TotalEnergies SE (TTE) 2012 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the earning results Q1 2012 conference call.

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

(Operator Instructions).

And just to remind you all that this conference call is being recorded.

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

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

Hello.

This is Patrick de la Chevardiere speaking.

Thank you for taking the time to join this conference call.

Before commenting on our first quarter results, we will start with an update on Elgin.

Events like this remind us that safety must be our top priority, and so I have asked Manoelle Lepoutre, Senior VP of Sustainable Development and Environment, and Michel Hourcard, Senior VP of Development, to be here today in case you have any technical questions.

The latest update on Elgin.

We believe the situation is now under control from an operational standpoint.

The leak has diminished substantially from its initial flow rate, and we have put in place a diverter to channel the gas away from the platform.

This is a key step in improving the safety of the installation, and we are preparing to start the well intervention next week.

We remain confident that this will stop the gas leak.

As a precaution, we will continue with drilling the relief wells.

The first one was started last week, and the second one should start in the next week or two.

From a financial standpoint, I can confirm the estimates we shared with you during our April 2, conference call.

The response and remediation effort is costing about $1.5 million per day, net to Total, before taxes and insurance.

The estimated impact on production is about 50,000 barrels of oil equivalent per day, and the financial impact of the shutdown on net operating income, net to Total, is about $1.5 million per day, or around $50 million so far.

We are working in close coordination with all the relevant authorities, and we will maintain close contact on all matters pertaining to this incident and its remediation.

Also, as you know, we reported incidents on OML 58 in Nigeria and the Yemen LNG pipeline.

We are preparing a snubbing operation on the damaged well in Nigeria.

The pipeline in Yemen was repaired a few days ago, but we received news last night that it has been blown up again, so we will repair it.

The financial impacts and production shutdowns from these events are expected to be limited.

There were no injuries or loss of life in any of these events, and our remediation response has been carried out in a timely and professional manner.

Total has a consistent track record of technical and operational excellence, and we continue to see this as one of our key differentiating factors.

It is too soon to provide an update for the 2012 production forecast, but it is clear that we must take certain factors into account.

For example, we will not restart production from Elgin-Franklin until we can do it safely and in accordance with the requirements of the relevant UK authorities.

Our teams are working on several scenarios and there is a possibility that we could restart gradually some time before the end of the year.

We are losing 0.2% of our production growth for each month that Elgin-Franklin is shut down.

If we take a conservative view that Elgin-Franklin does not restart before year-end then 2012 production could be flat.

We will have a much better perspective on all of this in the coming few months.

For 2012, we are on track with the new project startups.

The Usan field started up in February, as expected.

Pazflor and Usan, both operated by Total, are now the two largest FPSOs in the world.

We are very proud that these projects are being delivered and started production either ahead of schedule or on time.

In April, we also started up Islay in the North Sea and South Bongkot in Thailand.

The three new startups will contribute more than 60,000 barrels per day net to Total at plateau.

For long-term production growth target of 2.5% on average for 2010 to 2015, we have started up, or have under construction, 95% of the volume we forecasted for new projects.

So far this year we have launched three major projects.

Ofon 2 in Nigeria is one of the last projects we needed to launch that is expected to contribute to the 2015 target.

We also launched two other projects for longer-term growth; Ichthys in Australia and Hild in Norway.

In addition, we acquired an interest in the wet gas window of the Utica shale and finalized our entry into Uganda as an E&P operator there.

Let me now turn to our first quarter results.

Adjusted cash flow from operations was $6.7 billion in the first quarter.

Compared to 4Q2011, adjusted EPS increased by 10% during the quarter to $1.78 per share.

The Upstream had a very good quarter.

Reflecting the high commodity price environment, the Upstream segment generated $3.9 billion of net operating income, or 96% of the Group's net results for the quarter.

This represents a 3% increase from the previous quarter.

But recall that in 4Q2011 we had a positive one-off item for $139 million related to changing the way we report over- and under-lifting.

So, taking this into account, the increase would have been 7%.

The first quarter Upstream results were also affected by higher taxes.

