TotalEnergies SE (TTE) 2008 Q2 法說會逐字稿

Ladies and gentlemen, welcome to Total's second-quarter results conference call.

I now hand over to Patrick de la Chevardire, CFO.

Sir, please go ahead.

Thank you.

Because it is my first conference call let me introduce myself.

So I am Patrick de la Chevardire and (inaudible) you can call me Patrick and you can call (inaudible) if you need help to spell my name.

I became the CFO of Total on June 1st following Robert Castaigne's retirement the day before.

This more I think was prepared in advance for almost two years.

And there was a period I had the opportunity, indeed the pleasure, to meet with many of you.

In any case as you probably know, I have been with Total for more than 25 years.

I've been the deputy CFO of (inaudible) for the past five years.

Before we get to the results I thought that some of you may be wondering how things will change at Total with the new CFO.

So let me take a minute to address this point.

We at Total have maintained a very consistent strategy, one that is based on financial discipline, and this will not change.

For my part I will focus on keeping the balance sheet strong and maintaining financial flexibility for the Company, using strict investment criteria to determine the right balance between risks and rewards on our projects, funding our very competitive dividend growth and maintaining transparent and efficient communication with the market.

We will continue to demand returns on capital employed and project management performance including cost control that is at the level of the best of the industry.

Total has been doing this for many years and I fully expect that we will be able to do this in the years to come.

So that was a brief introduction.

Now I will get on to the business at hand which is the second-quarter results.

Our results are straightforward.

In the second quarter crude oil price rose to historic new highs and we are reporting another new record level of earnings.

For the second quarter compared to the same quarter last year we have adjusted net income of $5.8 billion $5.8 billion in versus $4.2 billion an increase of 39%.

Earnings per share of $2.58 per share versus $1.83, a 41% increase and (inaudible) share of the business segment of 29%.

We are again among the best performing super majors thanks to very good upstream performance and to downstream segments that did better than most of our peers mainly thanks to good distillate margins this quarter and also resilient marketing.

Looking at cash flow again versus second-quarter '07 -- adjusted cash flow from operations, which it is based on replacement cost before change in working capital, was $7.5 billion compared to $6.2 billion in the second quarter '07.

CapEx was $4.5 billion compared to $3.6 billion last year, so we are in line with our 2008 budget of $19 billion.

And our gearing at the end of June was 25%, well within our target range despite a strong increase in the working capital.

In the second quarter we bought back 7 million shares for about $0.6 billion.

In terms returns to shareholders, the most important point is that we paid out about $4 billion for the semiannual dividend in May.

I think our second-quarter results demonstrate that we are well leveraged to this high price environment and our track record on dividends shows that we are confident about the success of our strategy and committed to returning value to our shareholders.

I will comment now briefly on the segments and go to the Q&A thereafter.

First, the upstream segment.

In terms of adjusted net operating income, which is the indicator we focus on, the upstream segment earned $4.8 billion in the second quarter.

This represents 82% of our adjusted net operating income from the business segments compared to 69% a year ago.

You can see how geared to upstream we are becoming.

And even at this price level the sharp increase in the upstream results shows that our sensitivities are working.

Our reported production volume was 2.35 million barrels per day.

Because of seasonal maintenance the best comparison is with the second quarter of last year.

In this regard we show an increase of 1.3%.

Excluding the price effect and portfolio changes the underlying growth was 4%.

The key elements affecting production in the second quarter were the following -- on the plus side the ramp up to plateau production on '07 startups, such as Dalia, Rosa, Shah Deniz and Dolphin, the start up of Moho-Bilondo in July and April and May respectively, and scheduled maintenance that were down slightly versus a year ago; on the minus side the price effect related to the $52 per barrel increase in Brent since a year ago, the natural decline and the unscheduled shutdown on Al Jurf in mid April that accounted for about 10,000 barrels per day on average this quarter.

Looking ahead Jura right produced about 10,000 barrels per day on average in the second quarter and the plateau of 50,000 barrels per day should be reached by end of the summer.

Moho-Bilondo will continue to ramp up and should reach its plateau in '09.

Scheduled maintenance in the third quarter should be comparable to last year and will affect mainly Troll in Norway and Alwyn in the UK North Sea.

And Al Jurf should restart in the fourth quarter.

On a sequential basis comparing to first quarter '08 reported volume should decrease mainly because of maintenance and price effect.

