TotalEnergies SE (TTE) 2011 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Total earning results Q2 2011 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) Just a reminder, this conference call is being recorded.

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. As usual I will make some brief comments and then we will go to the Q&A.

We reported our second-quarter results. Compared to last year the adjusted earnings per share increased by 6% to $1.08 per share, reflecting the higher oil and gas price environment. Compared to the first quarter, which was a very good quarter, adjusted earnings per share decreased by 5%, reflecting the impact of lower volumes mainly due to seasonal maintenance and Libya, as well as higher taxes including the new tax hike in the UK and Venezuela, as well as mix effect in Nigeria.

The Upstream results include some other mix effects that I will comment on later. The Downstream was resilient, but lost some ground in an unfavorable environment. The Chemicals segment continued to perform well.

We have three specific items in the second quarter that I would like to comment on. First, effective April 1, our 12% share of Novatek is included in the income from equity affiliates and we are reporting our share of the production, which was 115,000 barrels per day net to Total, in the second quarter. Under IFRS rules, we have to amortize a large portion of the difference between the purchase price of $4 billion and the accounting value of our 12% share of Novatek's equity.

This means that the contribution of about $50 million of income from Novatek was reduced by about $35 million of amortization; so our results include a net of $15 million. We expect this contribution to increase over time as Novatek's position grows and domestic gas prices in Russia increase.

Second, in March 2011, CEPSA was moved from equity affiliates to assets held for sale. Under the IFRS rules we no longer include the financial results from CEPSA, but the Upstream production is recorded until the sale is completed.

So, we will have the volumes for July and [know] the sales is essentially closed. For comparison, CEPSA generated about $75 million per quarter on average in 2010 and contributed about 25,000 barrels per day of production.

The last item is Sanofi. This was moved from equity affiliates to other investments at the end of the second-quarter 2010. In the second quarter of 2010, Sanofi contributed EUR141 million that was on the income from equity affiliates line. In the second quarter of 2011, Sanofi contributed EUR170 million of dividend in the other financial income line before tax; so a net contribution of EUR115 million.

The environment, as you know, remains favorable for the Upstream; challenging for the Downstream, particularly in Europe; and stable for the Chemicals. The Brent price has been well above $100 per barrel. European refining margins have been squeezed by high oil prices on one side and weak product demand on the other.

Chemicals performed well. Even without strong growth in the global economy, there has been good demand for our chemical products.

The euro-dollar exchange rate has been volatile, leaving the dollar weaker against the euro -- we are a dollar Company -- but this affect our results in euro. Macro concern over sovereign debt issues have affected euro-indexed equity markets, and we believe this has continued to have an impact on our share price.

Just to wrap up on macro events affecting our industry. Production in Libya was disrupted in March and has been stopped. The impact on Total was 15,000 barrels per day in first quarter and 55,000 barrels per day in the second quarter.

In Yemen, the Yemen LNG facility is operating normally. In Nigeria, following the election in April there has been some unrest, but the effect has been very limited.

Operationally, we are continuing to move at a very active pace. This is illustrated by our second-quarter highlights that include launching the Ekofisk South and Eldfisk II developments in the Norwegian North Sea. The start of the Angostura Phase 2 production in Trinidad-Tobago. A third discovery on Block 17/06 in Angola, plus a gas and condensate discovery in Bolivia. The acquisition of a 49% stake in the shale gas play in Poland, and the acquisition of an additional 25% interest and the Tempa Rossa project that raised our share to 75%.

Upstream production in the second quarter was 2,311,000 barrels per day. Compared to the previous quarter, production decreased by 2.5% mainly as a result of maintenance, for the most part in the North Sea and to a lesser extent in West Africa; normal declines; the disruption in Libya; seasonal weakness in Norwegian gas sales; portfolio changes, including the sale of Cameroon; and the PSC price effect. All these impacts were only partially offset by Novatek.

In addition to the lower volume, the mix effect was very negative in terms of net income per barrel in the second quarter. Maintenance affected some of our highest margin fields. Also, the Novatek and CEPSA volumes represent about 6% of our production; but as I said, because of the accounting treatment there was not much of a contribution to the net results.

Looking ahead, maintenance will continue in the third quarter. However, by the fourth quarter we should be back to a normal production level and we will have the benefit of topping up the Pazflor field in Angola.

We will make our media presentation in September, so will not make too many comments at this point except to say that we still expect 2011 to be basically flat compared to 2010. The outlook for production growth is strong, and 2012 is expected to be a very good year.

