TotalEnergies SE (TTE) 2010 Q2 法說會逐字稿

Ladies and gentlemen, welcome to TOTAL 2010 half-year results conference call.

I now hand over to Mr.

Patrick de la Chevardiere.

Sir, please go ahead.

Hello, and thank you for calling.

As usual, I will comment on the results and then we will go to the Q&A.

The second-quarter environment was not so different from the first quarter.

Our realized liquids price was up slightly to about $75 per barrel.

Natural gas realizations were down by about 5% to just below $5 per million BTU.

Our European refining margin indicator increased by 6% to $31 per ton.

The average dollar/euro exchange rate improved by 9% to 1.27.

Upstream production was 2.36 million barrels of oil equivalents per day in the second quarter.

Due to normal seasonal maintenance, second-quarter production fell by about 3% compared to the first quarter.

But compared to a year ago, production increased by more than 8% and this is one of the best among the majors.

Operationally, we are very satisfied with the way things are going.

Looking at the second-quarter results, adjusted net income was $3.8 billion, an increase of 19% compared to the first quarter, and this compared very favorably with the other majors.

Cash flow from operations was $6.3 billion, compared to $7.3 billion in the first quarter.

Net cash flow was $3 billion compared to $3.6 billion in the first quarter.

Our gearing at the end of the second quarter was 22.7%.

If you analyze the cash flow from operations for the first half of 2010, you can see that we have been able to fund more than our CapEx and dividends.

Our actual cash flow breakeven, in terms of the Brent price was about $60 per barrel for the first half of this year.

This is before we take into account the sales of the Sanofi shares.

Looking at the results expressed in euros, the increases are much larger due to the strength of the dollar in the second quarter.

Compared to the first quarter, earnings per share increased by 19% in dollars and 29% in euros.

As we have said before, TOTAL is like all the other majors, essentially a dollar company, and we benefit from a stronger dollar.

So now I will comment on each of the segments.

In the Upstream, in terms of commodity prices, the average Brent price increased by 2.4% compared to the first quarter,and our liquid price realization increased by close to 1% to about $75 per barrel.

The larger differential between our liquid price elevation and Brent was mainly due to a mix effect, including the impact of turnarounds in the North Sea.

The average natural gas price realization in the second quarter decreased to $4.82 per million BTU, down 5% from the first quarter.

This reflects weakness in the spot market in both the US and the UK.

This price does not include sales of LNG from our equity affiliates, notably the new production from Qatar and Yemen.

Operationally, the segment is performing very well.

As I said in my opening remarks, second-quarter production was 2.36 million barrels of oil equivalent per day.

The major projects that we started up last year plus the second train at Yemen LNG that started up in April are ramping up as expected.

We also benefited from higher production in Nigeria, although the situation is not yet back to normal production levels there.Turnaround activity in the second quarter was lower than last year and impacted mainly the North Sea.

In the third quarter, turnarounds should be in line or slightly up compared to the second quarter.

Adjusted net operating income from Upstream segment was $2.8 billion, an increase of 3% compared to the first quarter.

Production volumes and average (inaudible) current prices were slightly lower, but we had a positive mix effect, the stronger contribution from gas trading and a lower effective tax rate.

The effective tax rate for Upstream decreased to 58% in the second quarter from 60% in the first quarter.

As we said in May, the first quarter was a bit higher than normal due to some adjustments and the 58% to 59% rate is more reasonable for this environment.

The annualized second-quarter Upstream ROACE continues to be very competitive at 21%.

We will make a complete presentation in September.

But for now, let me say that we have good reasons to be optimistic about the development of the Upstream segment.

We confirm that, compared to the 2009 base, we expect to grow production by 2% per year on average over the 2010 to 2014 period.

We confirm that the 2010 growth should be above this 2% average.

For the first half of 2010, we have achieved more than 6% production growth compared to the first half of 2009.

We expect to show a year-over-year increase for the second half, but at a lower level.

We will give you more color on the 2011 and 2012 production forecast in our September presentation.

For the medium to long-term, we are continuing to reshape the Upstream portfolio.

We announced a deal with UTS that should give us access to 20% of the Fort Hills field in Canada.

