TotalEnergies SE (TTE) 2011 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the earning results Q1 2011 conference call.

(Operator instructions.)

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

Please begin your meeting and I will be standing by.

Hello and thank you for calling.

I will make some comments on our first quarter results and then go to the Q&A.

Before commenting on the results, let me say a few words about the proposed acquisition of the solar energy company, SunPower, that we announced yesterday.

I'm sure that you have seen the terms, so I will be brief.

By acquiring the majority interests, Total will have the scale and international footprint we need to establish a significant presence in what we believe is one of the fastest growing segments of the energy industry.

We have an excellent fit with our existing solar business and certain R&D activities, plus we bring our financial strength to a growing business.

We have a great deal of respect for this Company, its workforce, its management, and its technological leadership.

This adds a new dimension to Total and we look forward to working with SunPower.

Now for Total's first quarter results, we have more good news.

We are showing a healthy improvement, not only versus the first quarter of the last year, but also versus the fourth quarter.

And I remind you that the fourth quarter was already very good, especially compared to our peers.

Compared to the fourth quarter, adjusted earnings per share increased by 22% to $1.89 per share.

Compared to the first quarter of the last year, adjusted EPS increased by 33%.

Excluding the impact of moving Sanofi from equity affiliates, the increase would have been 45%.

Specific to this quarter and our results, I should point out certain items.

For Cepsa, effective at the beginning of March 2011, Cepsa has been moved from equity affiliates to assets held for sale.

Under the IFRS scores, we no longer include the financial results for Cepsa.

For comparison, Samsung generated about $25 million per month on average in 2010.

The first quarter results include the charge of $244 million to increase the deferred tax provision due to the change in the UK tax rate.

This item is not included in the adjusted results.

You will also find a new item for the mark-to-market impact selected to the valuation of the gas and power inventory, but this is not included in the adjusted results.

Moving on, all of you about the environment, so we'll not spend too much time on it.

Oil and gas prices moved higher and faster than expected.

European refining margins were squeezed by the increase in oil prices, so margins fell back to low levels.

Chemicals performed well, despite higher naphtha feedstock costs.

Product was strong enough to allow us to pass on the higher costs.

World events have affected our industry.

Specifically our production in Libya of about 55,000 barrels per day were disrupted in March and is now completely stopped.

The impact on our first quarter volumes was only 15,000 barrels per day.

Despite the unrest in Yemen, Yemen LNG has not been affected.

We have no other areas where civil unrest is affecting our production today.

Upstream production in the first quarter was 2.37 million BOE per day.

Compared to the previous quarter we are down by less than 1%, mainly as a result of no more declines, the disruption in Libya, and the PSC price effect.

These impacts were partially offset by production ramp-ups, mainly in Yemen and increased production in Abu Dhabi.

Excluding the PSC price effect, production would have been flat.

As for price realization, liquids averaged 94% of Brent, slightly lower than 2010, due to wider price spreads.

Gas was $6.19 per million BTU, reflecting both improvement in UK spot prices and the oil-linked long-term contracts in the portfolio with a lag effect.

Just to remind you again, Total has very little exposure to WTI or Henry Hub and about 40% of our gas is sold as LNG.

Upstream profitability improved significantly in the first quarter.

Compared to the fourth quarter, net income per BOE increased by 28% to more than $18.00 per BOE, versus a 16% increase in our average hydrocarbon price.

First quarter ROACE on an annualized basis was very strong at 26%.

This is at the level of the best in the majors.

Overall, we are pleased with the way that the upstream is performing and we are in the process of making the portfolio stronger for the future.

We have recently closed three major deals, Novatek in Russia, the Suncor strategic alliance in Canada, and Santos in Australia.

We signed the deal with Tullow owe to enter Uganda and should close the Yamal LNG deal sometime this summer.

The Sulige tight gas project has been approved by CNPC and is now ready to get the green light from the Chinese authorities.

Production should start in 2012 in advance of the previous forecasts.

In addition, we are moving closer to final investment decisions on Shtokman in Russia and Ichthys in Australia.

These are giant projects that add visibility and a lot of trends to our production profile.

I understand that many of you are more focused on the near-term production profile, so we consider that 55,000 barrels per day in Libya will remain offline probably for quite some time.

The sale of Cameroon closed in April and the impact will be less than 10,000 barrels per day.

The sale of Cepsa should close in the third quarter and the impact will be about 25,000 barrels per day.

Novatek closed effective April 1st, and this adds 120,000 barrels per day starting in the second quarter, more than offsetting these impacts.

