TotalEnergies SE (TTE) 2012 Q3 法說會逐字稿

Ladies and gentlemen, welcome to Total's third quarter results conference call.

I now hand over to Mr. Patrick de la Chevardiere, Chief Financial Officer.

Sir, please go ahead.

Hello.

This is Patrick de la Chevardiere speaking and thank you for calling.

I am pleased to report that the third quarter results are very good.

Compared to the second quarter, adjusted earnings per share increased by 14% to $1.85 per share.

Adjusted cash flow from operations increased by 17% to $7.6 billion.

This shows that we are capturing the benefit of favorable Brent prices and European refining margins.

The adjusted results do not include certain special items.

We impaired the Barnett Shale gas field, and there was one-off tax in France on crude and refined product inventories.

Now I will make some brief comments on the business segments.

Adjusted net operating income for Upstream improved by 10% to $3.6 billion.

This increase was mainly due to strong contributions from project start-ups, equity affiliates, and downstream gas activities.

Upstream production increased slightly in the third quarter.

This was due to the ramp up of Pazflor, Usan, Halfaya and Bongkot South.

This growth was partially offset by seasonal maintenance and normal decline.

The contributions from equity affiliates increased, and our LNG business is performing well.

We increased the number of cargoes we redirected this quarter to 14 for total of 33 so far this year, despite incidents at Yemen LNG and maintenance at Snohvit.

Over the first nine months of the year, LNG represents 18% of production and 24% of Upstream results.

Together with LNG, offshore development remains a core area of our business.

Building on the success of Pazflor and Usan, we continue to advance our portfolio of projects.

We have taken five FIDs so far this year, including Ichthys, Martin Linge, Ofon 2, Tempa Rossa and Yucal Placer.

We are targeting FIDs on Moho North, Egina, and Block 32 in the coming months.

And CLOV and Laggan-Tormore are under development and on schedule.

Turning to Downstream, Refining & Chemicals had strong quarter.

Adjusted net operating income was $0.7 billion, an increase of 44%.

This was mainly due to a sharp increase in European refining margins.

As a result, the annualized ROACE for the segment is 14%.

Operationally, utilization rates were down mainly due a scheduled turnaround at Normandy and unscheduled maintenance on Antwerp.

The Rome refinery was shut and it is being converted to a storage depot.

And we are looking forward to beginning the start-up of Jubail in the first quarter of 2013.

Supply & Marketing also had a good quarter with adjusted net operating income of $0.3 billion.

This includes the impact of moving New Energies from Upstream into Supply & Marketing.

The annualized ROACE of the segment is 12%, or if you exclude New Energies, it is 16%.

At the Group level, our year-to-date organic Capex is approximately $17 billion, in line with budget.

For the quarter, net investments, including asset sales, were $4.7 billion.

We announced an asset sales program of $15-20 billion for the period 2012 to 2014.

For nine months of 2012 we sold about $5 billion of assets, including the last of our Sanofi shares.

If we add to this the asset sales that are in progress, we have more than 50% of the $15-20 billion target underway.

Our balance sheet remains strong.

Gearing at the end of the third quarter was below 21%, at the very low end of our target range.

Our liquidity position is solid with more than $20 billion of cash on hand at the end of the third quarter.

We announced an interim dividend of EUR0.59 per share, payable on March 21, 2013, representing a payout of 40%.

This is stable compared to the increased second quarter dividend that will be paid on December 20.

Our results for the quarter include the effect of the new 3% tax on dividend that is paid by the Company and will be a recurring item.

I want to again reiterate that we remain committed to a policy of providing our shareholders with a sustainable and competitive return.

Looking forward, our exploration program remains very active.

We are appraising our recent giant discoveries in French Guiana and Azerbaijan.

We are drilling exploration wells in the Gulf of Mexico, Norway, Mozambique and Iraq.

In the fourth quarter, we should start exploration wells in Ivory Coast, Uganda and Australia.