If we are successful in this deal, then we would probably offer to sell part of our interest in the Joslyn field.

These steps would create a more balanced portfolio in Canada with an earlier start-up date for first production.

As you know, we are continuing to work towards a deal in Uganda with Tullow that will open up a giant new play for us in East Africa.

We have been more active in selling mature and non-strategic Upstream assets.

This includes the Virgo and Matterhorn fields in the Gulf of Mexico, so at this point, we are no longer an operator in this area.

We also sold Valhall and Hod fields in the Norwegian North Sea.

Altogether, these sales represent more than $1 billion of proceeds.

In terms of new project sanctions, we just launched the Islay development in the North Sea.

We are finalizing the last contracts on CLOV in Angola, so this project is very close to being officially launched.

Over the coming months, we should launch Ofon 2 and Egina in offshore Nigeria.

The major projects that we are working on for launch in 2011 are Sulige in China, Icthys in Australia, Shtokman in Russia, and Ahnet in Algeria.

Of course, if we are successful in closing the UTS deal and our deal in Uganda we will have those to formally launch as well.

On the exploration front, we continue to be very active.

We added new acreage in Indonesia and Yemen, in the deep-offshore Brazilian pre-salt and in the Nigeria - Soa Tome and Principe joint development zone near some of our existing offshore fields.

In deep offshore Angola on block 15-06, we have announced six commercial discoveries out of seven prospects drilled so far, and we are currently drilling the eighth and final well in this campaign before evaluating development.

In offshore Nigeria, we announced the discovery on OML-136.

Regarding the drilling program in general, we recently created three task forces in the E&P segment to ensure that our safety and environmental procedures are at the highest standard.

These task forces deal respectively with drilling safety, subsea capture and containment, and environmental protection.

For the record, we operate about 40 rigs simultaneously and drill more than 350 wells per year.

We have completed a review of our drilling operation in BOPs and they are in line with our procedures.

We are very confident of our drilling procedures;, they are well structured and technically exhaustive, and we expect them to be certified ISO 9001 later this year.

So we believe the Upstream is in good shape, and we look forward to presenting you with more detail during the strategic update in September.

Now some comments on the Downstream and Chemicals.

Our European refining margin indicator averaged $31.2 per ton in the second quarter.

This reflects continued improvement compared to last year.

But the environment for refining remains difficult.

Adjusted net operating income from the Downstream segment was $614 million, a very big improvement for almost 200% compared to the first quarter.

Recall that the first quarter included about $100 million of negative one-offs for strikes and unscheduled maintenance.

The second quarter includes a one-time gain of about $65 million that comes from a decision to permanently reduce inventory level at the Antwerp refinery.

Even after we adjust for these items, the Downstream results show a good recovery compared to the first quarter.

Turnarounds in the second quarter was low and our refinery throughput increased to about 80%.

If we exclude the Dunkirk refinery and the D-9 distillation unit at Normandy from the calculation, the average throughput was actually about 90%, and this is back to the level we had in 2007.

Results from marketing also improved.

The annualized second-quarter Downstream ROACE has recovered to 12%.

Our view of the global refining situation is unchanged.

There are too many refineries in the world, specifically too many older refineries in major markets.

As you know, we have a plan to reduce our footprint in Europe and achieve a 20% reduction in global refining capacity between 2007 and 2011.

We have completed the merger process to form to TOTAL/ERGin Italy, and this will allow us to improve our situation there.

We will start up a new desulphurization unit next month at our Port Arthur refinery on the Texas Gulf Coast; that is part of the modernization program there.

We have secured the financing for Jubail; This is a major step toward rebalancing our refining system to the East.

Just a word on the stages of the Dunkirk refinery.

We are appealing the recent court order to re-start the refinery.

We have started the degasification process for the plant, and this is a compulsory first step for either shutting the refinery down completely or restarting it.

But our original project remains unchanged.

Turning to Chemicals, second-quarter adjusted net operating income was $348 million, an increase of 60% compared to the first quarter.

Base chemical margins continued to improve in the second quarter in both Europe and the US, reflecting the ongoing demand recovery that began in the middle of last year.

The secondquarter results represent the best operating profit we have seen from this sector since the third quarter of 2007.

