TotalEnergies SE (TTE) 2011 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Total third quarter 2011 earning results 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 to remind you, this conference call is being recorded.

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

Please begin your meeting, sir, and I will be standing by.

Hello and thank you for calling.

I am very pleased to begin by saying that operationally we have had one of the best quarters ever.

We had the startup of Pazflor, the largest FPSO in the world, giant exploration discoveries, and very good Upstream production performance relative to our peers.

We reported a clean set of third quarter results that are in line with the second quarter.

Adjusted earnings per share were stable despite the weaker environment.

Upstream results decreased mainly due to lower hydrocarbon prices and a higher Upstream tax rate.

The Downstream posted a strong increase despite a decrease in European refining margins.

Not included in these numbers is $1.5 billion of gains on asset sales and $7 billion in cash flow that we collected in the third quarter.

It is important to point out that our strategy to unlock value by redeploying capital from mature assets to growth assets is working very well.

For the environment, the Brent price has remained well above $100 per barrel.

European refining margins have been volatile but, on average, weak for the quarter due to high oil prices on one side and weak product demand on the other.

Chemicals have also been affected by softer demand during the quarter.

Over the past few months, we have been very active.

We started up the Pazflor field in Angola ahead of schedule and on budget.

In the third quarter, we reported a giant discovery in Azerbaijan, another giant discovery in French Guyana, and a promising discovery in Norway.

So, this has already been an outstanding year for exploration.

In addition, we are currently drilling another high potential well in Brunei as well as frontier wells in Malaysia and Argentina, and we should have some results in the coming months.

In the Downstream and Chemicals, we announced a very broad reorganization project that will lead to creation of two new segments, an industrial one and a commercial one.

Upstream production was 2.3 million barrels of oil equivalent per day, in line with the previous quarter.

The ramp up of Pazflor and Trinidad had a positive but small impact on the third quarter production.

Normal seasonal maintenance was slightly lower than in the second quarter.

Asset sales, mainly CEPSA, and normal declines partly offset these positives.

Regarding our operations in Libya, we restarted the Al Jurf platform in late September and the onshore Murzuk field was restarted a few days ago.

In 2010, our average production in Libya was 55,000 barrels per day.

We expect to restore about 10,000 barrels per day of production on average in the fourth quarter.

In Yemen, one of our pipelines was blown up in mid October.

Nobody was injured and repairs have been completed.

We had scheduled maintenance at Yemen LNG so this event should have a limited impact.

The LNG plant has already restarted production.

In addition to Yemen LNG, the fourth quarter will include a turnaround on Snohvit.

We are very confident about our outlook for 2012 production growth above 3%.

In 2012, we will benefit from the ramp up on Pazflor, Trinidad, and Islay; Novatek will continue to grow; Libya is being restored and we will have new startups like Usan and Angola LNG.

All of our major developments are progressing essentially on time and on budget.

In addition, we expect to sanction Ichthys, Egina, Ofon 2, and Tempa Rossa in the coming months, and possibly Shtokman, depending mainly on negotiation for the tax treatment.

So, 2011 and the years to come should be very strong in terms of reserve replacement.

Average net operating income per barrel in the third quarter decreased compared to the second quarter.

Two obvious factors that are driving part of this decrease are the lower hydrocarbon price and the higher Upstream tax rates.

Looking ahead, production from Pazflor and Trinidad will be accretive this year to our profit per barrel.

The end of seasonal maintenance will be positive.

And our 2012 startups, mainly Usan in Nigeria, will be accretive as well.

On the Upstream tax rate, we had an increase of about 2% in the third quarter as compared to the second quarter.

Half of this increase is due to a mix effect and the other half is due to the one-off impact of changing the tax consolidation method.

But, this is offset in the Downstream, Chemicals and Holding, so the net effect of the change for the Group is neutral.

For the Downstream, marketing was stable.

The contribution from refining increased in the third quarter.

And this was mainly due to very strong supply optimization, lower turnarounds, and a higher contribution from the new Port Arthur coker.

For the Chemicals, Base chemicals were relatively stable, but we had a lower contribution from the US and Europe that was offset mainly by a higher contribution from Qatar and Korea.

Specialty Chemicals were down slightly, and this reflects mainly the sale of part of the resins business.

And finally, at the corporate level, CapEx excluding acquisitions was $4.7 billion in the third quarter, in line with our $20 billion budget for 2011.

Year-to-date acquisitions of $9.8 billion have been balanced with asset sales of $9.1 billion.

At the end of the third quarter, our gearing was down 15%, reflecting the benefit of our strong cash flow generation.

