TotalEnergies SE (TTE) 2010 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Total earning results for Q3 2010 conference call.

At this time, all participants are in a listen-only mode until we conduct a question and answer session, and instructions will be given at that time.

(Operator instructions.)

I would now like to hand over to the Chairperson and CFO, Patrick de la Chevardiere.

Please begin your meeting and I will be standing by.

Hello and thank you for calling.

Most of you met recently with Total management during our strategy presentation.

So, I will make just a few comments on our third quarter results and operational highlights, and then we can spend our time mainly on the Q&A.

We reported another good quarter.

Compared to the second quarter, we are down slightly because of lower refining margins and the reclassification of Sanofi from equity affiliates to other investments.

Year-over-year, our adjusted third quarter results in dollars are up by 20%.

And if we exclude Sanofi, we are up by 33%.

Looking at the environment, the dollar has weakened against the euro.

Oil prices have been strong, and this is in line with our macro view.

For natural gas, the third quarter reflects stronger prices mainly in Europe and Asia.

And refining margins in northwest Europe were significantly weaker in the third quarter than in the second quarter.

Our Upstream production of 2.3 million barrels of oil equivalent per day reflects a strong 4.3% growth versus the same quarter last year.

This is among the best of the majors, and it confirms that 2010 should be our best year in terms of production growth over the past five to six years.

Compared to the second quarter, production was down by less than a percent.

Seasonal maintenance was slightly higher in the third quarter.

The Cupiagua license in Columbia expired at the end of June, so that was 10,000 barrels per day.

And the continuing ramp ups of new projects has essentially offset the normal decline on the portfolio.

Upstream profitability is good.

The annualized ROACE for the third quarter is 20%, even though volumes were a little lower and the contribution from gas marketing and trading was not as high as in the second quarter.

Globally, the Upstream is performing well.

And to illustrate this point, notice that our year-to-date average hydrocarbon price increased by 24% in dollars compared to the same period last year, our year-to-date net income per barrel increased by 29%, and our Upstream net operating income increased by 39%.

So, our Upstream profitability has increased by more than the oil and gas price.

And this shows that we are adding new, high quality production that is delivering higher returns.

For the Downstream, European refining margins were very weak at the beginning of the quarter, but recovered slightly in September.

Refining was negative, but marketing and supply optimization performed well.

We did not have any exceptional items this quarter.

As a reminder, we benefitted from the $60 million inventory gain in the second quarter.

The Downstream segment is sensitive to the environment.

But, as we said in our strategy presentation, we have taken steps to strengthen the underlying profitability here.

Chemicals were essentially stable despite the slightly lower petrochemical margins in the US, and continue to generate good returns of around 14%.

For Sanofi, effective July 1st, we have changed the accounting treatment for Sanofi-Aventis.

It is now treated as a financial investment, not as an equity affiliate.

For comparison, the non-cash contribution to net income from Sanofi as an equity affiliate was EUR141 million in the second quarter.

Our remaining 5.7% stake in Sanofi is worth about $5 billion, and we expect to complete the progressive sale of these shares by 2012.

The effective tax rate increased to 56% in the third quarter, mainly due to a mix effect among the different segments.

So, no significant change here.

Adjusted cash flow from operations was $5.6 billion, reflecting the generally positive environment.

CapEx, including acquisitions, was $5.3 billion.

Excluding acquisitions and investments, we are in line with our 2010 budget of $18 billion.

As you know, we have become more active in using acquisitions and divestments to upgrade the portfolio.

So far this year, we have announced about $6 billion of acquisitions including mainly a deal in Uganda that is pending, the GLNG deal in Australia, the UTS acquisition in Canada that closed last month, and the Barnett Shale joint venture at the beginning of the year.

Asset sales, including the ongoing sales of our Sanofi shares, have generated $3.6 billion so far this year.

We recently finalized the sale of Valhall and disposed of 15% of our share in the Nogat pipeline in the Netherlands.