Our operations in Korea and Qatar are making strong contributions to the sector.

In the second quarter, we started up the world's largest olefin cracker at Ras Lafan in Qatar, and this should add significantly to the bottom line for years to come.

This is in line with our strategy to develop Base chemicals in the Middle East, based on cheap ethane feedstockand in Asia.

Specialties performed very well.

Demand has been good across all of the businesses in this sector.

Thanks to the restructuring efforts launched last year, we have been able to capture the benefit of stronger sales while keeping a tight cap on costs.

The operating profit for Specialty chemicals reached an all-time high despite the sale of the Mapa Spontex unit that was effective on April 1.

The annualized second quarter Chemicals ROACE increased to 15%, a level that we have not seen in some time.

We are pleased with the performance of this segment in the second quarter, which reflects the strong efforts made in adjusting to the new environment.

And last - the Corporate side.

Cash flow from operations in the second quarter was $6.3 billion.

Investments, including acquisition, were $4.4 billion.

In terms of full-year CapEx, excluding acquisitions, we should be in line with our $18 billion budget.

Divestments were $1.1 billion in the second quarter.

This includes the sale of the Mapa Spontex unit for the Specialty Chemicals for about $450 million.

Divestments also include the ongoing sales of Sanofi shares that amounted to $370 million in the second quarter.

Our participation in Sanofi is now 5.7% versus 9.7% a year ago.

As a result of reducing our interest in Sanofi, we will no longer capture it as an equity affiliate starting July 1.

At the current market value, we have close to $5 billion of Sanofi left to sell, and we expect to complete the process by 2012.

Our gearing was 22.7% at the end of the second quarter compared to 21.5% at the end of the previous quarter.

This is below our announced 25%-30% range.

Regarding the interim dividend, the Board has approved an interim 2010 dividend payable on November 17 in the amount of EUR1.14 per share.

This amount is stable compared to the previous payment.

Relative to the first half 2010 earnings per share of EUR2.35, the interim dividend represents a pay-out of close to 50%.

That wraps it up the Corporate segment.

Before we go to the Q&A, I would like to summarize by saying that we are very satisfied with the second-quarter results, our production growth, our operational performance, and our ability to capture the benefit of a slightly improved environment.

Now, we can go to the Q&A.

(Operator Instructions).

[Joseph Lingan], Morgan Stanley.

Afternoon Patrick, it's Theepan here.

A couple of questions actually.

Firstly, just on production, could you tell us what the contribution of sort of the five big growth projects are, and how much more ramp up there is?

The second question follows on.

It's interesting to see how you have captured a higher net income per barrel.

I was just wondering whether you could sort of maybe split out the impact from the macro from the underlying improvement, how much perhaps the additional barrels have contributed and going forward, how much potential there is for margin expansion.

So to put it a different way, do we see, in the second half, some of the costs from the new projects, the start up costs that is, fall away?

Thank you for your question.

I'd like first to apologize for the disruption we had at the beginning of the conference.

There were technical difficulties made by the Company organizing this conference.

The name of this company, so that everybody is aware, is Arscadine

Actually, the first quarter was so good that we wanted to tell you it again.

But the second quarter is even better, so we move onto the second quarter.

Coming back to your first question about the five project contributions on production, in the second quarter 2010, both projects contributed about 180,000 barrels per day.

This is the contribution of the five projects we launched in 2009.

As far as the margin improvement is concerned, what I can tell you is that those five projects contribute by a net operating income per barrel of about $7 per barrel, in comparison $17, so in comparison to a $13 average net operating income per barrel for all of our production.

That's basically what I can tell you.

We can anticipate some additional ramp up from Yemen, which will improve again the net operating income because, currently, we just started up the second plant in Yemen LNG.

But I remind you of this -- Yemen LNG is still ramping currently and this will benefit the ramp-up in the third and fourth quarter and later on also.

This is my answer.

Lydia Rainforth, Barclays Capital.

Thanks and good afternoon Patrick.

You talked of reshaping the Upstream portfolio, and looking through the transactions from the (inaudible).

You have added long-lived projects as well as exploration acreage.