Upstream production was nearly unchanged at 2.37 million barrels of oil equivalent per day in the first quarter versus 4Q2011.

As you know, we have implemented the reorganization of the downstream businesses so the Group's results are now presented based on new segments; Refining & Chemicals, our downstream industrial activities on one hand, and Supply & Marketing, our downstream commercial activities on the other.

Refining & Chemicals reported a small profit and showed some improvement from 4Q2011, but the main message here is that the environment for European refining and petrochemicals remains very challenging.

Margins were squeezed by high feedstock costs, crude oil and naphtha, and lower demand.

European refining margins, however, are trending upwards.

Supply & Marketing again delivered consistent results, and this segment continues to perform well.

Operationally, in the downstream we are making progress on the restructuring of the Refining & Chemicals segment.

The first units of the Jubail refinery are on schedule to start in early 2013.

We are focusing on better integrating the Normandy refinery with the Gonfreville petrochemical plant.

And we have launched a major expansion of the Daesan petrochemical plant in South Korea with our partner, Samsung.

In the first quarter, net investments amounted to $5.6 billion, in line with budget.

This includes acquisitions of $2.4 billion, mainly as a result of the closing of Uganda, and asset sales of $2.0 billion coming from our continued disposal of Sanofi shares, the sale of our interest in the Gassled pipeline in Norway, and the sale of upstream assets in France.

Our gearing at the end of the quarter amounted to 22%; at the low end of our target gearing range, and essentially unchanged from the end of the year.

Our liquidity position is very strong with more than $17 billion of cash and cash equivalents on the balance sheet at the end of the first quarter.

We announced that we will pay the interim dividend of EUR0.57 per share on September 27, 2012.

This is stable compared to the previous quarter.

As a reminder, it is our policy to maintain a pay-out ratio of 50% on average over time.

Our balance sheet remains strong, and we are confident in our ability to maintain this competitive policy and return to shareholders.

This concludes my comments and we are now ready to take your questions.

Thank you.

(Operator Instructions).

Robert Kessler, Tudor, Pickering.

I was curious, in what you've characterized as a conservative outlook now for flat production in 2012, can you say what you've assumed for Yemen production on average for the year?

For Yemen, we assume a loss of production in aggregate of 5,000 to 7,000 barrels per day when we make this assumption.

On a full year, just 5,000 to 7,000 barrels a day net to Total.

Yes, for the full year net to Total.

And what was it in the first quarter?

About 90,000 for the whole year.

About 90,000?

19,000?

I'm sorry, could you repeat that?

Our share of Yemen LNG is 70,000 barrels per day, and the overall for Yemen is 90,000 barrels per day.

And for the first quarter of 2012, that was the average output?

Yes, that was the same.

Okay.

Thanks very much.

Lydia Rainforth, Barclays.

One question, if I could, please.

Just on the dividend policy, the fact that it's flat year on year, should we take that as -- should that be idea of that's the payment it will be for the rest of the year as well, so it implies a flat full-year dividend?

Or is it just too early in the year at this stage to think about listing the dividend?

Basically, what we think about the dividend is that it was too early and that we need time to control the Elgin situation prior envisaging to increase the dividend.

So it is not because we haven't increased the dividend this time that we will not increase later on, and we will see according the situation.

As I remind you, that what we said in the past is that we have room to increase the dividend.

This remains valid, but it's just a matter of time.

Thank you.

Theepan Jothilingam, Nomura International.

Three questions, actually.

Firstly, do you have any further color on any other liabilities outside the costs of fixing the Elgin gas leak?

I'm thinking about any sort of regulatory charges that may come up against Total.

Secondly, could you give any color on the performance of Total's LNG business this quarter relative to Q4 and year-ago levels?

And then lastly, just in terms of any color on the performance of the solar business and the contribution or negative contribution to E&P.

Thank you.

I will start on solar.

And as you know, we cannot comment on solar because our affiliate is a listed company, and we cannot comment prior to their announcing their own profit and losses.

A few comments on liabilities.

I don't know if we have a clear view today of the type of fines that could be imposed from the UK authorities.

