TotalEnergies SE (TTE) 2006 Q1 法說會逐字稿

Good morning and good afternoon, ladies and gentlemen, and welcome to today's Total first-quarter results for 2006 conference call.

At this time all participants are in listen-only mode.

Later conduct a question-and-answer session and instructions will follow. (OPERATOR INSTRUCTIONS) As a reminder, today's conference is being recorded.

I will now turn over to your host Mr. Robert Castaigne, Chief Financial Officer.

Please go ahead, sir.

Hello, and thank you everybody for calling in.

I am concerned that this is not the first conference call for today, so I will try to be short.

The (indiscernible) market environment continues to be very strong, and I'm pleased to report that Total has had a very good quarter.

The first-quarter 2006 adjusted net income was $4.1 billion, showing an increase of 6% compared to the same quarter a year ago, and an increase of 12% sequentially.

Our adjusted earnings per share was $6.95, showing an increase of 8% compared to the first-quarter of 2005 and an increase of 12% over the fourth-quarter 2005. (indiscernible) tax rate for the group was 55% in the first-quarter, which is in line with the tax rate we had in the second part of 2005.

Our (indiscernible) for the twelve months ended March 30 reached a new record for the group of 28% which continues to rank us among the best in the industry.

CapEx, including $0.3 billion of acquisitions, was $3.3 billion for the quarter which is in line with our budget.

So overall we are pleased with these results, and now I will quickly, quickly review the results by segment of activity, and after that I will take your questions.

As seen first, our adjusted net operating income expressed in dollars increased by 22% in the quarter and (indiscernible) rose to an impressive level of 42%.

These profitability measures show that our upstream segment is one of the best in the industry.

Despite our highest ever tax rate this is the case mainly because of two key points.

First, Total continues to be the largest producer among the majors.

Based on the 2005 SEC filings, our technical costs are $2 to $7 per barrel lower than our peers.

Comparing 2005 to 2004 our technical costs per barrel increased by 6% while our peers have reported cost increases of 10% to 30%.

This disciplined cost management is a priority for us even in this type of environment.

And we believe that our high quality asset portfolio will allow us to keep this competitive cost advantage in the coming years.

The second point is that we have the highest liquid price realization among the majors which is a good indicator of the quality of the crude oil that we produce.

Over the past two years this has translated to roughly a $2 to $5 per barrel advantage over the other majors for the liquid price.

Our gas price realizations are tied mainly to (indiscernible) and LNG which tend to follow crude oil prices with a lag effect so the performance is also good.

A combination of our low breakeven point, high price realizations and disciplined management makes our upstream segment one of the strongest and most resilient among the majors.

Now looking at production volumes, we showed a decline of 4.8% compared to the first-quarter 2005.

About half of this decline was due to the price effect, and the other half was due mainly to the disruptions in Nigeria, and the divestment of our onshore U.S. production.

And so the enduring growth from recent startups was able to more than compensate for the unscheduled maintenance in the North Sea, and normal declines in major areas.

Looking at the change from the first quarter 2005 to the first-quarter 2006, the sequential decline was less than 1%.

In this case we had (indiscernible) production growth of about 2% from recent startups, notably Bonga, [pristine] [sarvy] and [nikosis].

However, this was offset by [zenois] of Nigeria which had an impact of about 30,000 barrel in the first quarter and U.S. divestments which were about 15 barrels per day in the first quarter.

The net effect is that we are left with a negative price effect of about 25,000 barrels per day which is about 1% as a main difference between the first and the fourth quarter 2006.

Looking now at our production for the medium-term.

Bolivia announced the nationalization of the oil and gas industry.

You may have some questions, but at this stage it is too early to draw any conclusions.

In any case, Bolivia is less than 1% of our production and other main metrics.

At this point assuming prices remain in the current range we expect our production in 2006 to start growing significantly when the benefit of the first-quarter startup of Dalia begins to flow through.

We have several major projects which should sustain our production growth in 2007 and 2008, well above the target average of close to 4%.

So far the upstreams' most important message is that we are close to the start of the period of rapid growth.

Further downstream the refining margin indicator fell to $25.8 per ton in the first quarter of 2006 from $45.5 per ton in the fourth quarter of 2005.

First quarter margins were high as a result of the hurricanes in the Gulf of Mexico.

The first-quarter 2006 margins decreased by 43% in Europe.