In addition, we have four new projects starting up this year, including Pazflor in Angola, that has received its FPSO and in on schedule to start early in the fourth quarter.

And we will have to wait and see how the normal decline and PSC impact develop over the year.

So despite all the changes, we are still very comfortable with our guidance for this year and for the period 2010 to 2015.

In the LNG business, were Total is one of the top players in the world, demand continues to be strong in Asia and Europe, but prices are currently around $12 per million BTU in the Far East and close to $10 in Continental Europe.

We are currently in discussion for long-term sales and purchase contracts, mainly with Far East buyers and we see no signs that the link to crude prices is at risk.

More broadly, the fundamentals for gas are growing, outside of the US of course, as a result of the event in Japan.

On the exploration side, we have an important drilling campaign this year and I will point out three examples.

In Azerbaijan, the Absheron well is currently drilling and considering the depth we should know something by end of this year.

We spud the well in French Guyana in March and this is interesting because it is similar to the Jubilee discovery.

And deep offshore Brunei we plan to start drilling on CA1 block in the third quarter.

Of course, there are no guarantees on exploration, but these prospects are examples of the type of high potential wells we have added to the exploration program.

In the downstream segment, refining was squeezed by the increasing oil prices and weak project demand in Europe.

But supply optimization and marketing outside of Europe balanced it.

The first quarter of last year and also the fourth quarter were affected by strikes in France related to the Dunkirk closure and the French pension issue.

Apart from the results, the main story here is that we have significantly reshaped our downstream profile over the past year.

In France, the Dunkirk refinery has been closed and we have reduced distillation capacity at Normandy.

In Italy, we have managed our refining and marketing operation with ERG.

We have made a deal to sell Cepsa and this will represent an exit from the Iberian Peninsula.

And we expect to finalize the sale of our Lindsey refinery and our UK marketing network fairly soon.

So we will be out of the UK downstream business as well.

At the Port Arthur refinery in Texas, we started up a new coker in March.

In Saudi Arabia we are on schedule with the construction of the Jubail refinery.

And we are open to other opportunities, mainly in the non-OECD world.

In the Chemicals, margins improved despite higher raw material costs and product demand was good in both the specialties and the base chemicals.

Compared to the previous quarter, net operating income increased by 41% to $326 million, and we are quite pleased with this.

We recently announced the sale of our specialty chemicals resins activity, and we expect this transaction to close this summer.

Finally, at the corporate level, the balance sheet is very strong.

Gearing was 19% at the end of the quarter.

In the first quarter, we recorded the acquisition of GLNG, plus 7.5%, Fort Hills, and Voyageur.

The first quarter cash flow does not include the acquisition of Novatek, Uganda, and Suncor, or the sale of Cepsa, Joslyn, Cameroon, or the resins.

All of these transactions combined should cancel out and have no material impact on net cash flow.

Some of you may have noticed that we now show net CapEx in the earnings release.

This is CapEx including acquisitions and asset sales.

I think we have been very clear about increasing the level of asset sales and re-investing the cash into new and better assets, but we understand that because of the number of new projects we are adding to the portfolio, there may be some concern about cash flow and CapEx.

Over the next few years, I would expect the net CapEx to move from the range between $20 billion to $23 billion.

With net CapEx in this range, we can manage our gearing within the target range, continue to develop the portfolio, and maintain our dividend policy.

On dividends, we have announced that our first quarterly dividend will be EUR0.57 payable in September.

Now I am ready to take your questions.

(Operator instructions) Theepan Jothilingam.

I just wanted to ask three questions actually.

Firstly just on taxes, I saw that the mix effect in the upstream brought a lower tax rate for this quarter.

I was just wondering do you think that persists through the rest of this year or not?

And do you have any thoughts on sort of group tax for 2011?

And secondly, I just wanted to come back to your comment on net CapEx of $20 billion to $23 billion.

Are you suggesting therefore that gross CapEx could be higher sort of going forward on the next two, three years and that you could sort of on a gross basis be up at sort of $25 billion?

And then just thirdly, in terms of refining and the R&M result, all else being equal with the macro, was Q1 a satisfactory result on an underlying basis or not?

Thank you.

Your first question about the tax rate.

Our upstream tax rate has decreased from 57.6% in Q1 '11 compared to 59% in last Q 2010.

This is explained by two main reasons.

The higher weight of gas and power, which has a lower tax rate, as you may know, and the mix effect of production between countries.

In the future, this will -- this tax rate will depend on what is the exact weight of gas and power, and basically the tax rate, the average tax rate for upstream will be in the range of 58% to 60%.

That was for your first question.

