net investments, They meaningfully decreased to $3.1 billion in the first quarter, which includes $0.4 billion of divestment net of acquisitions. In the fourth quarter, as mentioned by Patrick, disposals are estimated to total $2 billion, including the closing of Nigeria and Norway divestments for exploration and production. as well as farm-down of renewable assets in North America and Greece for integrated power. And we reiterate full year 25 net investment guidance of $17 to $17.5 billion. Based on anticipated net investments and working gap, we expect gearing to decrease to 15% to 16% at year-end compared to 17.3% at the end of the third quarter. With that, Patrick and I are now available to answer your question. And the operator, so please open up the line for questions.