We also announced this quarter the sale of our 5% interest in Block 31 in Angola.

I will not go into detail, but I will say that we plan to continue divesting material amounts of non-core assets and to re-invest the cash into new projects.

Looking at the balance sheet, we are in good shape with a net debt to equity ratio of 18%.

Our gearing at the end of the third quarter does not take into account the interim dividend.

We will pay the interim dividend of EUR1.14 per share on November 17th.

This will increase our gearing by four to five points, but we expect to remain comfortably in our 25%-30% target range for gearing at the end of the year.

Also regarding the dividend, we announced that we will begin paying the dividend for the year 2011 and thereafter on a quarterly basis, starting in the second half of next year.

This will provide more frequent cash distributions to our shareholders, and it will make our cash flow and gearing easier to compare with the other majors, who pay their dividends quarterly.

Before we go to the Q&A, there are a few points that I would like to make.

First, we are reshaping our exploration program and we are beginning to see some positive results.

We have expanded our exploration portfolio by adding new acreage in Ivory Coast and Indonesia.

We are now able to resume exploration in Brunei in the promising CA-1 block, formerly known as Block J, with two new partners, Petronas and Murphy.

And recently, we have announced discoveries in Block 15/06 in Angola, in offshore Vietnam, and on Block B in offshore Brunei.

Second, we have launched four major projects so far this year.

Surmont in Canada and Laggan-Tormore in the UK were launched in the first half.

CLOV in Angola was sanctioned in August.

And the development plan for Halfaya has been approved, so it is launched as well.

In addition, the operator of GLNG in Australia has received government approval, so we should be able to launch it by year-end.

Third, we are continuing to implement our restructuring plans for the Downstream.

As part of major modernization program, we anticipate the startup of a new coker at the Port Arthur refinery early next year.

And finally, we have strong cash generation and we are well positioned to maintain both the dividend policy and the investment program over the long-term.

This ends my comments on the third quarter results, and I am ready to start the Q&A.

Thank you, sir.

(Operator instructions.) Our first question comes form the line of Robert Kessler.

Please go ahead with your question and announce your company name.

Hi.

It's Robert with Simmons and Company.

Hi, Patrick.

Question on buyback potential.

I know you guys haven't done it in some time, I know you perceive your shares as being at a fairly good discount to where they should be, and you've got a strong balance sheet.

Why not buy back a little bit of stock here?

Thank you, Robert, for your question.

Several years ago, Total was very active in share buyback.

But, there were no policies in share buyback, actually.

As of today, I think we have a pipeline of projects which would give more value to the Company than share buyback.

And of course, yes, you are right.

We have a strong balance sheet, but by year-end our gearing will be back in the 25%-30% range.

And then, we have the pipeline of projects which will continue to be financed.

And honestly, I'd rather to have good projects to finance than do share buybacks.

Okay.

Thanks, Patrick.

And then, just if I could ask for an update on your thoughts on Uganda.

It seemed on the one hand like some progress had been made, but then the -- perhaps a little bit of pushback from the government.

But, your perceptions on the state of affairs there and likely timing for full resolution of that, allowing you to progress forward with the project.

Well, you know that we entered and signed an agreement with Tullow by which, with CNOOC, we will each of us have one-third of the project.

This contract is pending to the approval of the Ugandan government, which is itself, I think, pending on the solution to be found on the tax battle between Heritage and the Ugandan government.

Currently, a few weeks ago a proposal was made by Tullow to the Ugandan government, and Tullow is currently handling the matter.

And I would rather not to comment anymore on that subject.

Okay.

Thank you very much.

Thank you.

Bye-bye.

We have a question from the line of Theepan Jothilingam.

Please go ahead with your question and announce your company name.

Afternoon, Patrick.

It's Theepan here of Morgan Stanley.

A few questions, please.

Just firstly on exploration, it seems you've put together some quite substantial acreage this year.

I was just wondering whether you could talk about spend for 2011, whether there's a material ramp up or not.