Your second question was suggesting that our gross CapEx could be up to $25 billion.

This is not what I said.

What I said is that we intend to monitor our net CapEx figures in the range of $20 billion to $23 billion.

This is to say that if we made some acquisition, if it need, we could sell some asset so that the net CapEx should be down to the range of $20 billion to $23 billion.

On refining, the average operating rate of our refineries remained low in Q1 '11, about 79%, 80%.

Lindsey is still running at half capacity since the June 2010 incident.

The Port Arthur refinery were disrupted to connect a new coker.

And then we are starting a turnaround at Grandpuits refinery in [Marseille].

Overall, the operating rate was quite low in first Q 2011.

I would add something is that and you saw that in our application is that the refining margin in Europe were quite low.

And I think this is answering your last question.

Just coming back to that CapEx, just in terms of definite -- I mean on an underlying basis, I'm just trying to understand how high you believe your organic CapEx number could go.

Maybe I've sort of missed that, but -- missed that point.

I was just trying to understand that if you on a net basis, yes you're acquiring and disposing of assets.

I was just wondering what you think that the underlying run rate on CapEx should be.

What do you think the ongoing disposal rate should be assumed at?

I mean I can answer you referring to our long-term plan, which is dated a little bit.

But excluding acquisitions, our gross CapEx, excluding acquisitions were below the $23 billion I mentioned to you.

Mark Gilman.

Just a couple things if I could please.

It looks as if the pace of selling the Sanofi shares is once again fairly low.

Could you comment on that regarding completing it by year-end 2012?

Yes, Mark.

Good to have you with us.

On the Sanofi shares I just need to explain you something technically.

Is that the date we sell Sanofi and go below 5% stake will trigger the value of the Sanofi share, which will be used for computation of the future capital gain.

So when the Sanofi share was at 47, we were waiting for a better price to materialize this reference for future capital gain tax.

Actually we sold yesterday sufficient amount of Sanofi shares so that we materialized this 5% target.

And no, we will continue and sell Sanofi with the usual trend so that by end of 2012 it will be completed.

A couple of other ones, Patrick, if I could.

You talked about the deferred tax adjustment for the UK tax increase.

What did you do in terms of the operating tax rate?

For the nine forthcoming months, because as the new rule started late March, our estimate for cash plus deferred tax is another whole cost of EUR150 million.

Using $90 per barrel scenario, sorry.

And did you record at the higher rate in the first quarter, Patrick?

No, because it was not applicable at that time.

You commented on the French Guyana well as being similar to Jubilee.

I wonder if I could just ask you to be a bit more precise in that regard?

Is this a crustaceous prospect?

Is it stratographic along the lines?

And are you targeting similar horizons?

It's an abrupt margin concept, which is similar to Jubilee.

Of course this is exploration and there is no guarantee on it, yes?

Well, just one final one for me.

Did you do anything in the quarter with respect to the Venezuelan tax increase announced several days ago?

No, we booked nothing in that prospect.

Too early.

Alejandro Demichelis.

Just one question.

Maybe you can give us a better indication of the Russian -- of the SunPower deal and how this kind of relates back to your comments saying that you're investing better projects than what you have currently, given that the ROACE, for example, in SunPower is so much lower than what you have at the group level today.

We have always made clear to the market that we wanted to extend our exposure to the solar market.

Over the last two years, we have been benchmarking a significant number of solar players and we've screened about 200 companies.

SunPower is one of the market leaders in the solar industry.

It is number one in the US.

It is a vertical integrated Company, which offer visibility and growth potential.

The Company has a technology advantage through its highly efficient technology, which is the efficiency of their sale is 24% where the average of the industry is 16% to 18%.

So we choose and by chance we have been able to crystalize this joint venture with them because those guys are the best technically speaking on the solar industry.

And so should we assume that this completes your aim in the solar market?

Or should we expect something more from you?

I don't know, I think for the time being that's it.

Okay, and that's for solar or just renewals in general?

I'm sorry, can you repeat your question?

So when you said that it relates to solar or that relates to renewables in general?

Oh, that's related to solar I think.

For solar now our solar footprint is good enough with the SunPower acquisition.

Ian Reed.

I've got a couple of things.

I think I heard you say that following the Novatek acquisition you want to confirm your 2010 to 2015 production growth target.

Surely from 2010 to 2015 it's risen somewhat.

Do you want to kind of tell us what the production growth rate would be on that basis including the net impact of Novatek minus the disposals?

And secondly, you say you're going to dispose of $10 billion of assets this year.

Could you say how much of that will be Sanofi?

And what is the exact Sanofi percentage now?