We announced that we will pay the third quarter interim dividend on March 22nd, 2012.

This is stable compared to the second quarter dividend that will be paid on December 22nd, and it is in line with our policy to maintain an average payout ratio of 50% over time.

One last word on the reorganization project for Downstream and Chemicals.

This is very important for the Group.

This reorganization will help us to improve the profitability of these segments by 5% over the next four years, and this is very significant.

But this project has the potential to do more than increase profitability.

If you look at the way we have revitalized the exploration program, then you see how this reorganization could revitalize and unlock the value in all these businesses -- refining, base chemicals, specialty chemicals, and marketing.

This project is a major positive change for Total.

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

Thank you, sir.

(Operator instructions.) Theepan Jothilingam.

Hi.

Good afternoon, Patrick.

It's Theepan from Nomura.

Just a couple of questions, please.

Just going into 2012 in terms of production, could you just talk about how you think -- the progress you're making on Angola LNG and Usan, and then what you think may be a sort of reasonable assumption for production from Libya into next year?

And then secondly, I mean, it's very notable, a strong performance in the Downstream in spite of a deterioration in the margin.

I was wondering if you could sort of comment perhaps just on the delta for -- in terms of the benefits from supply optimization.

That would be very helpful.

Thank you.

Thank you, Theepan.

So, your first question was about production for 2012.

Yes, just on Usan and Angola, when you think they may start up in the year.

Okay.

So, Usan, it's first quarter next year.

Angola LNG is first semester next year.

And we think that our production should be above 3% next year.

We will benefit mainly from the ramp up of Pazflor and the startup also of Islay by year-end, and Usan and Angola LNG as you mention it.

So, your second question about Downstream, basically what I'd like to tell you is that Q2 was very low with high turnaround and poor operational performance.

Q3 is high with lower turnaround with the effect of the Port Arthur coker and a very good supply optimization.

If I have to make a guess on what should be an average net operating income coming from the Downstream, this is between those two figures, the second quarter and the third quarter.

On average, that should be a good target.

Great.

That's very helpful.

Thank you.

Thank you.

Mark Gilman.

Patrick, good afternoon.

Had a couple things.

I want to go back to your comment about the tax rate and the tax consolidation.

You indicated it would be neutral overall.

Is that a total earnings comment or a comment on the tax rate?

Because obviously the earnings contribution pre-tax of the Downstream and Chemicals is significantly below the Upstream.

No, my comment was related to the overall tax amount to be paid after we change our methodology of consolidation for tax.

The so-called cost we have on the Upstream is offset by a gain made in Downstream and Chemicals.

Okay.

If I could just try one more, Patrick, I just don't really understand where all of this profitability benefit from the Downstream reorganization is going to come from.

It seems that you have committed, at least to some degree, not to reduce workforce.

So, where does that 5% come from?

Is that an increase in marketing market share?

Is it an increase in margin?

Is it a reduction in cost?

Can you flesh this out just a little bit for me, please?

You know that we are under the process of consultation with the union currently and that I cannot comment so much on this matter.

But, I think that basically all sides, including the headquarters, would benefit from the internal merger by bringing competencies and R&D resources under the same umbrella basically.

I think it is also a good opportunity to share best practice and move the business forward.

And I am sorry, but I can't comment so much.

Okay.

If I could just go one more, were there any effects associated with the change in the statutory Upstream petroleum tax rate in the UK that impacted the quarter?

Yes.

Let me think about what was the amount of the incremental tax we paid due to the new tax rate in the UK.

I think it is in the range of about EUR60 million per quarter additional tax to be paid in the UK.

But, there was no one-time or prior period booked in the quarter?

Was that done in the second quarter, if I recall?

That was done on the second quarter.

Okay.

Thank you, Patrick.

Thank you, Mark.

Alejandro Demichelis.

Yes.

Good afternoon, Patrick.

Alejandro Demichelis from Merrill Lynch.

Just one question.

In terms of the reorganization and the discussions with the different unions, maybe you can give us some kind of timeline in terms of how long the process, you think, is going to take.

Obviously our priority now is dialog and consensus building.

Such a project does have to be solidly embraced across the Company.

And subject to the completion on the ongoing process, our objective is to be able to start working into the new merged organization from early 2012.

Okay.

That's very clear.

Thank you.

Thank you.

Martijn Rats.

Yes, good afternoon.

It's Martijn Rats at Morgan Stanley.

Two questions.