Secondly, just in terms of production, a significant momentum in 2010.

If anything, it looks like you might be ahead of schedule.

Does that have any implications for the sort of flat production outlook that you've provided for next year?

And then, perhaps any quick comment on the impact of the strikes in France at the moment for your Downstream profitability in Q4, that'd be great.

Thank you, Theepan.

Usually, it's two questions per person, huh, Theepan?

Okay.

So, let's talk first with your first question about exploration.

Yes, we added a few acreage.

And I think the Ivory Coast and the Sebuku one in Indonesia are very promising acreage, and I am quite happy to have that in our portfolio.

As far as the exploration budget for 2011, I think it will be in the same range, let's say around $2 billion more or less.

About production, there is obviously currently very good production growth delivered by Total.

And I am also happy to say that, yes, we do deliver what we have said we will deliver.

Basically, this will have no implication on our production in 2011.

Our production in 2011, as you know, we do not anticipate big growth.

And it will be depending mostly on OPEC cuts and the situation in Nigeria, and the price effect of course.

Then the situation on the strike.

How long do you have?

Half an hour?

Fifteen minutes?

It could be a long discussion.

But, we have 6 refineries here in France.

This morning at 10.00 am I make a point with the people in refining, and three refineries had already decided to start again and go back to work.

I think for the three additional refineries, we shall wait for the afternoon because the union has meeting among themselves to decide what they want to do.

So, I cannot comment on that.

I can give you an estimate of the cost of both strikes for Total.

Roughly, it has a cost of EUR5 million to EUR6 million per day.

And our current estimate is an overall cost of about, let's say, EUR100 million.

Great, Patrick.

Thank you very much.

Thank you, Theepan.

We have a question from the line of Mark Gilman.

Please go ahead with your question and announce your company name.

Patrick, good afternoon.

It's Mark Gilman from Benchmark.

Let me, if I could, just follow up on your EUR100 million comment on the strike cost.

Is that an opportunity loss, or is that cost in terms of actual outlays?

And then, I'll have a follow up.

In actual costs.

I also noticed, Patrick, in the quarter in terms of the 2% production hit associated with prices.

If I'm doing my math correctly, the production sharing contract sensitivity to changes in price and spend has moved up again to a little bit over 5,000 BOE per day per dollar of price change.

Can you comment on what's driving that and whether the sensitivity on that subject is likely to remain at that level?

Let me think about the sensitivity.

The price effect on PSC is about 2,000 to 3,000 barrels per day per dollar per barrel.

That's basically what we have.

In 3Q 2009, I remind you that we had a threshold effect on Block 14 with the profit oil coming from 40% to 20%.

And we had another one last quarter 2009 on Dalia with profit oil going down from 60% to 40%.

That's the comment I can make which is coming on my mind now.

In first quarter 2010, we also match a first threshold effect, I think, on Rosa with the profit oil coming from 80% to 60%.

And depending on oil price, we could have an additional threshold effect on Rosa late this year.

Patrick, thank you very much.

That helps a lot.

Thank you, Mark.

Bye-bye.

We have a question from Jean-Luc Romain.

Please go ahead with your question and announce your company name.

Jean-Luc Romain, CM-CIC Securities.

I have a question about the Egina project for Nigeria.

Your plans are to FID before year-end, or maybe in 2011?

First half 2011.

This is my answer.

Thank you.

Thank you.

It is a short answer, by the way.

Very precise.

We have a question from the line of Michele Della Vigna.

Please go ahead with your question and announce your company name.

Hi, Patrick.

It's Michele from Goldman.

Just two quick questions.

First of all, you had a relatively high tax rate in E&P this quarter.

Could you give us a guidance going forward?

And secondly, in terms of the major startups that we've seen in the last 12 months, could you tell us how much more upside could there be to plateau after Q3?

Basically on the tax rate itself, it's a matter of mix between production between high tax countries like Nigeria, Norway, and other countries.