In terms of oil and gas prices, the second-quarter '08 benchmark Brent price increased by 76% from a year ago.

Our average realized liquids price was $115 per barrel in the second quarter and this represents an increase of 75%.

So we move in line with Brent.

On average, including gas, our realized hydrocarbon price rose $87 per barrel, an increase of 66%, and this correlates well with the 69% increase in net operating income per barrel.

At the same time costs also continue to increase at a pace close to last year, mainly because of FX, the impact of new projects and inflation, which was limited by our ongoing cost control efforts.

(inaudible) ROACE was 41% for the past 12 months and 47% on an annualized quarter basis compared to 33% a year ago.

This continues to be among the best in the peer group.

And looking ahead it seems clear, despite recent drops and the current volatility of the market, that we have moved into a structurally higher price environment.

Operationally our projects, mainly Yemen LNG and Akpo are moving forward well and we are confident of our ability to continue to deliver solid results.

Let's move in the downstream now.

Our results were very good compared to our peers.

Our second-quarter European refining margin indicator averaged $40 per ton.

This was a little bit lower than the $43 per ton we averaged in the second quarter '07, but well above the $25 per ton we averaged in first quarter this year.

Refinery throughput was 2.3 million barrels per day second quarter '08 compared to 2.4 million barrels per day first quarter '08, a drop of 4% linked mainly to the full 50-day shutdown of Leuna for scheduled maintenance in second quarter '08.

Most of you know that this is one of our most sophisticated and profitable refineries.

The environment for the marketing business was generally good, but it continued to reflect the impact of higher refined product price, particularly in June and direct effect on various projects.

Adjusted net operating income for the downstream was $0.9 billion, this represents a limited decrease of 10% compared to the second quarter '07, mainly linked to a weaker contribution from equity affiliates namely from CEPSA in Spain and Wepec in China.

Compared to the first quarter '08 downstream results have doubled.

The downstream ROACE was 16% for the trailing 12 months and 19% on an annualized quarter, so really this is quite robust.

Looking ahead our key (inaudible) European indicator refining was a little above $30 in July, comparable to the average of last year, but lower than in the second quarter.

Gasoline margins are weak but distillate margins are still good driven by robust demand.

Leuna has been back in production since the end of June.

Maintenance activity in the third quarter should be limited to partial maintenance in Provence and [Cesar] starting in September.

Marketing, mainly through volumes, is under some pressure but resilient again in part due to cost control.

Construction is underway in for modernization at [Boatu] refinery.

This project was approved in February of this year.

And we are also moving forward on the Jubail refinery project in Saudi Arabia.

A few words about chemicals.

Adjusted net operating income for the chemicals was $109 million.

The specialties continued to perform generally quite well despite some sign of slowdown in demand.

The adjusted net operating income of the chemicals segment in the second quarter was essentially generated by the specialties.

The base chemical, on the other hand, basically broke even in the second quarter.

The sharp increase in the price of naphtha combined with generally weak demand in the Atlantic Basin market created a difficult environment for this sector.

So the ROACE for the trailing 12 months was limited to 8% which is disappointing, but this reflects the cyclical nature of this business.

In terms of strategy we are developing new low-cost capacity that is more leveraged to the oil price in the Middle East and Algeria that, together with the Samsung JV should represent more than 50% of our chemical net operating income by the middle of the next decade.

And finally the corporate side.

As I said at the beginning of the call, we paid about $4 billion in dividends in May.

Our next dividend payment, the interim dividend, is set for November and, as was the case last year, it will be approved by our September Board meeting.

As we have said before, we have a preference for using the dividend of our buybacks to return value to our shareholders.

I should point out that we plan to adopt a border target range for our gearing by moving the lower end of the range down to 20%, but keeping the high end of the range at 30%.

This will give us more room to maneuver in this environment.

We will manage gearing by continuing to buy back our shares with some of our free cash flow.

So far this year we have both 18 million shares for $1.4 billion and I can confirm that we consider Sanofi to be non-core so we will be selling it.

Total is really well positioned to profit from the current environment.

Our portfolio of producing assets is performing very well and we are generally satisfied with the progress we are making on the development of our new projects in the upstream and also in the downstream and chemicals.

So now let's start with the Q&A.

(OPERATOR INSTRUCTIONS).

Jean-Luc Romain, CIC Securities.

I have a question about your schedule developments.