For the Downstream and Chemicals, we are making major changes in the portfolio. The sale of CEPSA has been completed, and we should receive the funds today or Monday. This is EUR3.7 billion or about $5.3 billion. This marks our exit from the Downstream business in Spain, meaning also that we have already exceeded our target to reduce worldwide refining capacity by 20%.

In June we announced the sale of our UK marketing business for about $600 million. We are continuing to work on the sale of our Lindsey refinery. Lindsey is taking more time than expected, but we are still in touch with potential buyers.

At the Corporate level, the balance sheet is very strong. Gearing at the end of the second quarter increased to 24%. This reflects the payment of the dividend for $3.6 billion and also the funding of recent acquisitions including SunPower for $1.4 billion and Novatek for $4 billion.

In the second quarter, we'll receive the cash from the sale of Cameroon, $400 million, and the ongoing sale of Sanofi shares, $600 million. In the third quarter, our gearing should go down significantly after we receive the cash from the sale of CEPSA, UK marketing, the Gassled pipeline, and part of the [regimen]. So, the balance sheet is really very strong.

With the portfolio changes announced so far this year, we expect to have about $11 billion of acquisition and about $10 billion of asset sales. CapEx, excluding acquisition and asset sales, was $5 billion in the second quarter, in line with our $20 billion budget.

On dividends, we are now on a quarterly basis; and we have announced that the next dividend will be EUR0.57 per share payable on December 22. This is in line with our average 50% payout ratio. In fact, using the second quarter as a base, the payout this 46%.

That concludes my prepared comments, and I am ready to start the Q&A.

(Operator Instructions) Alejandro Demichelis.

Yes, good afternoon, gentlemen. Alejandro Demichelis from Merrill Lynch. Two questions.

The first one is, in terms of this maintenance going into the third quarter, should we assume that it is going to be at a similar level to the second quarter?

Then in terms of your CapEx into the second half of the year, should we assume that it is going to be at the run rate that we have seen so far this first half?

Yes, hello, Alejandro. Your first question about maintenance, I think the maintenance level for the third quarter you should expect the same level as the second quarter.

On the CapEx run rate, it is a $4 billion per quarter, about, so we expect an overall budget to be matched by $20 billion this year.

Thanks for that. Thank you very much.

Mark Gilman.

Patrick, good afternoon. A couple of things. Will you account for SunPower on an equity basis?

No, we were unable to account SunPower this quarter because we didn't have the time to incorporate the results of SunPower due to the late transaction date. But we will account as full consolidation for it by third quarter.

Okay. Can you share anything with us in terms of the terms of your participation in the Yamal LNG project at this point?

We have signed a Memorandum of Understanding. We have not yet finalized the agreement. I think it will take maybe one or two more months to finalize it.

But everything is progressing normally. You should expect something I will say in two months' time, the latest.

Okay. If I could just check back on your production content, Patrick, for 2011 flat with 2010. I am still assuming, as I believe was indicated previously, that that excludes Novatek.

Yes. Our initial guidance was not including Novatek. But during -- a few events happened. First of all, this was at $80, so you have the price effect. Then you have the sale of CEPSA, which had gone for 25,000 barrels per day. Then we lose the Libya production, which is about 55,000 barrels per day for our share.

So in aggregate, Novatek should see being reduced by all those events. And no, we are flat at $110 per barrel.

Flat at $110?

Yes, that's correct.

Okay. Patrick, it appears to me, although obviously given the disclosure I can't be sure, it looks to me as if the LNG earnings in this quarter were really quite weak. Can you comment on that please?

Yes, I can comment a little bit, but I am not sharing your view exactly. We have been able to divert seven cargoes this quarter. I think basically in Nigeria LNG is doing well. We had good results, but it is in equity.

The LNG impact was unfortunately cancelled by the impact of the Venezuelan asset we have, the PetroCedeno, which is accounted using the equity method also, where we face increase of tax, which reduce the impact of the PetroCedeno results.

So in aggregate I think we have a good contribution on LNG, as the volume were up by 12% in comparison to second-quarter 2010. You remember when we said in the past that LNG represent 25% of our net income. Today it is 30% of our net income for Upstream.

You say 30%, Patrick?

Yes, three-zero.

Okay, just one final one for me on taxation. I guess from looking at the release that you booked the full impact of the 12.5% increase in the UK tax in the second quarter. I am not talking about the re-measurement of deferred taxes, but rather the operating effect. Is that accurate?

That's correct, yes. It has cost about EUR60 million of (multiple speakers).

Yes, the tax rate on Refining and Marketing as well as Chemicals, Patrick, was also a bit high in this quarter. Any particular reason?

So fast; on the top of my mind, I am sorry, I can't answer this question. I don't know.