I'm wondering what areas of the portfolio you still feel need further reshaping.

Then secondly, on the CLOV project, relative to the height of the cycle, are you able to give an indication of how -- the level of cost savings that you see coming through?

Reshaping the Upstream portfolio, basically what you have to note is that we have been able, and we started to sell assets, which is new for TOTAL.

We didn't choose to sell assets in the past.

We are selling assets currently.

We sell Matterhorn and Virgo, we also sell Valhall.

This is part of this new strategy to basically sell assets when we have opportunity to sell them in order to redevelop ourselves in more profitable areas.

In respect of the CLOV project, I am referring to the February presentation we made, and basically on CLOV, the saving we made was about 15% to 20% depending on the quality and the type of equipment we were using.

That's great.

Thank you very much.

Alejandro Demichelis, Merrill Lynch.

Good afternoon gentlemen, Alejandro Demichelis from Merrill Lynch.

Three questions if I may.

The first one is just to confirm on the Icthys LNG project you said sanctioning into next year.

The second question is you have been adding inorganically to your portfolio.

Maybe you can tell us how you're thinking about these prospects.

Are you done there, or you still need to do a bit more additions?

The third question is, given these additions, how should we be thinking about a CapEx medium term beyond this year?

On Icthys, I confirm that the FID is scheduled to be taken end of 2011.

Nothing has changed in terms of prospect.

The first LNG production is planned toward the end of 2016 basically.

Your second question was about how are we open to new inorganic operation.

Basically, you don't want to spell the name of acquisition, but I am using it.

Obviously, we are open to any opportunity, and there is no reason for us to say that we will never make any acquisition.

But you know, we are extremely cautious, and we do make acquisitions where they made sense economically speaking.

We recently mentioned to you that we were ready to move in November.

We are just waiting for our Tullow to be finally ready.

I think everything has been settled between Tullow and its counterpart, which would be okay to move pretty soon.

The same we move on UTS, recently.

So you know that we were moving, and as you know, there is no reason for us not to continue considering good opportunities.

But the CapEx guidance, as you know, we don't give CapEx budget for 2011, 2013.

You have to wait for the February presentation, because we haven't yet made our budget.

Having said that, if you look at our pipeline of projects, you can expect that we should increase our CapEx.

Of course this is including acquisitions.

This may also increase because of acquisitions, but I cannot forecast them.

That is very clear.

Thank you very much.

Mark Gilman, Benchmark Company.

Good afternoon.

I had a couple of questions if I could please.

It looks to us, at least based on preliminary review, that the equity LNG earnings in the quarter were weak.

Could you either confirm or alter our thoughts in that regard and explain the LNG earnings performance?

Thank you for your question.

You are -- I am assuming that you are comparing first quarter this year and second quarter this year.

That's correct, Patrick.

In first quarter this year, we had a one-off affect of the devaluation of the Bolivar in Venezuela, which mechanically increased the contribution of Petrocedeneo.

If you exclude this mechanical effect due to the depreciation of the Bolivar in first quarter this year, actually the net income coming from equity affiliates first quarter to second quarter is improving.

Could you quantify that Patrick, please?

If I well remember, the one-off effect was between $50 million and $100 million.

Okay.

Secondly, did you encounter any production sharing contract tranche effects in the second quarter, and are there any that you would anticipate in the second half of the year?

Yes, we had some threshold effect in Angola.

In the second quarter of this year, we reached last profitable tranche on Dalia at 20%.

So this will remain at this level.

On the first quarter, I remind you that we also add a threshold on Rosa, where the profits only were down to 60% coming from 80%.

Depending of course on the oil price, we could have additional threshold effect in the second half of 2010 on Rosa itself.

One final one if I could pleas.

Your entry and front-end price in Uganda in the Tullow joint venture, how would that compare to Tullow's price for the acquisition of the heritage interest?

Honestly, I haven't got a look to the acquisition price of Tullow to Heritage.

But you just have to wait for the press release.

I'm sorry for that.

But I think everything is ready for us on our side.

We are just waiting for the final approval to go ahead and we have all the figures in the press release.

Irene Himona, Exane.

I had a question regarding the Gulf of Mexico and the BP situation.