(inaudible) announced that (inaudible) the development of Block 31 in Angola and original way with an agreement to develop all discoveries in several phases.

Do you already have something in mind for the development of Block 32 and could it be similar to BP's way?

Well, Jean-Luc, on Block 42, we Total, we are the operator with 30%.

We made four discoveries in '07.

All developments to these are underway currently for development of (inaudible) which I think his name is Center [Sofist] to develop the discoveries of [Gengibre], [Gindunguc] and (inaudible), [Mostada] and [Salsa].

And [Lugu] is not yet finalized -- the appraisal of Lugu is not yet finalized.

And I think it's too premature to say when we'll be ready to launch this project at that stage.

And there are other developments to these other (inaudible) to follow I'm sure of that.

Thank you very much.

Alan (sic) Smith, Dresdner Kleinwort.

Good afternoon, Patrick.

It's Colin Smith actually from Dresdner Kleinwort.

I'm sure you're aware of that Gas Natural is proposing to buy Union Fenosa and is apparently planning to sell its 5% stake in CEPSA.

I wondered if you could comment on whether you'd be interested in acquiring that?

We always say about CEPSA that we are happy with our 49% stake and that's it.

Okay.

This is a straightforward answer, I'm sorry.

Neil McMahon, Sanford Bernstein.

Just a few questions.

First of all, just on your comments on Sanofi and also on your cash position and outlook for shareholder returns for the rest of this year.

Maybe it was just lost a bid in translation.

Have you made a change in Sanofi?

You said you wanted to sell it historically but doing at your own pace, being flexible given the market conditions.

Your final statement there seemed a lot more blunt and firm suggesting something might happen more imminently with the entire stake?

And secondly, maybe you could just walk through if conditions in the commodity markets stay roughly where they are for this year, will you be using more of your cash as a distribution going forward either in buybacks or dividends than you had originally planned?

And I've got a follow-up.

Okay, your first question was on Sanofi.

I repeat and this is a position of the management of the Company, Sanofi is not a core asset and we will sell it.

The second question was about shareholder returns and the use of cash.

If you will remember, and there is no change -- and on Sanofi, by the way, this is not a change -- we will sell it.

On the cash issue, we adjust our gearing by the share buyback.

So we blend all the cash flow from operations.

We first pay for CapEx, we pay for dividend and then we adjust the gearing by share buyback.

There is no change in the policy in that respect in the Group.

Okay.

And maybe a different question, looking at your gas assets going forward.

Obviously in the last three to six months you've undertaken some high profile LNG sales into China.

Of your future LNG business in terms of Yemen and maybe looking forward on your other businesses that are currently producing, what proportion of future LNG have you still got to sell through a contract?

So I'm wondering if we're going to see more contracts like the ones you've written with the Chinese coming up.

And also, if you could give us an update on the [excess] development as well?

Okay.

There are several new projects where we will be a taker -- [Slovit], Yemen LNG, Qatar Gas 2, [Trent] -- and overall offtake will be used to supply customers.

The current market provides arbitrage opportunities to divert cargo from the Atlantic basin to Asia basically.

And by drilling up our portfolio of say purchase of LNG we will be able to capture part of this additional margin.

On [Iktis] we are currently in the process of choosing the placed where we will have the LNG plant itself.

I think I'm right, I think there are three potential locations we are working on it.

One is the [Merritt] Island, the second one is downwind and there is another possibility with a joint in Kimberley.

This process of selecting the location of the LNG plant will be completed I think late this year.

That's the progress we have on Iktis.

And I think the (inaudible) is somewhere by end of 2009.

Great, thank you.

Alastair Syme, Merrill Lynch.

Can I come back to the comment you made in your prepared remarks about cost inflation in the E&P business being similar to 2007 levels?

Just looking at what you reported in 2007, that implies unit cost inflation of about 30%.

Is that what you're saying -- it's quite a big number?

No, this is not what I said.

We expect an inflation for a this year -- double-digit inflation, this is specifically what we said.

And we have seen OPEX inflation and CapEx inflation in the same range as we have seen last year, but altogether we see an inflation of both (inaudible) 10% roughly.

But I never said 30%.

Okay, I'm still a bit lost.

30% is double-digit.

You're right, 9% or so is double-digit.

I don't want to be flippant, but the cash cost inflation last year was quite big.

Do you think it will be close to that sort of level?