First of all, in the outlook statement, it said that you expect that the net debt in the -- by the end of the year will once again be in the sort of 20% to 30% range, which actually suggests an increase after the sort of 15% that you reported at the end of the last quarter, which actually suggests that, after a couple of quarters of very good free cash flow, the free cash flow would actually turn negative into the fourth quarter.

And I was wondering whether you could elaborate why free cash flow would suddenly sort of reverse quite a bit as suggested by that guidance.

And secondly, what I wanted to ask you relates to capital expenditure.

There was guidance during your recent Capital Markets Day for $23 billion, on average, over 2012 to 2014.

But, now that 2012 is coming a little bit closer, I was hoping you'd give us a bit of an idea about how the increase in CapEx will actually sort of play out in terms of the profile.

Would you expect it to jump to 23 straightaway, or can we see more of a gradual increase where it starts below 23 and then ends that three year period at a level above 23?

Can you give us a bit more idea about the profile of that increase, please?

Okay, Martijn, your first question about net debt.

So, at the end of September, our gearing was 15%, a 9% decrease compared to the end of June.

In third quarter of this year, we paid the first quarterly dividend and completed divestment of CEPSA, approximately $5 billion and raising also approximately $750 million.

By end of the year, we should also close the acquisition of Uganda, about $1.5 billion, and the sale of our UK marketing.

By the end of the year, we expect our gearing to be in the lower part of the 20% to 30%.

You may also expect an increase of the working capital in the fourth quarter.

That's why we target in the low range of 20% to 30% for our gearing.

Okay.

So, your second question was about CapEx expenditure.

You know that usually we do not provide detail for the next year prior our budget being approved.

And you will be updated by our road show in February.

Okay, fair enough.

Thanks.

Thank you, Martijn.

Iain Reid.

Hi, Patrick.

It's Iain Reid here from Jefferies.

Can I get back to the tax rate in the Upstream?

It was 63.9% in the third quarter.

Now, I think you said there was one one-off effect there due to this tax consolidation.

Does that mean that that tax rate going forward could be lower, or should be lower, looking at what the mix effects might be in the fourth quarter?

And can you give us a kind of general guidance for that for 2012 and onwards?

The second question is I saw you said on Lindsey that, if you haven't sold it by the end of the year, you're going to keep it.

Is that the case?

And maybe just comment on the level of interest you're getting.

Okay.

First question on the tax rate.

If you take the average of the nine months, you end up with a tax rate of about 61%, which is a good idea for a normal tax rate in the current environment.

Just to give you another figure, the so-called retroactive effect, one-off effect, of the exit from the tax consolidation, if you exclude this from the tax rate of the Upstream, the tax rate from the Upstream will come down about 1%.

Okay.

So, about Lindsey.

Lindsey is still on sale and we have extensive and, I would say, long discussion and negotiation currently going on.

It takes -- that was expected, and I truly recognize that.

We could decide to put the sale process on hold until the market conditions improve if we are not successful by year-end.

But, as of today, I am still optimistic.

Okay.

So, if you were a betting man, when you think it's going to be sold?

As I mentioned to you, if it is not sold by year-end, we will keep it.

Okay.

Thanks, Patrick.

Thank you.

Blake Fernandez.

Hi.

Good afternoon, Patrick.

It's Blake Fernandez with Howard Weil.

Just to follow up on Lindsey to be clear, if you say you're going to -- if you were to maintain the facility, that does not mean you would convert it to a terminal.

It would just continue to operate, is that correct?

Yes, that's correct, Blake.

Okay, thanks.

Secondly, I wanted to follow up on the two Brunei wells that you mentioned.

As I understand it, one is already spud and we should have results by year-end.

Could you give us an update on any specifics on that well, and then secondly, when the second well will or has spud?

Honestly, I don't know.

What I know is that we spud the first well, which is under drilling now.

And I don't know about the second well.

I am sorry, Blake.

That's okay.

The last one I had for you, Patrick, Pazflor started up a bit early.

Any clue when we may see a peak of 220,000 barrels a day next year?

What I can tell you is that Pazflor is currently producing at the rate of 120,000 barrels per day and is still ramping up.

Thank you very much.

Thank you.

Oswald Clint.

Hi, Patrick.

Oswald Clint, Sanford Bernstein.

First question just on Novatek.

I wonder, can you say or give us a contribution this quarter?

And also, I guess since they haven't reported, this is an estimate at this stage.

And are we going to be having these kind of true up effects going from quarter-to-quarter after Novatek does report?

And then secondly, on your North American gas, it continues to increase quite strongly.

I guess that's the Barnett.

Is that still your intention, just to keep growing within that asset despite the gas price?