Total downstream segment results were fairly resilient as our adjusted net operating income was $0.8 billion with a decline of I would say only 22% from the first quarter compared to the 43% drop in the refining margins.

Refinery throughput was 2.4 million barrels per day in the first-quarter 2006 which reflected the turnaround at Provence and some repays at Flanders and in some of the refineries.

This was in line with the first quarter which had some downtime at both (indiscernible) refineries.

We are not anticipating major shutdowns in the second or third quarters 2006.

Looking forward, we are on time and on budget to start up the normal (indiscernible) this summer.

This will allow us to upgrade about 50,000 barrels per day of products and to produce more diesel and other light products.

In the current environment this will be a sizable contribution to the group downstream cash flow.

Chemicals now, the big news, of course, is a proposed spinoff of Arkema, which will be voted on at the next week's annual meeting.

From the Total perspective the Arkema spinoff will help us to restructure our chemical segment to reduce its relative weight in the capital employed to increase the (indiscernible) profitability and to change the composition of this segment so that it is more in line with our piece.

From a shareholder perspective this is an additional return in the form of adoption to focus on restructuring story in the chemical business with an experienced management.

Our first-quarter results for the chemical segment, which includes Arkema for the last time I would say, showed adjusted net operating income of $0.3 billion which was 35% higher than the first-quarter 2005.

For this chemical, NAFTA prices were higher, and margins were weaker especially in Europe than in the first-quarter but (indiscernible) increased.

Arkema results were better than in the first quarter but lower than in the first-quarter of 2005 due to weaker market conditions for the acrylics and vinyl products.

And the specialties were better I would say both better than both in the first and the fourth quarter 2005, getting the benefit of a stronger demand in Europe and of higher prices.

At the corporate level the balance sheet is very strong with a net debt to equity ratio of 26%.

That is about of our 25 to 30% target in anticipation of the dividend payment later this month.

Assuming the shareholders approve all of the resolution we will pay the balance of the dividend, EUR3.48 per share.

We will split the share by four and spinoff Arkema on the 18th of May.

We have continued our buyback program, and since the start of the year we have bought back close to 1% of our shares for about $1.6 billion.

For the medium-term we believe the oil market environment should remain quite strong.

From a strategy standpoint we are very satisfied with the range of growth opportunities that we are available to us.

In addition to the projects that we reduced during our February presentations, first we entered into the Sulige field in China to develop tight gas reserves in association with PetroChina, and we are finalized our entry into the Tahiti field in the Gulf of Mexico.

We continue to have significant exploration successes, particularly in Africa and in the Gulf of Mexico.

We are finalizing discussions to develop jointly with Saudi Aramco (indiscernible) refinery project in Saudi Arabia.

And we are working in more opportunities to further strengthen our unique long-term profile like the Brass LNG project in Nigeria.

Clearly this is a period of very strong cash flow for us, and we believe that we can invest in many high-quality projects that will become our building blocks for future growth.

And this should be as well significant free cash flow to support higher returns for our shareholders, including buybacks and further increases for the dividend in economic and very competitive manner.

So we are confident that our strategy to pursue profitable growth for our shareholders is working, and we will continue to work in the coming years.

So this concludes my comments, and I am now ready to take your questions.

(OPERATOR INSTRUCTIONS) Neil McMahon.

Good afternoon.

I got a few questions.

The first is what division of Arkema seemed to have strong earnings contribution over the fourth quarter 2005?

And what does Arkema do or what would Arkema do to your return on capital employed in the first-quarter '06 if it had not been (indiscernible) in the company?

What I mean is what uplift would you have seen in terms of your return in the first-quarter?

And I've got a few other questions, too.

Okay, so I think for the fourth quarter 2005 probably is a division that went -- no this is for the fourth quarter 2005 I think that they have good results in specialty and acrylics and that continues to grow very well.

Concerning the impact on the profitability, I think globally speaking the profitability of the capital employed in all the business of Total as you may have seen is in the range of 28%.

And for the now we think that on a profitability of Arkema is something in the range of 8 to 9%.

And so if you consider that the weight of Arkema is about 2% of our capital employed, I think it should be easy for you to recalculate what would have been the profitability without Arkema.

Great, I will go and hit my calculator buttons and work it out.

You can do that for me.

The other questions were your buyback program looks like it is slightly running below your historical levels and could potentially pick up after the May 18th -- looks like you got multiple things to do on that day with Arkema and the share split.

Have you got any increased guidance for the year in terms of increasing the buyback level?