In the Upstream, our guidance is to give a 58% to 59% tax rate.

Of course, it will change according exactly on the precise production from one country to another.

On the startups, we have a few startups which are still ramping up, the startups in 2009 still ramping up, which are the Yemen LNG, Tombua Landana, and Moho-Bilondo.

That's basically the three projects which are still ramping up at the moment.

And, sorry, could you quantify how much further upside that could give in terms of production?

Honestly, no, I can't.

I don't have the figure right now.

You may have a look to our September presentation with the sensitivity we give about our new projects.

Keep in mind that currently Yemen LNG is at 70% to 80% capacity.

This gives you some magnitude of what could be the effect of the ramp up of Yemen LNG.

Thank you.

We have a question from the line of Lydia Rainforth.

Please go ahead with your question and announce your company name.

Good afternoon, Patrick.

It's Lydia Rainforth from Barclays Capital here.

Could you just talk about the outlook for the dividends?

You said you moved to sort of quarterly payments to reflect more the other majors.

I'm just wondering what your thoughts are on how we should see the dividend progression.

And then, just secondly, on production for next year, what are your thoughts about where Nigeria volumes could move for next year?

Can you repeat the last question, because I didn't get it.

Yes, sure.

I'm just wondering what you've included in the flat production guidance in terms of Nigeria volumes for next year.

Okay.

Sorry for that.

For the dividend, first the beauty of our dividend today is that you can divide it by four.

So, you can pay it in four installments.

This is not a joke, because we wanted to match the views of the market.

And all of our competitors were paying dividends on a quarterly basis, and we wanted to be in line with the views of the market.

And on top of that, this was requested by some of the pension funds.

And I can understand from where they were coming from.

And for us, it was making no difference.

So, that was fine and we were okay to suggest that to the Board.

We will start, by the way, the quarterly payment dividend scheme, the first payment will be in September of 2011.

So, I think we gave sufficient forecast to the option market so that they can adjust themselves.

On Nigeria, we had a very good recovery if you compare third quarter 2010 to third quarter 2009, because basically we had an increase of about 30,000 barrels per day coming from the SPDC joint venture.

We have made no further prediction for 2011, so we keep that level maintained at the same level for 2011 in our forecasts.

Okay, great.

Thank you.

Thank you.

We have a question from the line of Paul Spedding.

Please go ahead with your question and announce your company name.

Hi.

It's Paul Spedding from HSBC.

I had a question on the performance of your Upstream associates, which seems to have improved quite remarkably compared to the second quarter of 2010.

But, in contrast, the non-associates, the consolidated subsidiaries, seem to have shown quite a marked deterioration.

Perhaps you could give us a little more detail behind why that has occurred.

Basically this is quite simple, is that, in 2009, a few projects like Qatar, Yemen LNG startup and increase the value of the net income coming from equity affiliates.

On top of that, as I was just mentioning before, there were a recovery in Nigeria.

And as a consequence, the Nigeria LNG company is making better profit today with higher capacity use, up to 80% to 90%.

That's basically the main reason why our equity Upstream is going up.

For the other line, keep in mind that in the second quarter of 2010 we had a very good market in gas.

And I was mentioning that at the last Q&A, that we had a very good result in our trading in gas.

This is not anymore the case this quarter.

It's more in line with the usual level we have.

And that's the main difference we have on this line on the books.

Thank you.

If I may, could I ask a follow up question as to what your experience of the Asian LNG market is at the moment, whether it's improving in any way?

Just to give you an idea, sorry, I don't have the figure for September, but I have the figure in August.

In August, we diverted eight cargos from the Atlantic basin to Asia.

It shows, I think, how strong is the Asian market today for the LNG.

And currently, we are negotiating the long-term off-take contracts with the Japanese buyers for the Ichthys project and the Korean buyers for the LNG project in Australia.

And for both projects, we are still negotiating contracts with oil price being linked -- with gas price being linked to the oil price.