Do you have any thoughts regarding your JV with Cobalt in light of the accident which does indicate it's going to be very tough and expensive and probably impossible for smaller E&Ps to operate in the deep offshore.

Then just a question of clarification.

When you talk about cash flow breakeven in the first half, excluding Sanofi, does that number include or exclude working capital?

Thank you.

The first question about the Gulf of Mexico and our joint venture with Cobalt Cobalt drilled already drilled three wells -- Ligurian, Criollo, and Firefox.

Firefox was not operated.

They encountered structural complexities.

2010 drilling program is currently stopped due to the moratorium in the Gulf of Mexico.

We don't now what would be the outcome for the Gulf of Mexico.

What I can tell you is that, by leaving the drilling rigs, we have to pay between $10 million to $25 million.

That is the bottom-line effect of that.

Unfortunately, I can't forecast what will be the new regulation in the Gulf of Mexico.

I can't say if Cobalt would be permitted in the future to continue and drill.

So I am like you; I just have to wait and see.

For the cash flow breakeven at $60, this is non-adjusted cash flow.

This is excluding Sanofi and this is, including working capital movement.

If we include Sanofi the cash flow breakeven is below $40 per barrel.

Thank you.

(inaudible), [CNC] Securities.

Two questions, one on Nigeria.

How much of the oil production capacity is still closed to that?

You mentioned a positive impact of 1% on your production in the second quarter.

If everything were to come back in good order, what could be the impact on your production?

My second question is on (inaudible) you make in the Gulf of Mexico and the North Sea.

Would you put (inaudible)?

First question about capacity in Nigeria -- currently, the capacity itself in 2005, if you have a look in the past, let's assume we recover the production we had in the past.

In 2005, in the capacity of the SPDC joint venture was for oil close to 800,000 barrels per day, where today we are slightly above 400,000 barrels per day.

So there is a difference of let's say 500,000 barrels per day between what was the production in 2005 and what is the production today.

Nigeria, you said something also about -- you had a question about Gulf of Mexico and the North Sea on sales?

you sold several fields there.

What were the results that you said, how much production barrels?

What did you say?

I'm sorry, I don't have the reserved amount at the top of my mind.

But I think it is extremely limited.

Jon Rigby, UBS.

I was tempted to ask my question from the first quarter just to be traditional, but can I just ask two things?

The first is on a couple of your forthcoming mega-projects, Fort Hills and Icthys.

It seems to me you have fairly small stakes in both.

Is that a satisfactory situation for you going forward?

I think probably everybody would agree the last couple of years would say it's better to have bigger stakes and a bit more control and a bit more value for your participation.

The second is you talked a couple of times about $60.

Of course, you're being financed to some degree by the sell-down of Sanofi.

Going forward, is $60 a good number to think about in terms of the way you as the CFO would like to see cash balancing sort of on a go-forward basis?

Thanks.

Coming back to the mega- projects, it is just a general comment first.

It is important for us to have a large stake in a field that we operate.

When we are not operating it, we can cope with a 20% stake in one particular field.

I repeat it is important to have a large stake when we are the operator because we dedicate human resources for that.

We are not paid usually for that.

So we have to enjoy the return of this field by having a large stake.

That will be my comment on Canada.

But the $60 breakeven, it is a good idea to think this way going forward.

I would say yes, but I don't think this is realistic.

Honestly, the costs are going up, and I would think that we might be in the range of more close to $70 per barrel than $60 in the future.

Okay, thanks.

Mark Gilman, Benchmark Company.

Patrick, with respect to the Qatofin cracker, is that an equity account impact?

Yes, it is.

One other one, a completely different area.

Are you looking into a possible UK listing for the shares at all?

If I listen to my guys in the Investor Relations team, I would say yes, but honestly I haven't any thought about that today.

Thank you Patrick.

Jason Kenney, ING.

Hi Patrick.

Thanks for taking the question.

Can you give us a bit more insight on the Brazil acquisition?

I think you're farming into Shell acreage.

Let us know the kind of commitment that you have for the farm into that license, and maybe if you have any more ambitions on Brazil.

As you know, it is, on Brazil, Jason, it is not easy to step in.