And then just a final question is there any update in exploration activities in Nigeria?

In Nigeria?

Yes.

Concerning the buyback you know that it is far way we are just gearing, so we started the year with a gearing of 32%.

So I think it was necessary to reduce a little the gearing in order to remain in the range 25 to 30%, and I would say 25 rather than to 30% given the fact that we have in May made two pays on the balance of the dividend.

I think it is of course a level of buyback share buyback will depend on the level of the dividend.

I think we will see but probably we should -- if we remain with a pretty strong price probably something between the 3 to 4% but again it will depend fundamentally on the (indiscernible) of the oil price.

Concerning Nigeria, it is clear that we have pursued a lot of exploration, and especially in what we call (indiscernible) 221 -222 - 223 with several wells.

And I think that it is a bit too early to say something about the results of these exploration activities.

Globally speaking we continue to be very optimistic with our exploration in Nigeria, clearly, and I would say it is true for this permit but I would say it is true I would say on all our exploration area in Nigeria.

Thank you very much.

(indiscernible)

Hi, it's [Alistair Sun] at Merrill's.

Two questions.

One is very topical today, given one of your competitors talking about CapEx inflation in the industry.

I just wanted to get a sense whether the executive committee is concerned about the rapid rise in the capital inflation and whether the executive committee has considered delaying projects as a result of that.

And my second question, I just want to ask specifically on Dalia.

It is my understanding that the project has slipped a little in timing, and have you had any issues with the execution of that project?

Concerning CapEx inflation, it's clear that it is an issue for every oil company.

You know that for all the projects that we started between now and I would say the end of 2009, everything has been fixed, I mean especially the price of the rigs.

And I review recently the situation of the Company with regard of the rigs that we will require before launching new development and for our new exploration activity.

And I think that we are well-positioned, and we have taken some long-term position.

By long-term position, I mean one or two years.

Having said that time if we analyze a little more the situation of the rig availability, we have seen for several months new orders and now just to give you an example for the deep (indiscernible) offshore there are now something like 106 rigs in activity and 26 order for new rigs that should be available, something between 2007 and 2010.

So this is just to say that probably we are now to peak for the cost of drilling platforms and we can expect after two or three years to recover maybe slightly lower prices.

So having said to be more specific, we have no example to have to delay projects because of the very high prices of drilling platforms of -- and also prices for all services marginally speaking.

I think that we continue regularly to decide to develop new projects that are profitable if it is for development that are profitable with our price in the range of $30 probably.

So I think that it is probably because we are fortunate enough to have a good project.

So I don't know if it will last but clearly now I think we continue even with as the price of services that we have now to be able to continue to launch the development that we have with us.

Concerning Dalia, Dalia I think now, we do not expect any slippage.

I think that we should be on time to start the production in the first-quarter, certainly at the very beginning of the first-quarter 2006 with (indiscernible) that has been built into (indiscernible) should arrive very soon in Dalia.

And I think things are going pretty well, so I think we do not anticipate any slippage from the starting up of Dalia.

Thank you very much.

Yes maybe somebody want me make a calculation for Neil, and so in terms of the (indiscernible) benefit of the spinoff of Arkema should be something like 1%, plus 1% for the (indiscernible) of the group.

So thank you for the one who made the calculation from mail.

So next question.

[Mark Gillman].

Benchmark.

Good afternoon.

A couple of questions.

I noticed and I apologize if you addressed this in your remarks, significant increase in your short-term borrowing in the quarter which resulted in the very high cash position.

What was the thinking on that?

Just because usually during the year we make some arbitrage, and I think that you shouldn't draw any conclusion with that figure.

It is just a way for my people to make a little bit of money, that's all.

And something that it's usually the case, but we try to have, to reduce this position at the end of the year and this is the case every year, so don't draw any conclusion.

Okay.

Can you quantify for us the impact of the unscheduled maintenance in Norway, as well as any downtime in Nigeria on first-quarter production volumes?

Yes, in Nigeria it is something like 30,000 barrels per day that is a little north at 1% and the unscheduled maintenance I would say North Sea is something like -- I would say for North Sea I would say 1%, something like that.

But for both, Norway and UK essentially no (indiscernible).

I think it should be something like about the same figure 30,000 barrels per day.

Okay.

Could you give us an idea what the sales proceeds will be from the recently announced sale of Gaz de Strasbourg and Gaz de Bordeaux?

It is not major operation at the scale of the group.