Just to give you a precise figure, last quarter the spot price in Asia were up by 18%, one-eight, up from $8.00 per million BTU to about 4.9 -- sorry, nine point four dollar per million BTU at the end of September.

So, I think the market in Asia is quite short, and many, many volumes are diverted -- many cargos are diverted, which shows, I think, in my view, a strong recovery in this part of the world.

Thank you very much.

Very interesting.

We have a question from the line of Jon Rigby.

Please go ahead with your question and announce your company name.

Yes, it's Jon Rigby from UBS.

Hello, Patrick.

Just one question.

It's on Sanofi.

Does the fact that you've now left the Board and, I guess, the reduced absolute size of the stake make you re-examine the methodology by which you're disposing of this, i.e., would you consider doing something other than the ongoing sort of dribbling of the stake into the market and maybe monetize it rather quicker?

Thanks.

Being frank with you, we are still insider, as it is said by the lawyer, because Thierry Desmarest is still a member of the Board of Total and a member of the Board of Sanofi.

We are currently reviewing this situation so that we could have a Chinese wall between Thierry Desmarest and myself so that there is -- we are not anymore an insider.

But, this is not of use to be implemented.

That's the first comment.

The second comment is that we are not in a hurry to sell our Sanofi shares.

There is no emergency.

You see our cash balance today is very high.

I don't know what do with the cash.

Well, I know what to do with the cash next quarter, but I have EUR18 billion of cash now.

And adding more cash, well, honestly, this is not very good for me.

So, I try to make my life easier and continue in sales of Sanofi shares gradually.

But, I would say that if there is an opportunity for us to sell at a very good price for both these, for instance, I am open to that.

There is no reason for us not to do it.

But, currently the share price is quite low, I would say.

Thank you.

We have a question from the line of Bertrand Hodee.

Please go ahead with your question and announce your company name.

Hello.

It's Bertrand Hodee from Kepler.

Good afternoon, Patrick.

I have a follow up question on Nigeria.

We heard from Shell that train six now was working at full capacity.

And given the improvements in the situation there, do you see a possible, I would say, resurrection of your LNG options there, namely a train seven or possibly Brass LNG?

And what's your current thought on those projects right now?

Well, we are still positive that there is room enough for additional train of LNG in Nigeria.

Now, it is -- the question mark is where do you locate this train?

It seems that, politically speaking, Brass LNG is more favored than the seventh train of Nigeria LNG.

And this is fine for us.

So, I would say that Brass is on top of the list today.

The field is completed.

The call for tenders has been launched already.

So, this project is quite in advance in comparison to train seven, I would say.

So, is it possible that this could be FID in 2011, or you think it's too optimistic?

I think it's 2011 is a little bit optimistic.

I had rather to see by, let's say, 2012.

Okay.

Many thanks, Patrick.

Thank you.

We have a question from the line of Mark Gilman.

Please go ahead with your question and announce your company name.

It's Mark Gilman from Benchmark.

Patrick, any indication of growth in your production from the Barnett interests which you acquired from Chesapeake?

Since we enter into this play beginning of 2011, our intention remains the same, to increase our production from the current production, which is about 30,000 barrels of oil equivalent, to 45,000 barrels per day of oil equivalent within three years.

That's the idea.

Great.

But, you haven't seen the volumes moving up as of this point?

No.

I'm sorry, no.

Okay.

I noticed in the release a comment that a distillation unit at the Lindsey Refinery has been shut down.

Is that just normal maintenance or is that a permanent decision, pending possible sale?

It is related to an incident we had.

So, you see, it's a temporary shutdown.

And just one more.

Any development plans yet or getting close to development plans for either the discoveries on Block 15/06 in Angola or Block 32?

On Block 15/06, I think the best thing you have to do is to refer to the operator, which is ENI.

Sorry for that answer, but I think this is the only answer I can give you.

On Block 32, let's meet by 2012, something like this.