You said it has gone below 5%.

Your first question about the growth target, our target is to grow our operation by 2% a year on average over the period 2010-2015.

And we are still comfortable with this and this figure does not include the Novatek deal.

But we will update you with this target in September, taking in to account all the sales and including Novatek.

The Sanofi amount we include in our asset sales, which is close to $10 billion, is in the range of $1.5 billion if you use the $10 billion sales target.

And your exact percentage right now?

Just below 5%.

It should be 4.99% something.

Bertrand Hodee.

Can you give us an update on the status or progress you've made on the expected final investment decision you may take this year and especially once again about progress and status on the Egina, Nigeria, Ichthys, and Shtokman?

Start with Shtokman.

You know that the Board of Shtokman decided to re-merge the two FID.

Initially we had two FID, one for the pipeline project, the second for the LNG project.

Those two FID has been merged and it is anticipated that the new FID will be taken prior year-end.

On Ichthys, it is roughly the same.

We have been able recently to finalize broadly all necessary sale purchase -- season purchase (inaudible) for GLNG.

And we should be ready to FID this project prior end of 2011.

On Egina the FID is also expected prior year-end with a first production in 2015.

And just one follow-up on Egina, does -- compared to what you were expecting at the beginning of the year, does this project experience some seepage for any reason?

You know that basic engineering has been performed in Nigeria.

Invitation to tender has been launched after the approval of the newly installed Nigerian Content Development and Monitoring Board, and this has been secured now, and that's why we could expect FID by late 2011 in this year.

And of course we might have been facing some delay due to the election process.

Oswald Clint.

Two questions.

First one on LNG.

You've mentioned in last year certainly about 25% I think of operating income coming from LNG.

Can you say what percentage that was in the first quarter?

And then secondly, on the Novatek again, you have the 12% but you have indicated trying to go up to 19% over time.

Can you just clarify what that time period is and would you expect any increases in the equity holding through 2011?

You know that actually the LNG net operating income coming from LNG was 25%.

You were right, last year we did not give breakdown every quarter.

For Novatek, I can't remember exactly the date, but I think we have 12 months from the signing, which was 1st April this year.

We have 12 months to bring our shareholding up to 15%.

And I think we have figures from this signing to go up to 14.4% -- sorry, 19.4%.

Dominique Patry.

I would like to come back on the upstream profitability on an operating profit basis given the fact that your operating profit was better than what the sensitivity would have expected.

So maybe you can give us more color maybe on the cost trends that you are currently experiencing.

And after that I have a question on the dividend, given the fact that it is the first time that you are moving to a quarterly dividend.

And even if the gearing did decline during the quarter, you have kept the dividend stable.

So I wanted to know if you are maybe in a position to give us maybe more background with regard to this decision to keep the dividend stable?

Thanks.

The first question about upstream profitability.

Basically first quarter this year this is fourth quarter, the net operating income per BOE increased by $4 about.

The price effect explained a little bit less than $3 per BOE.

The tax rate that we were discussing at the beginning of the conference call explained about $0.50 per BOE.

And the guidance forward you should not forget about this, the Gas and Power division explained about $0.7 per BOE.

This is the way you can link net operating income of the last quarter with net operating income of this quarter.

About dividend, and it is not a surprise that somebody asked the question.

I mean we have been always clear about that.

Our dividend policy is to target an average payer with of 50%.

We are currently establishing this dividend using the $80 per barrel scenario.

I know that the oil price is at $125.

In first Q '11, we announced a dividend of EUR0.57 per share, stable basically.

I think what we need, and of course we have room to increase it.

I mean the payout is currently 41%.

What we need is more time to see how the oil price will stabilize so that we could take a decision to propose to the Board to increase the dividend on this quarterly basis.

But we need some time to see how has your price stabilized.

Just if I may coming back to the (inaudible) for breakdown you provided us in terms of the profitability evolution that is Q4.

Would you describe the operating condition of the Gas and Power division in Q1 as a kind of normalized or quite exceptional level?

I would say that it was a good quarter.

We had higher volume traded, about 24 cargoes of LNG this quarter.

It was a good quarter.

Just if I may a final one.

You have been very active in terms of acquisition of undeveloped resources.

Given your price that we have today, would you say that it is still an attractive option or is that it is for you maybe to make a kind of acquisition on this front?

I remind you that both acquisitions were made at very reasonable prices.

And basically we were making both acquisitions when we were able to contribute our know-how and expertise to the project.

In exchange to that we were given access to resources at a reasonable price.

If there are also opportunities of this type we will capture them for sure.