And our recent acquired blocks in Bulgaria, Philippines and Papua New Guinea provide us with more potential for major discoveries.

In terms of production, the fourth quarter will be impacted by the recent heavy flooding in Nigeria and high levels of planned maintenance in offshore Nigeria, the UK North Sea and Qatar.

Production for the fourth quarter should benefit from the startup of South Mahakam in Indonesia, ahead of schedule.

The expected startup of Angola LNG, and the ramp up Usan, Halfaya and Atla.

We are still working towards our goal of a gradual restart of Elgin-Franklin by year-end or in early 2013.

Assuming that fourth quarter production is relatively stable compared to the third quarter, full-year production could be down slightly compared to 2011.

So, to conclude, we are pleased with our performance.

We delivered a good set of results for the third quarter and we are focused on execution as we move into 2013.

This concludes my comments.

And I am now ready to take your questions.

(Operator instructions) Theepan Jothilingam, Nomura.

Just a few questions, please.

Just quickly come back to the tax rate.

I was just wondering whether you could give us your views on the tax rate going forward?

There seems to be a little bit of volatility there and actually it seems like you're doing a pretty good job driving down that rate.

Then just on organic Capex, I know you talk about net Capex being around $20 billion for the year.

I was just wondering what are you assuming in terms of disposal proceeds coming in Q4, please?

And then I guess today it probably doesn't go without asking a question on production.

Could you just talk a little bit about your assumptions for contribution from Elgin-Franklin for 2013?

And I don't know whether you'd like to or you're in a position to give any guidance for full-year growth or a view on 2013 versus 2012.

On the tax rate, basically upstream tax rate is in line with second quarter at about 59%.

But it has decreased by almost I would say 4 points versus third quarter 2011.

This year-end change is mainly due to a mix effect on production.

We follow one side the positive effect of the ramp up of Pazflor.

Pazflor has a 40% tax rate and Usan.

And on the other side, a lower production of the North Sea, thanks to Elgin basically.

Also, higher contribution from gas rating had downward effect on the tax rate.

Basically I would say that in the coming quarter in the current environment we estimate that 58% to 60% tax rate for the Upstream is a reasonable figure.

At the Group level of course the tax credit has decreased also from 56% second quarter to something like 55% on the third quarter.

And this is mainly explained by the increase of the related contribution of the Refining and Chemical in the operating income, which was very high this quarter.

That was for the first question.

Second question about the asset sales program.

You know that we have a program of $15-20 billion for the period 2012 to 2014 and actually we gave this large period of three years because you never know exactly when you will receive the proceeds of the sale of assets.

Including Colombia, as of today, that we closed in October, we are currently at more than $5 billion of disposals for 2012.

We are currently working on and negotiating several disposals and I hope we will have some good news on some large asset sales by year-end or let's say beginning of 2013.

Unfortunately, I don't know exactly when we will close those transactions.

Including the deals already closed and the deal from which negotiations are ongoing, I can say that we have more than 50% of the $15 billion to $20 billion dollar target, which is underway.

I think we are well on track on our 2012-2014 divestment program basically.

The last question was about the assumption of Elgin production in 2013.

On Elgin, I think the first comment would be on what is the status today.

We have successfully secured the G4 well.

The cementing operation has been completed.

In the coming weeks, we will submit the safety case to the authorities to ensure they have no objection before we can restart production.

And this is a key priority for us and a prerequisite before we start.

Our target remains gradual restart before the end of the year, but as time passes, it's become more and more challenging and obviously it could slip to early 2013.

But no explicit numbers that you're thinking about for next year.

Despite my flow, I am unable to give you this number.

Can I ask you about the organic Capex number for this year?

Do you think --?

$24 billion.

Dollars.

Nitin Sharma, JPMorgan.

Thanks for the update.

Two questions for me, please.

First one, recent press reports on likely sale of TIGF pipeline network by end of 2012.

Is that something you can comment on?

And second one is on the big negative thing working capital in this quarter.