As a matter of principle, it's up to a court to decide on the amount of any fine which may be charged by a UK authority.

And we don't know yet if the Company shall bear any liability in this specific case.

At this stage, we are not aware of any prosecution that would have been initiated by the UK authority in connection with the Elgin incident.

Your second question was about LNG, if I will remember, Theepan.

Yes.

In first quarter this year, the net operating income contribution from LNG was EUR766 million; an increase of about 25% from the contribution in the first quarter 2011, which was close to EUR600 million.

Can you remind me what the Q4 result was as well please, Patrick?

EUR730 million.

I don't have any more figures, Theepan, for you.

That's all right, thank you very much.

Bertrand Hodee, Kepler.

Two questions, if I may.

Can you come back on the Nigerian incident on OML 58; the causes of that incident, your understanding to date?

And how could that affect production going forward, also especially OML 58 upgrade that was scheduled to be started this year?

And the second question I have is when I look at the Middle East production, especially on the gas side, it's sharply down year on year.

Can you give me some color on the reason behind that sharp fall in the Middle East production?

Okay, Bertrand, I will leave the floor to Michel Hourcard to explain you technically what's happened on OML 58, and I will come back on the financial production consequences of this incident.

Okay.

On Nigeria, we had, on OML 58, an intersection between two wells at the drilling phase.

One well perforated the one existing gas-producing well.

The well was shut off but, anyway, we had some gas release on surface, on the cluster and outside the cluster.

The situation is under monitoring at the moment.

We mobilized equipment to treat the situation by two-fold.

First of all, the snubbing unit is being prepared to being able to intervene on the gas-producing well.

And we have, as well, some relief wells in preparation; we could start in a few weeks.

So situation is under control.

It is critical because we have still potential gas release on surface.

But we are making good progress and the equipment is in Nigeria at the moment on OML 58.

So that's the situation today.

For the consequences, we currently estimate a loss of production at about 20,000 barrels per day.

The cost of the remediation operation is about, net to Total, $0.4 million per day before tax, which is to say $60,000 per day after tax, net to Total.

Okay.

And do you have any schedule on the expected restart of operation that was (inaudible) --?

Well, Bertrand, for the snubbing unit, it's a matter of weeks.

If we are to perform the relief wells up to the end, it will be a matter of months.

Hopefully, the snubbing unit will be effective on this case.

Okay.

And on the Middle East question?

Yes, basically, the drop you see in our report is related to Syria.

You know that we are not producing any more in Syria, and last year we were producing 55,000 barrels per day of oil equivalent in Syria.

And on top of that you have the price effect on Dolphin, which is about 10,000 barrels per day.

And the price effect on Dolphin, I would say is an irreversible price effect, it's a capital threshold?

It's above threshold and cost oil.

Okay, thank you.

Martijn Rats, Morgan Stanley.

I have three questions, if I may.

First of all, on the statement you said that production in the second quarter will be impacted by the events in the UK, Nigeria, Yemen, and also planned maintenance.

I was wondering if you could be a bit more specific on the magnitude of the combined impact of all of those.

Can we expect 2Q production to be actually down compared to 1Q, for example?

The second question that I had relates to Usan.

I believe it's producing something in the order of 100,000 barrels a day, but I was wondering if you could also mention what the cash contribution of that project was in the first quarter.

And finally, in 1Q I believe acquisitions were still outstripping disposals but, if I remember correctly, the guidance for the full year is for that to reverse.

How would you expect the balance between acquisitions and disposals to be over the next three quarters of the year?

Okay, basically, for the second quarter, if you assume that we do not start again producing neither in Nigeria, neither in the UK, this is in aggregate about 70,000 barrels per day.

The maintenance is about 93,000 barrels per day, 90,000 barrels per day.

That's really all the detail I can give you.

Okay.

Usan was ramping up and started quite late in the quarter, so its contribution for first quarter is negligible.

And what was your third question?

The balance between acquisitions and disposals.

Yes, sorry.

First quarter we acquired more than we sell assets for about $500 million.