I think the proceeds, it is a question of I would say I don't know something 50, 50 million is the order of magnitude.

It is something between 50 and EUR100 million, so it will not change the fortune of the group.

Okay and finally just one more the release discusses or refers to successful exploration results in both Yemen and the Congo in the quarter.

Could you possibly elaborate on that a little bit?

Yemen I think if the deepened part of (indiscernible) the lower regions.

And Congo I think they have two permits from the [monteli] one is Mer Tres Profonde Sud, so it's French but the name of the permit is in French where we are 40%.

And where we have made three discoveries.

And that is all (indiscernible) but I think it is a little too early to say more.

Thank you.

Hugh Williams.

[Hugh Williams] of Cazenove.

Two questions on a topic of heavy oils.

Firstly, just concerned that are sort of on track for the expected start ups at both Surmont Jocelyn during 2006?

Secondly, I am sure it is an area of some uncertainty currently but can you give us an update of what is really going on in Venezuela and how about what applied to any (indiscernible) expansion please.

Yes, concerning Surmont and Jocelyn, yes, we are totally attracted especially with new production that we expect for this year for Surmont with, I think the first phase that should start very soon I think but it is small production.

And we are now studying the developments of both Surmont and Jocelyn and up to now it concerns what we had in mind for the evolution of the production into coming years.

But as you know, this will be in fact essentially for the next decade before having significant -- before we can reach significant levels.

Concerning Venezuela, you know what has happened with to (indiscernible) but clearly we used to think in the past was that in the framework of the discussions that we had with the government, we had in mind to launch Sincor to operations.

I think that first concerning Jusepin you know that we have not accepted yet the proposition that were made to us, and we have made some discussions with the Venezuelan authorities.

And I think that we have to wait a little in order to have a better evaluation of the situation in these countries before making any decision.

So I think this is now too early to say something more for the project that we have in mind.

David Cline.

It is David Cline from ABN Amro.

Can you hear me?

A couple of things.

Firstly I notice that the upstream tax rate was similar in the first quarter to what you reported in the fourth quarter.

Yes in the first and fourth quarter, that's right.

I just wonder what your thoughts are in the remainder of the year as the UK tax changes take effect.

Second question, you mentioned in your remarks your negotiations with the Saudis on this big refinery in Saudi Arabia.

Total traditionally had been very cold about the idea of greenfield refineries.

And I'm wondering what is changed.

Is it your perception of long-term prospects for the industry, or is it something very special about this particular project?

Well concerning the evolution of the tax rate impact for the second part of the year for the upstream, yes there will be the impact of the expected change in taxes in the UK.

The order of magnitude for us I would say should be something the order of magnitude like EUR50 million per quarter -- I mean for the current tax charge.

So I think it should be easy for you to calculate the impact on the tax rate.

Concerning the project that we have with a Dubai refinery in association with Saudi Aramco, in fact as you may have seen this is clearly a project of a refinery which is designed to treat heavy oil.

And production of heavy oil will be in fact attributed to this project so that in fact this is a project that will have profitability essentially linked to the differential between the price of Arabian light and Arabian heavy.

So I think this refinery is more to be considered as a conversion plant plus some other refining plants attached to it.

So I think this is why finally we were convinced of the interest to participate in this project in association of Saudi Aramco, the idea being to have a stake lower than 50% in this project.

But again, before with Saudi Aramco being able to take a final decision, I think first we will have to make some study to have a better evaluation of the cost of the project.

And I think this will take probably something like one year.

Thanks.

(OPERATOR INSTRUCTIONS) Mark Gillman.

I wonder if you could help to clarify the fiscal terms concerning the Dolphin project.

I have seen somewhat confusing characterizations, and perhaps you might be able to give us some guidance as to how to assess the profitability of this project for you.

I say (indiscernible) that you call Jerome Schmitt for that.

If you want to have some more detail on the fiscal terms of Dolphin.

All I can say is for me Dolphin is a satisfactory project from the point of view of the profitability, even with an oil price impacted Dolphin and even with the type of gas price that have been fixed that are relatively low, I think that we should have satisfactory profitability.

So I don't know exactly how it works but I am sure that Jerome will give you all the details that you may want in order to have a better view.

And I take that opportunity to confirm that this project is developing well and that we should have production starting in 2007, I would say with the timing that was expected before.

So we are very satisfied with the project, with the development, with the way it has been conducted.

Thank you.