Okay. Thank you so much.

Thank you very much, Mark. I hope to see you.

Iain Reid.

Good afternoon, Patrick. Just got more of a philosophical question really about the pace of acquisitions and divestments. Obviously we have seen a lot of those over the last several months.

Do I get the impression from reading the release that the pace of this is now coming to an end, or least slowing down dramatically, and now you are focusing the Company more on delivering from those acquisitions? Rather than still being in the mode, if you like, of trying to reshape the portfolio.

It is true, Iain, that we did a lot this first semester. We acquired about $11 billion of assets, which is a lot. I am not so sure we are able to continue at this pace.

You are right that we need to make (technical difficulty) delivering results now. Nevertheless, we are still open to opportunities, and I don't want to be missing opportunities.

I remind you that we have a very strong balance sheet, enabling us to take all option to make other acquisition if there is opportunity. But there is nothing on top of my mind yet. But I want to leave it open.

Okay, and just one other thing. Given the slow pace of Lindsey, I presume we should assume that is going to be a 2012 event now.

Honestly, I don't know. But hopefully we try to secure something by end of this year.

Being frank with you, we were in talk with a buyer. We were very close to conclude, and this buyer wasn't able to secure its financing. So we had to switch to another one.

Okay. Can I just for the last one just ask you the obvious question, which all the other integrators have been asking this earnings season. Having seen what some of your US competitors are doing in the downstream, is that something which at all appeals to Total? Or are you still very much an integrated Company as far as you are concerned?

As far as we are concerned, we are an integrated Company. We see some benefit of it, and there is nothing in the pipeline to break up the Company today.

Okay. No great surprise. Thanks very much, Patrick.

Thank you very much.

Jon Rigby.

Yes, hi, Patrick. Three questions. The first is on Novatek, on the amortization rate. Could that fall over time if you prove up more reserves? Is it something that you have allocated to the resources that you have acquired, and therefore you could see a falling amortization rate as you prove out more resources from what you have acquired?

Second question is just on the payout ratio. I noticed you referenced again a target to hit 50%. But do you think honestly that that is an appropriate metric for judging your dividend?

My sense is, the way that you have held it, is there may have been a fear that perhaps you had overextended the payout ratio. And maybe a better mix in the next year or so as things play out would be dividend and buyback.

And the third is just coming back to Iain's question on Lindsey. I think again you referenced in your remarks that you hadn't anticipated the sale of CEPSA. Correct me if I am wrong, but my sense on Lindsey always was that, although part of it was to sell the refinery because you wanted to reduce refining, but also that selling a UK refinery is a rather more straightforward process.

So having reduced your refining cover anyway, would it be part of your thought process to say -- well, fine; we are happy with the refining cover we have; and we will hold Lindsey for another time. Thanks.

On Novatek, we amortize the difference between the purchase price and the equity value of Novatek on the 1P reserve. So technically if there is more discoveries and if the 1P reserve of Novatek increased, the amortization will reduce mechanically. As of today, the amortization rate is about $35 million per quarter.

Obviously we expect not only an increase of the reserve by Novatek, but also an increase of the production. That is why we bought 12% of Novatek. The effect of Novatek in our net income will increase gradually, thanks to the growth of production and the increase of the gas price also in Russia. So that was on Novatek.

On Lindsey, when you said we did not expect CEPSA, actually we were in talks on CEPSA. We started talking about CEPSA more than a year ago, internally with IPIC -- although obviously, we can't say that to the market, because we are not sure that we would be able to conclude the transaction.

But this does not change our mind on Lindsey. I know and I have to tell you that I fully support the team in charge of that. It is extremely difficult to sell a refinery today.

But we pursue this idea, and we want to sell Lindsey. Hopefully we have now a potential buyer able to make it. Basically you know we wanted to be out of the UK market; sorry to say that to a UK citizen.

And I pretty much like Total fuel.

Then, your second question was about payouts. I think we have always been transparent about that. We always make it clear. You may like it or not, but our payout ratio target is the 50%, assuming an average oil price scenario.

You are asking the question could we make some more buyback, if I well understand your question. We haven't make any decision in that respect today.

Our balance sheet is strong, but the ratio gearing is still at 24, so it is not so low today. And sorry, I repeat myself; but the payout ratio being the 50% target, this is our policy, and I think we will maintain it.

Okay, just one quick follow-up on Novatek. Can we basically assume you are going to execute the follow-up option that you have to acquire the additional stake?

I mean, we have the intent to do it. You know you need two parts, the buyer and the seller.

Right.

We will try at least to get the 15% stake. I think we can say that.

Okay, thank you.

Lucy Haskins.