Okay, Oswald.

So, your first question was about Novatek.

In terms of production, we are at around 125,000 barrels per day for our share in the last quarter, an increase of about 8%.

On Novatek results, I can't give you anything, as Novatek is a listed company and you should wait for their conference call to be updated.

I remind you that we have around $35 million per quarter of amortization of the acquisition premium.

And this is the only figure I can give you.

Okay.

On Novatek, basically we expect and we see that this contribution to increase over time as Novatek production grows and domestic gas price in Russia increases.

Okay.

And on the US?

So, on the US, that's a good question, by the way.

Are we still going to keep growing in the US?

Honestly, we are coming from very low figures, if you have a look on our press release.

It's slightly increasing, that's correct.

Are we going to continue and increase it?

I think gradually, yes, we can do it.

But, as we are not very optimistic on the gas price in the US, it should be limited.

Okay.

That's good.

Thank you.

Lucy Haskins.

Good afternoon, Patrick.

Lucy Haskins from Barclays Capital.

I wondered if I could ask about whether the sanctions in Syria are having any impact.

And the second question is, there's clearly been a little bit of sort of teething problems in terms of Yemen.

You've got this sort of maintenance now planned for the fourth quarter.

What are your expectations for volumes from Yemen next year?

Okay.

First question about sanctions in Syria.

You know that, first of all, the contribution of Syria to our net operating income in 2010 was extremely limited.

The production was about 40,000 barrels per day, but the contribution in terms of net income was extremely limited.

Currently, the sanctions has an effect that the production is slightly going down and we are prohibited to make any off take of oil production from Syria.

That is the practical effect of the sanction on us.

I remind you that operations are managed by a joint operating company in Syria and we are not the operator.

This is a joint operating company which is the operator.

Sure.

About Yemen, we are -- since we start up again our production two days ago, the production is ramping up and we will reach plateau again quite quickly.

If I may give you an estimate for our share of Yemen LNG, it should be in the range of 75,000 to 80,000 barrels per day.

That's great.

Thanks, Patrick.

Thank you.

Jean-Luc Romain.

Good afternoon.

Jean-Luc Romain, CM-CIC Securities.

You mentioned you expect your production from Libya to be around 10,000 barrels per day in the fourth quarter.

I realize the situation is far from clear there, but do you have an estimate when you could be back near 2010 levels?

In Libya, we started up again the production from Al Jurf.

The Murzuk field operated by Repsol already started up again a few days ago, and it's currently producing about 60,000 barrels per day.

And our own estimate is that those production will gradually ramp up.

And we anticipate that hopefully we could be back at the 50,000 barrel per day second half of 2012.

Thank you.

Mark Gilman.

Patrick, have you reached a point yet regarding the establishment of your entry price into Yamal LNG?

And if so, could you tell me what it is?

To your first question I can answer yes.

To you second question, I can't answer because the Russians are still negotiating for other partners to enter and I cannot disclose the price we paid.

Okay.

Patrick, can you talk at all about the impact of SunPower on the quarter and where we would find it in the statements?

So, the same kind of response that I can -- gave on Novatek is the same on SunPower.

SunPower is the a listed company and they haven't published results yet.

What I can tell you is that the amortization of the premium paid, the acquisition premium, is around $35 million per quarter.

And where will it show up in the financial statements, Patrick?

It is included in the statement this quarter.

It is fully consolidated this quarter in the Upstream.

In what segment, though?

In the Upstream.

Okay.

Just one more for me.

Where do you stand on a possible shift to dollar reporting?

How long time do you have to talk about it?

As long as you wish.

You know that under French law we have to publish our book in euros.

This is the same in Italy.

It is not the same for a UK company.

But, unfortunately, as of today we are committed to publish our books in euros.

And honestly, it is extremely difficult for me to believe that we could handle double accounting in parallel for both dollar and euro at the same time.

So, as of today, I'm sorry, but we will stick to the euro.

Okay.

Thank you, Patrick.

Jon Rigby.

Yes, hi.

It's Jon Rigby from UBS.

Hi, Patrick.

Two questions.

The first is it looks like your LNG sales year-over-year are basically flat so it's quite a good chance to sort of do a comp.

Are you able to give me a sort of change of, say, the split of where those LNG sales were directed third quarter to third quarter?

So, get some idea of sort of which hemispheres you were selling in and the sort of structure of your LNG sales.

And the second question is you said that you were looking to complete the Uganda transaction in the fourth quarter.

You clearly farmed into Kenya during the quarter.