Our commitment is that the net asset sale would be $4 billion this year.

We have some sales in our mind and there are three quarters coming on so we maintain that our target will be net sales of $4 billion.

And I remind you that in first quarter we acquired our interest in Uganda.

Okay, thank you.

Iain Reid, Jefferies.

A couple of questions, please.

I saw on the wires that you've acquired a bit more of Novatek, can you confirm that 15% and how much you paid for it?

And secondly, on the comment you made on Sanofi, can you just remind us how much of Sanofi you still own?

We still own about 2.2% of Sanofi.

As for Novatek, what I can tell you is that we acquired 0.3% of Novatek on the market at the price of $120 million.

Our current stake in Novatek is 15%.

I'm sorry but I can't remember exactly how much we paid for the 0.6% which is missing in my computation but, roughly, for 0.3% it's $120 million.

And how soon do you think you're going to get to the 19% you talked about?

We do have time to do it.

There is no emergency for us.

Okay, thanks very much.

Oswald Clint, Sanford Bernstein.

Just back on the LNG business, please.

Obviously, with some of your volumes in that business flat in terms of LNG sales and the earnings were up quite strongly, can you just confirm that you're diverting a lot of cargoes, or really capturing some of the better pricing available within the LNG market and your business model is able to actually capture some of that?

The second question was just on Utica.

Anadarko and Chesapeake have released some of the well data in the last few weeks and months, I wonder what you thoughts are on those and of your investment within the Utica shale?

Thank you.

Thank you, and we start with Utica.

Basically, we are shifting drilling rigs from our first Chesapeake joint venture and transfer them to the Utica shale area.

On the LNG, the total LNG sale in the first quarter was 3.24 million tons; 3% higher than 4Q.

For the redirection, we redirected 10 cargoes, versus 9 cargoes in the 4Q, and we diverted six cargo first quarter 2011.

Okay, perfect.

Can I just confirm there's no Utica volumes included within the 2012 production guidance?

In all honesty, I don't think so.

Okay.

Minor, minor effects.

Okay, thank you.

Jean-Luc Romain, CIC Sec.

I would like to come back on Utica shale acquisition.

There were some reports mentioned a few weeks ago that oil production was disappointing compared to what was expected, there was more gas and less oil, could you comment on that?

I'm sorry, I don't have any information in that respect.

Thank you.

Blake Fernandez, Howard Weil.

I had to jump on a little bit late, so I apologize if this was covered.

But some of the press reports I've seen recently suggested that you had a discovery on Brunei CA-1 and I was hoping you could, maybe, provide some color there?

Yes, we made some discovery, but I don't have enough information about it to comment on and you should wait a little bit for more details.

Understood.

Thank you, sir.

Jon Rigby, UBS.

Two questions.

Could you just clarify for me, in a little bit more detail, the process now at Elgin?

I think you said that you start the intervention work next week and, all being well, if you would set out how long that might take, and then what the process would be if that were successful, and reconcile that with your guidance that production would probably not start until towards the end of the year.

That was the first question.

The second question is on your downstream, the Refining & Chemicals business.

When you look at the current operating environment and your target to increase profitability by 5 percentage points, I think, on ROACE, would you expect, in the future world, that Total's Refining & Chemicals business, ex the specialties, should be more than break-even in the conditions that you saw at the first quarter?

Those are my two questions.

Thanks.

Okay, I answer first on the downstream question, and I will ask Michel to answer on the technical question you ask on Elgin.

We faced a very depressing environment first quarter this year.

I don't think anyone could be at break-even in such an environment.

So even after having improved our profitability in the downstream sector, I don't think we could be at break-even at that -- in such an environment.

Okay.

So, on Elgin, Michel will answer your question.

We're making good progress, as you know, in Elgin.

We installed the diverter on the well head, which enable us to work more safely on the place, and to make sure that our people are safe.

So that's been done.

We've got now overboard lines for the flow from the well.

They are setting up the flow lines and the chicksans between the well head and the process platform.

And the next step will be to bring alongside the West Phoenix and to connect to them at pumps of through the West Phoenix.