Thank you, Patrick.

Thank you, Mark.

We have a question from the line of Blake Fernandez.

Please go ahead with your question and announce your company name.

Hi.

It's Blake Fernandez with Howard Weil.

Good afternoon, Patrick.

My question's on the joint ventures you've done in the United States, the deepwater Gulf of Mexico and then the onshore unconventional gas with Chesapeake.

I'm just curious.

Is the intention there to simply gain exposure to those regions, or is the longer term goal to actually become more of an operator in those areas?

You can notice that -- I am talking about the situation pre-Macondo, that our intention was to withdraw from the Gulf of Mexico as an operator.

The question mark in the joint venture we have with Cobalt in the Gulf of Mexico is will Cobalt be in a position to continue and be the operator.

I don't have the answer at that stage.

And we will see how to manage the operation following the situation.

I'm sorry, but I don't have the situation exactly today.

And I don't know if Cobalt will be able to continue and operate.

On the Chesapeake play, I remind you that our objective was to get some experience in shale gas and to further some development at least on exploration in other areas than in the US, namely in France when we have an acreage both in Montelimar and we also have some acreage in Argentina.

And that was the idea, to get some experience and then to develop this experience in other fields.

And we also have -- sorry.

We also have an acreage in Denmark.

Okay.

But, it doesn't sound like your intention was to necessarily become an operator within the North American portion.

The answer is no.

Okay.

Thank you very much.

We have a question from the line of Lucas Herrmann.

Please go ahead with your question and announce your company name.

Thanks very much.

Actually, all my questions have been answered.

So, Patrick, thanks very much for all the comments.

Thank you, Lucas.

Particularly the one on the dividend.

If life was only so simple all the time.

Thank you.

I'm so delighted to have your question, Lucas.

Well, thank you.

Have a good weekend.

Thank you.

And you too.

And we have a question from the line of Sergio Molisani.

Please go ahead with your question and announce your company name.

Yes, good afternoon to everybody.

Sergio Molisani from UniCredit.

Two questions on the Upstream, if I may.

The first one is it looks like you recorded an operating expenses increase in the Upstream division in the US dollar.

Can you tell me if that is something that related to technical costs or nonoperational factors?

And secondly, can you give us an update on the numbers you gave us on the occasion of the second quarter result, in particular the net profit per barrel of the five star tops compared to the average Upstream portfolio?

Thank you.

About our technical costs, for the nine first months of 2010, our technical costs are up about $1.00 per barrel of oil equivalent compared to 2009.

And this is mainly due to higher DD&A, we were investing more in the past, and higher exploration costs.

In 2010, technical costs should increase, as we do not anticipate further OpEx reduction, and then that the DD&A will continue to increase.

On the second question, you asked on the profitability of our five major projects.

Last quarter, Upstream adjusted net operating income per barrel was close to $13.00 per barrel of oil equivalent.

And in aggregate, the five major projects add on this third quarter adjusted net operating income of more than $20.00 per barrel of oil equivalent.

This clearly shows that our projects are contributing to our profitable growth.

Thank you very much.

Thank you.

(Operator instructions.) We appear to have no further questions at this time, sir.

I'll hand the conference back to you.

Thank you.

Thank you, all of you, for your interesting questions.

And I do appreciate the Lucas question on top of that.

Now, let me summarize with you a few final comments.

First, we are pleased with our performance in the third quarter.

In terms of delivery, the most important part is combination of the year-to-date production growth and the increase in unit profitability that I was just explaining to you.

Second, the pace of development is improving.

And I am referring to the new projects that we are launching, including the acquisitions we have made and also to the increasing asset sales that will be used to help fund this activity.

And as a last point, particularly from the perspective of the CFO, we are confident about the future in large part because the balance sheet is very good at this time.

So, thank you very much to all of you.

And have a good weekend.

Bye-bye.

Ladies and gentlemen, thank you for your participation.

This concludes today's conference.

You may now disconnect your lines.