I mean, is this a East Africa somewhere that you are looking to deepen your position further, or are you content with what you've now got?

Thanks.

Okay.

About LNG, we sold -- during the third quarter, we sold 3.4 million tons mostly in Asia.

And there, those Asian sales are gradually increasing quarter after quarter.

The second direction is Continental Europe for about 21% where Asia was 63%.

Then, we have, I think, one cargo in North America last quarter, and that's it.

Uganda we hope to be able to complete by year-end.

But, you know that we are still waiting for the approval from the parliament in Uganda.

But, it is correct that we wanted to make East Africa a new pool force.

That's why we acquired several blocks in Kenya, the same in Tanzania, and the same in LDC.

That's why we are confident to be able to build a new pool in East Africa.

Right.

Could I just ask one other question, actually, while I've got you on?

There was a deal signed a few days ago involving Sabine Pass where you have entry rights, I believe, actually for export.

With your sort of footprint globally, is that something that you, Total, would be interested in also participating in, i.e., trading US gas into global markets?

We are studying it.

This is the only thing I can tell you.

We are studying it at this time.

Thanks, Patrick.

Bertrand Hodee.

Hi, Patrick.

Bertrand Hodee from Kepler.

Can you give us an update on your recent progress on final investment decision on your Nigeria project, namely Ofon and Egina?

And we also hear some contractors talking about the potential worth of Brass LNG well into 2012.

So, I was wondering about your thoughts on a possible, I would say, final investment decision on Brass LNG and where do you stand exactly on that project in terms of, I would say, fiscal incentives needed like on the early days on Brunei island, or is there enough gas to see the development at that stage?

Very simple answer.

On Ofon 2, it's pretty soon.

In Egina, first half of 2012 basically.

You know that on the Nigeria LNG, there were some technical issues which leads to a decrease in the off take of gas from Nigeria LNG.

On Brass LNG, is it for 2012?

I don't know, honestly.

I don't know.

So, you think that Brass LNG can be or you really don't know if this could be part of, I would say, the -- because this is obviously a very big project.

It can be, but that's all I can say.

Okay.

Thank you, Patrick.

(Operator instructions.) Lucas Hermann.

Lucas Herrmann, Deutsche Bank.

Patrick, hi.

Afternoon.

Just going back to the comments you just made on Nigeria, where are -- I presume that you've obviously sorted out everything to do with tax on Ofon and Egina at the present time then.

You're not going to take a decision ahead of a petroleum bill being announced and tax changes, are you?

So, you are talking about Egina?

Can you repeat the question?

Yes.

I mean, the investment decisions in Nigeria, Patrick, if you're not -- are you clear on what the tax terms are at the present time in any future investment?

We think that we will be able to recover a like poll.

So, it is not an issue for us.

Okay.

That was it.

Thank you.

Thank you.

Sergio Molisani.

Yes.

Good afternoon to everybody.

Sergio Molisani from UniCredit.

Two questions, if I may, the first one on the cash flow generation of the different business areas.

In particular, Upstream recorded earnings in line with second quarter, but the cash flow generation was significantly lower.

On the other end, the cash flow generation of Downstream was very healthy on a quarter on quarter basis, even if I suppose that in this case most of the improvement is attributable to net worth and capital movement.

Can you give us more color on the factors driving the evolution of the cash flow in the two business areas, please?

And second quarter, is there the possibility to have an idea of the contribution of the Port Arthur coker in third quarter 2011?

Thank you very much.

So, your second question first on Port Arthur.

Port Arthur contribution is about EUR45 million per quarter.

About your question about cash flow generation on Upstream and Downstream, over nine months the net operating income went to EUR7.6 billion from EUR6.3 billion the same period in 2012.

So, an increase of 21%.

And the cash flow, the adjusted cash flow increased by 15% basically.

So, it's roughly equal.

If I look at your tables, I saw that cash flow from operations second quarter in Upstream was EUR5.6 billion while is was EUR3.2 billion in the third quarter 2011.

So, I was wondering whether there is some specific factor justifying these huge fluctuations in the cash flow generation of the division.

We will look at it more carefully and the IR will come back to you on that question.

Okay.

Thank you very much.

We appear to have no further questions at this time.

Sir, I hand the conference back to you.

Okay.

Thank you very much, all of you.

And thank you for your time.

And let me close by saying that that was an exciting time for Total.

And in terms of activity, we are at a very high level that we haven't seen for a long time.

Thank you and enjoy your weekend.

Bye-bye.

Ladies and gentlemen, thank you for your participation.

This concludes today's conference.

You may now disconnect your lines.

Thank you.