That could be done next week, depending on weather conditions and the killing operation could start on the following days.

That will lead, normally, people are pretty optimistic, our worldwide control specialist, to get stoppage of the leak, so the killing of the well.

And then we'll proceed, probably, with the follow up with definite abandonment of G4, with resumed operation from the rig, the oil rigging, if possible.

All that, of course, depends on the success of the killing operation.

And then we'll discuss with authorities to get all the permits to resume work with the rig, and then to perform complete abandonment of G4.

That's where we are at the moment, Jon.

Right.

Thanks, Michel.

But then, theoretically, you would normally expect to be going through the process of a normal well abandonment and still have production operations ongoing, wouldn't you?

So, presumably, there must be a point at which the process of all of this is normalized and you can restart some production operations.

I understand your question, Jon, but let's be practical and let's do the killing first.

And then we'll assess the situation on wells with the authorities, and we'll certainly come back to you with some more guidance, as Patrick said, with regard to resuming the production.

But today we are progressing as planned, some good success, and we hope the killing to be effective very soon now.

Okay, thanks, Michel.

I'd like to make two additional comments, to be clear enough.

My comment on downstream was including some petrochem sector; that was refining plus petrochem.

And in order to be precise, also, I did not say that we will not restart before year end; what I said is that in certain circumstances then our production could be flat.

Okay, right.

Thanks for the clarification.

Alastair Syme, Citi.

Can I just ask about the timetable for project sanctions this year.

You've got a few notable things outstanding and just wanted to know when we might expect some announcements on those.

There is Egina mid this year; then you have Tempa Rossa, which is pretty soon.

What's missing next?

Moho North end of this year.

And I think that's it for the year.

Shtokman, do you think?

On Shtokman, the partners have decided to postpone any decision down to end of July.

We are currently envisaging a project which will include only LNG and the Board of Director have decided to extend the agreement until July 1, to evaluate the feasibility of this new project.

And on top of that, the tax treatment is still under discussion.

And were you anticipating to sanction anything in Canada at any point this year, on the heavy oil side?

Next year.

Next year.

Good.

Thank you very much.

(Operator Instructions).

Neill Morton, Berenberg.

Just one question, please.

I was listening to the earlier questions on net CapEx and the dividend.

I just wondered, in this environment of rising capital intensity, whether Total would consider introducing a scrip dividend, as you used to do back in the 1990s?

I just wonder what your thoughts were with regards to the pros and cons of a scrip dividend.

Thank you.

Honestly, it is not on the agenda.

Quick answer.

Thank you.

Yes.

It was a short question and a quick answer.

Lucas Herrmann, Deutsche Bank.

Point of clarification, and one other question.

Clarification; maintenance, when you talk about 93,000 barrels a day of maintenance in Q2, is that relative to last year?

Is that relative to the first quarter?

How do we think of that in the context of movement?

Secondly, just on the downstream business and the specialties' activities, how do they really fit within the organization as a whole now?

How should we think about those activities over, say -- or given a, say, four to five-year view on where your downstream may or may not be?

We always said that those are not core business of the Company, but we are happy to have them within our business.

They are delivering a good return on capital.

They do not bring too much attention from the management; they are managed independently.

They report to us and we check their result and the way they are managing company, and that's it.

So it does not -- it's not a big deal for us, I would say.

For the maintenance, the 90 million -- sorry, the 90,000 barrels per day I was mentioning for Q2, we had in Q1 about 40,000 barrels per day to 50,000 barrels per day.

So you can compare the 90,000 barrels per day for Q2 to 40,000 barrels per day to 50,000 barrels per day in Q1.

Okay, that's great.

Thanks for that.

(Operator Instructions).

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

Thank you.

I would like, once again, to thank you for your time.

It has been an eventful time for the industry and for us, Total.

We accept that we will be faced with challenges, and we know that we must respond quickly, professionally, and completely.

I'm proud to say that Total has reacted with safety as our top priority.

That's it for today, and have a nice weekend.

Thank you.

Ladies and gentlemen, thank you for your participation.

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

Thank you.