I maintain the range of about 10%.

Thank you.

Irene Himona, Exane BNP Paribas.

Good afternoon, Patrick.

I had a number of questions.

A lot of your competitors had reported this quarter material noncash effects from market to market of derivatives under IFRS.

Is that not an issue for Total?

Then I have a subsequent question as well.

Do you want me to answer the question first prior to you asking the other questions?

My other question was on Nigeria, if you could clarify for us the impact on Q2 volumes and what should we assume for the rest of the year?

And my final question was on Sanofi.

Just to clarify, does Total legally have to disclose transactions in Sanofi stock or not?

Thank you.

The first question was about derivative and noncash items.

That's right.

We apply IFRS rules so we review our position on a mark to market basis.

The affect in our P&L is extremely limited as of today.

Both hedges we are implementing are very strict and we apply very cautious limits and rules about it.

As the risks are very limited and the profit and loss associated to that are not significant in respect of our size.

So that was for the first question.

The second question was about Nigeria impact on Q2 volume.

Could you elaborate a little bit more on your question?

Yes, I was wondering what the amount of -- how many barrels basically you are losing in Nigeria due to the disturbances?

Okay.

Mainly we are affected by the Nigeria unrest on the SPDC joint venture where Shell is the operator.

Basically this SPDC joint venture has the capacity to produce 1 billion barrels per day and is currently producing 400 million barrels per day.

So we basically are losing currently 60,000 barrels per day.

Thank you.

On Sanofi we do not have to make any specific disclosure.

Are you prepared to say whether you may have been selling some shares in the last three or six months?

I'm not.

Okay.

Thank you very much.

Sorry.

Lydia Rainforth, Lehman Brothers.

Patrick, good afternoon.

I have two questions if I could.

The first one just on Synenco.

Could you just tell me when you expect that deal to close?

And is there any indication at this stage of what CapEx will need to go in to develop those assets?

And then secondly, just a point of clarification.

On most of the 20% to 30% gearing range, why has that moved from the 25% to 30% previously?

Okay.

On Synenco, the offer closed on the 5th of August, and honestly I don't have any figures in respect of the potential CapEx.

It's several billion dollars, but I don't know exactly how much.

And you may think of Synenco development being -- altogether be part of the overall development of our portfolio in this area.

On the gearing, which -- in the past we used a 25% to 30% target.

We enlarged this target from 25% to 30% to 20% to 30%, which stands out basically because the environment is so volatile that it was first extremely difficult to monitor the gearing by a few points.

Second is that it might not be stupid to be in the lower range of this -- the lower part of this range if the interest rate climbs up.

Okay, I understand.

Thank you very much.

(OPERATOR INSTRUCTIONS).

Mr.

Martin, [NF Global].

Good afternoon.

You mentioned you're making progress on the Jubail refinery in Saudi.

I think the Middle East is overheated in all (inaudible) of the word, but particularly with regards to skilled labor.

How concerned are you that Aramco seems to be pursuing the construction of both Jubail and the Conoco plant at Yanbu virtually simultaneously?

I appreciate you're a minority partner.

Do you simply have to go along with their wishes or do you have sort of a particular influence in the matter?

Thank you.

As you know, this project is under (inaudible) project.

Basically we do it if we like it, and we like it.

We discussed this matter with Saudi Aramco and honestly we believe that both projects can be handled in the framework established currently.

And we have no specific concern about it.

Given what's happened in Qatar with the simultaneous megaprojects, one of which of course you're involved in, do you not see sort of similar risk -- construction risks and delays, cost overruns, etc., in Saudi?

And if not, why not?

You know, Saudi Arabia is already a very big oil country.

They have a real ability and they know how to run their projects better than we do.

Qatar, they are very good people also, but they concentrate all their assets in a very limited space and I think this is part of the issue they have.

Okay, thank you very much.

Jason Kenney, ING.

It's Jason from ING.

And congratulations on another set of solid results.

This may be a bit off the beaten track, but if you could give some assurances on North Sea taxation for example.

Could you be interested in British Energy?

In what, British Energy?

I see no reason for us to be interested in them, no.

At this stage I can't foresee any interest for us.

Okay, it was just an off-the-wall question.

Okay.

(OPERATOR INSTRUCTIONS).

We have no further questions.

Thank you very much to everyone and have a good weekend.

Ladies and gentlemen, thank you for attending.

You may now disconnect.