Lydia Rainforth.

A couple of questions just on the portfolio restructuring, if I could.

Firstly, on the Lindsey refinery, can you give us an update on sort of where that process currently stands?

And then just go back to the CapEx issue from Theepan.

The $20 billion to $23 billion, should we think about that as the $20 billion of organic CapEx that you gave in February and then $3 billion of net acquisitions?

Or is that a reflection of sort of increased spending associated with the acquisitions you've already done?

First question about the Lindsey oil refinery, which as you know, which is still for sale.

We have signed an exclusivity period with a buyer.

This period is for one month and hopefully we will be able to finalize this transaction I would say in one to two months.

But there is no warranty on it.

It's not so easy to sell a refinery.

But the CapEx guidance, most of the acquisitions we have made were partially or totally included in our long-term plan as potential projects.

So the guidance I gave you includes basically the acquisition we have made at the exclusion of SunPower, which was not included.

Jon Rigby.

Two questions.

Just about SunPower.

Can you contrast what you'd expect the rate of return would be from this acquisition compared to doing something similar in the E&P business?

I'm just trying to get to the idea of how you look at the allocation of capital, the appropriate allocation of capital.

And second, why do you feel comfortable with a fairly high degree of participation in the US in solar where you've been very shy of participation in the US to date in E&P?

Second is just on the downstream.

Obviously the results were pretty robust.

All (inaudible), and in a normal trading environment, what would you expect the delta to be, i.e.

if we were to roll forward to the second quarter and trading -- or supply optimization I should say was to be more normal.

What do you think the difference in earnings might be?

Thanks.

Your first question, honestly you -- we don't compare solar and E&P and you can't compare.

But I can tell you that we expect more than double-digit return on capital employed from this acquisition.

We are positioning ourselves in what we think is a growing and technological market where we could make some money and we will make some money.

The second question is a little bit the way you make them usually I will say.

I am comfortable with this acquisition.

I am not comfortable in acquiring US E&P using $120 per barrel in (inaudible) as it is (inaudible).

And with the return on capital employed, and we check that every quarter, the return on capital employed for potential acquisition on existing resources and reserves in the extreme.

If you don't bring your expertise it's so high that the return on capital employed is extremely limited and lower than what we expect for SunPower.

And on the downstream?

Can you repeat your question on the downstream?

Yes, I was just asking you is it -- it looked like you benefited from a good quarter, I think like a lot of your peers and in terms of supply optimization.

And I just wondered in terms of sort of benchmarking sensitivities, moving forward into the second quarter, what you might kind of gives us as a sort of benefit above and beyond the ordinary from supply optimization this quarter.

It might be that our traders are not as good as the other -- from other companies, but our trading results were slightly better than in last Q, for Q 2010 this quarter.

And that's it.

There was of course not a big deal this quarter.

Mark Gilman.

Patrick, have you finalized yet the terms of your entry into the Yamal project?

Welcome back, Mark.

We haven't finalized our -- the terms and condition of our entry in the Yamal and we expect to complete this transaction by July.

Just so that I understand regarding the accounting for Cepsa, I assume that given what you said that Cepsa's results are included in January and February?

Is that correct?

That's correct, but not in March.

Okay.

Can you help and give us just a little bit of granularity on the scale in absolute terms of the gas and power contribution in this period relative to others?

I'm sorry, we do not give them.

Let me try just one more.

It would appear you may have encountered a tranche effect in production sharing contracts, perhaps Rosa in the first quarter because the PSC sensitivity seems to be a bit higher.

Is that true?

I don't think we figure any new thing this quarter.

I mean we will figure on the (inaudible) I think in, no, no.

In 2011 we do not figure any threshold at $80 per barrel.

Sorry, but I don't have the figure at $120.

It might be that we will reach the profit oil tranche -- a new profit oil tranche on order at $120, but I don't have the timing for that.

But nothing in the first quarter?

Nothing in the first quarter, no.

(Operator instructions) We appear to have no further questions at this time, so I'll hand the conference back to you.

Yes, thank you for -- all of you for your questions and your comments about Total.

I just would like to leave you this brief summary.

The first quarter result shows that operationally we are performing quite well.

Financially we are of course benefiting from the current environment and the balance sheet is very strong.

We are well into the process of positioning Total to be a stronger and more competitive player around the world.

And honestly we are pleased with the first quarter result and we are looking forward to a good second quarter as well.

And hope you have all of you a good weekend.

And thank you very much for calling here again.

Ladies and gentlemen, thank you for your participation.

This concludes today's conference and you may now disconnect your lines.

Thank you.