Good afternoon, Patrick. Could I ask? Quite a lot of the acquisitions you have been making have been in the gas space and very specifically in LNG. Is that because that's an area where you think you add a particular edge? Or is this because that is partly where the opportunities are being offered?

Will the Group as a whole be looking to perhaps add a little bit more oil through a [non-organic] process as we move forward?

Thank you, Lucy, for these questions. First of all, we make acquisitions where there are opportunities. We made acquisition in the heavy oil in Canada with Suncor. We made acquisition in the LNG sector with Ichthys, with GLNG for instance.

But you shall not forget that we also made the acquisition in Uganda, buying a 30% stake in the Block 1, 2, and 3 with Tullow being the one who discovered those blocks. So yes, we have some newer oil in the LNG sector.

We have a large expertise in LNG. That is why companies like Inpex or Santos call us to support them in their projects.

But there is not only LNG. As I mentioned to you, we have been also -- thanks to our good reputation of being a very good operator -- called Tullow for their oil discoveries in Uganda.

Yes. Would you say there is any kind of geographic bias in terms of your preferences? Or again is it just where there is value you will go?

There is no geographic preference. We are open to work mostly everywhere where we are legally able to do it. There are some countries where we can't, like Iran, for instance. But putting that aside, we are open to every country.

Thanks, Patrick.

Jean-Luc Romain.

Good afternoon. I have got a question about the Tempa Rossa project. It has been a long time Total development pipeline. When do you think the project could start flowing and when will it be producing?

So we bought 20% from Exxon, and our share is today 75%. We expect the startup of production by 2015. And we will take FID by end of this year.

Thank you.

Mark Gilman.

Patrick, can you give me a rough idea what the impact was of the increased Venezuela tax on PetroCedeno?

That is about EUR40 million for the quarter.

Wow; okay. Your comments regarding the Novatek amortization, you discussed it in the context of changes in proven reserves. I don't quite understand that linkage.

I had thought that that amortization was dictated by the difference between purchase price and the equity value on the balance sheet of your interest, which is a function of a lot of different things other than just proven reserves. Could you help me understand that?

Yes, I'll try to make it with my poor English. The amount to amortize is the difference between the purchase price and the equity value of the company. That is one part.

You have to know at which pace you are going to amortize it. You amortize it as a unit of production. I.e., you take the ratio of your production divided by the 1P reserve; and then you have the ratio to compute the amortization for one particular year.

The premium, the overall premium to amortize, is $3.3 billion. It has been allocated 75% to proved reserve and 25% on potential resources.

I understand. Thank you, Patrick.

I'm glad you understand it, Mark.

(Operator Instructions) Kim Fustier.

Yes, hi. Good afternoon, Patrick. I just have a couple of questions.

Firstly on Ichthys LNG. I believe you have now contracted all of the offtake for the project. At this point are you still confident in an FID in late 2011 or early 2012?

My second question is on the Port Arthur Coker. It is now in the commissioning stages, I think. Could you maybe quantify the contribution of the Coker from 3Q onwards? Thank you.

Hello, Kim. On Ichthys we have contract all the volume already. By the way, the average formula is about 65% of the [EGCC]. We confirm that we will FID this project by late 2011.

On Port Arthur Coker, unfortunately I can't quantify it yet. But Coker just recently started running at full speed, and I think we will be able to update you next quarter when we will have one full quarter with the Coker running perfectly.

Thank you.

Bertrand Hodee.

Hi, Patrick. Two questions if I may. One on Libya. Do you have, I would say, an estimated schedule if things were to settle quickly, on how many months would it take for Total to resume production at the previous 55,000 barrels per day rate?

The second question is on Pazflor, what kind of timing we can expect in terms of starting up and then reaching plateau.

On Libya, we are not going to speculate and give you any estimate of how long it will take. Honestly we don't know yet.

I know that some other operators give you some estimates. But honestly we are unable to do it now for our production.

On Pazflor, we are quite close to start-up. It will be a start-up for during the last quarter of this year, and the ramp-up takes three to four months.

Okay. Thank you, Patrick.

We appear to have no further questions at this time. I will hand the conference back to you.

Thank you. Thank you for your interesting question and comment about Total. I would like just to remind you that we are having our first all-day analyst presentation in London on September 26.

The focus will be (technical difficulty) stream. We are obviously very enthusiastic about the major changes we have made in the portfolio and about the opportunities for growth that we have in front of us. We believe that a comprehensive review is the best way to communicate with you. So I hope you will be able to join us on the 26th of September.

And for those having the good luck of having some vacation, good vacation.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may now disconnect your lines. Thank you.