Lydia (indiscernible) from Lehman Brothers.

I think that might be Lydia (indiscernible) who works with me.

I've got a -- can you hear me?

I have a couple of questions for you.

Firstly, South American gas production was very strong this quarter compared to a year ago.

Could you confirm which country that comes from?

And could you comment on whether you see any of these risks that happened in political changes happened in Venezuela and Bolivia, if you see them moving into Argentina.

And secondly could you also say what's going to happen now on Cepsa?

Well I saw the production of gas, the increasing our production of gas, I think that it comes from what Carina in Argentina, from Indonesia essentially.

Concerning after that Argentina we spoke of the situation in Bolivia in Venezuela.

I think that the political situation in Argentina is a bit different.

It is very difficult to elaborate, especially in the framework of (indiscernible) that.

Argentina by the way is not also a country which is very easy every day, but I think it is fair to say that in this country we manage, we are able to continue not only to produce, but to develop our E&P activities and I would say successfully.

I think that recently we have obtained good results, and I think that in Argentina its more in the utilities that we have had some difficulties, but for the production in oil I think this (technical difficulty) satisfactory way.

Turning to Cepsa now, you know that an award has been rendered by the court of arbitration.

And I have noted that in fact all the claims that we made have been upheld by the court of arbitration.

First point is that it is clear that if it was clear for us and for the court of arbitration that the [banco de santo] breached its duty of good faith vis-a-vis Total.

As a consequence that it is clear that some of our rights have to be applied and in particular we are entitled to repossess the 8.3% of Cepsa that are currently owned for, I would say for our own share by [some endos] clearly.

And the parties, that is to say the banco de santo and Total, we have to act in good faith to wind up some endos.

The point that we have been recognized our (indiscernible) to acquire 4.3% of Cepsa.

There is a the point that I think this has to be mentioned is that the court will retain jurisdiction to determine the exact consequences of the banco de santo breach of its duty of good faith.

Up to the point the decision taken by the court of arbitration will have been implemented, and this is very important for us.

So finally, to summary, we are satisfied with the decision of the court of arbitration.

Clearly concerning Cepsa we are very satisfied with the company is doing, and we intend to remain I would say strategic industry shareholder.

Having said that, we have no intention to take the control of Cepsa, neither to take the control of the Board, nor to take the control of the equity.

And maybe I cannot that we have preliminary talks about this award, the decision taken by the court of arbitration with the banco de santo there.

And (indiscernible) cooperating with the court's decision?

(inaudible) communiqué issued by banco de santo that I think gives a good answer to your question.

I think the decision from the (indiscernible) I have a feeling that it is yes, but I think the best thing is that you read again the communiqué of the banco de santo.

Nicole Decker, Bear Stearns.

Could you just talk a little bit more about the refinery downtime in the quarter?

You talk about two refineries, but (technical difficulty) that there were some other turnarounds going on.

So if you would just verify that.

What is your current utilization rate?

And maybe an update on the hydrocracker project at Normandy.

Concerning the evolution of our refinery throughput in the first quarter of 2006, in fact first, we have the impact of the turnaround of our Provence refinery.

That explains a little more than 50% of the reduction after the throughout.

The other 50% can be explained by some shutdowns that we have especially in our Flander refineries but also a lot of some small problems in some of the refineries.

I have in mind (indiscernible) and altogether it explains a reserve of 3 to 4% for the reduction of the throughput.

Concerning the D&C in our Normandy refinery I think that we are well on track with the schedule, and I think the starting up is expected I would say end of June, beginning of July.

I think things are going very, very well.

And we are by the way very active with the way it has been built.

Thank you, and is there any turnaround activity going on right now?

No, no, no.

I think everything is going pretty well now.

Oh, yes, more specifically the utilization rate was for the first quarter of 2006, 86% compared to 89% in the fourth quarter, and 95% in the first-quarter of 2005.

That was (indiscernible) in fact a good figure is something on average between 90 to 93%.

And we have no turnaround for maintenance.

That is scheduled to fall the second and third quarter 2006.

(OPERATOR INSTRUCTIONS) That concludes the questions;

I hand it back to you for any closing remarks.

I would like to thank you, everybody, for being with us this afternoon or this morning for those who are in the States, and see you know in August for the presentation of the results of the second quarter.

So thank you, everybody for being with us.

Thank you ladies and gentlemen.

That concludes today's conference.

You may now disconnect your lines.

Thank you.