We farm in on this block operated by Shell it is a concession.

It's a presold carbonate play.

We have a 20% stake.

There are two projects identified currently on this block.

It's still exploration, so honestly the potential estimate is that one prospect could be in the range of 500 million barrels.

But this is exploration and we haven't drilled the well.

The deal is a traditional exploration deal; this means that we will carry Shell on those two wells, basically.

Are they expensive wells?

If you can drill sub-salt deep offshore well for peanuts, you call me.

Thanks very much.

[Bertrand Oday], Kepler.

I have one question about Nigeria.

It seems like Nigeria is getting kind of traction in terms of final investment decision on projects.

You talked about Ofon 2 and Egina that you could be to launch those projects before the end of the year, or at the very beginning of 2011.

Can you also give us an update on the status of Brass LNG?

Is there any movement around any new field or possible FID in the coming year?

FIDs on Nigeria, Egina,could be beginning of 2011, but I don't can't say for Ofon II.

On Brass, honestly, this is not for tomorrow morning.

This will come in the coming year, but when exactly I have no idea.

We have no other questions for the moment.

(Operator Instructions).

Lucas Herrmann, Deutsche Bank?.

Thanks very much.

Good afternoon.

Two questions, both brief.

The first one is how long did you spend or did the Board spend discussing the interim dividend, and the decision to hold?

How long would you expect to spend discussing the dividend, come the end of the year?

The second is just what your thoughts are around Nigeria Train VI now that Shell has brought another field on how you see production volumes from that facility moving as we progress through the second half.

On the dividend, as you know, this is a decision of the Board.

I can tell you that because we make clear to everyone that our payout objective was a 50% payout and that we are at 50% today, there were no discretion on this respect because we are aware on what we have said to the market for many years.

That's for the interim dividend.

On Nigeria LNG Train VI, currently today 6 Trains are available for another oil capacity of something like 22 million.

Nigeria LNG is currently operating at 80% during the second quarter.

It was at 90% in July.

So I think, in Nigeria, the situation is improving with a very good trend.

I remind you that, last year, we had capacity use of about 60%.

So we are back to 90s, which is quite well, quite good.

That would be my comment on Nigeria.

Patrick, thank you very much.

Kim Fustier, Credit Suisse.

Good afternoon gentlemen.

Just two questions please.

Firstly, there are now I think five refineries for sale in the UK.

I'm just wondering if you could give us an update on the sale of your Lindsey refinery.

And if you're unable to sell a refinery, how long would you have to wait until you make a decision to close it down.

My second question is on Canada.

It seems like you're high-grading your portfolio by reducing your interest in Joslyn and buying a stake in Fort Hills.

Can you just talk about how you see the quality of acreage between these two projects and the timelines to FID?

Thank you.

Okay, the process to sell our Lindsey refinery is ongoing; it's an ongoing process.

We have received several non-binding offers.

Discussions are currently underway.

Basically, honestly, I can't tell you too much on those discussions, because I'd like to be in a better position -- the best position I can in face of the potential buyers.

We will see how it evolves.

But honestly, our target is to reach a deal.

I have no other thought today than to reach a deal.

In Canada, when we -- let's assume the UTS transaction goes ahead, and that we own 20% of the Fort Hills project.

One can imagine that the Fort Hills project FID can be earlier than the Joslyn project, I think.

So we can expect Fort Hills production by 2015, 2016, something like this.

We have no other questions.

Thank you very much.

I would like to summarize by saying again that we are very satisfied with our second-quarter performance.

This is both in terms of comparing to our recent past, that you have a good record at the beginning of the conference, and comparing to our peers.

We have a strong balance sheet.

It is important currently in the current environment to point out that we can fund our net investments and dividends with cash flow from operations.

As you know, we are active in terms of seeking new opportunities.

I can assure you that we are also active in terms of reviewing our existing operations to make sure that they are safe, reliable and cost-efficient.

I am looking forward to meeting most of you, many of you, when we make our mid-year presentation in September.

So thank you to everyone.

Bye-bye and good vacation.

Bye-bye.

Ladies and gentlemen, this concludes the conference call.

We thank you all for your participation.

You may now disconnect.

Have a pleasant day.