Could you please provide some more details on that?

The TIGF potential sale.

In October we officially announced that Total is actively searching for a potential buyer of TIGF.

So basically TIGF is on sale.

Pursuant to the change on the European gas market, and in line with the Group overall objective, we considered that it is not Total's primary business to be involved in independent regulated midstream assets.

We have selected two banks to assist us in this respect and the process will certainly take several months or so until we can comment on the timing of the operation or the price that we can expect from this asset.

But I can tell you that we are asking for a first indication of an offer by mid next month.

That was on TIGF.

The second question is on the working capital.

Our working capital increased by EUR 1.7 billion last quarter.

This versus second quarter.

I like to remind you that in second quarter our working capital has seen a very significant decrease, and it is like this every year on the second quarter.

This was, however, partially offset by EUR 0.8 billion positive effect of increasing crude prices on our inventory.

The majority of the increase of the working capital is attributable to increasing receivables versus payables.

And also in the reduction of fiscal debt, but I remind you we always have a decrease in the second quarter and an increase on the third quarter due to this fiscal debt evolution.

Overall, over first nine months our working capital is decreasing slightly compared to the end of 2011, so basically it is okay.

Lydia Rainforth, Barclays.

Two questions, if I could.

The first one on Jubail and you mentioned they start up in early 2013.

Do you have an indication of how long it will actually take to ramp that refinery up to full capacity?

And then the second one is on Yemen LNG and clearly we've had another problem today.

Is there much that you can do around the security of that plant beyond what you're already doing to actually increase the reliability there?

So your first question was about Jubail, Lydia.

Overall, project progress is about I think 92% and the natural gas in the refinery was introduced on September 11th.

Project is on track to start first unit beginning 2013 and achieve full completion no later than end of 2013.

So basically that is the answer I can give you.

Some more detail maybe, the refinery will be one of the most complex in the world.

It is designed entirely optimized and indicated to process Arabian heavy.

It will be obviously first quartile and Jubail will be also able to sell its product all over the world, first benefiting from the best price condition available for refined product either locally in Asia or elsewhere.

Your second question was about Yemen LNG.

It happens that we heard that last night another attack on the pipeline was made.

Basically it takes about 10 days to repair.

(inaudible).

I'm not saying this is normal business because I don't like it, but I have to say that we know today how to cope with such type of events.

On the security issue more globally -- The Yemeni military has increased their presence in the area.

We have significantly reinforced surveillance along the pipeline with presence at valve stations.

We are also considering an increase of the passive protection of the pipeline and detection system.

On top of that, I would say that new sustainable development programs to fight poverty and to provide jobs along the pipeline will be also important for us and for them.

Iain Reid, Jefferies.

A couple of questions, please.

Firstly, is your JV with Chesapeake producing any significant volumes now?

Certainly on the liquid side there don't seem to be any movements really in North American oil production.

And secondly, just going back to LNG again, I wondered what you consider the kind of the undisturbed run rate of LNG sales per month should be once you've got Angola up and running and assume your kind of more normalized level of Yemen LNG?

And are we talking about something in the kind of 4 million tons per quarter?

I'm not sure I will be able to answer your last question.

But let's start with Utica first.

As you know, Utica is in an appraisal delineation play currently.

Only I think 28 wells are producing versus a total of more than 6,000 wells expected over a seven-year period.

So you see, we are at the very early beginning of the story of Utica.

Chesapeake is actively developing the area.

There are approximately 10 rigs currently mobilized in the Utica region.

Production is currently ramping up and reaching about more than 12,000 barrels per day, 100%, from about 30 producing wells.

Production obviously should continue to ramp up by year-end as many wells have been drilled, but not yet connected.

So your question about LNG.

Last quarter, Total LNG sales were close to 3 million tons, about 15% higher than second quarter.

This mainly is explained by the recovery of Yemen LNG plant after two sabotages, obviously there is another one now.

An increased utilization rate of Nigeria LNG and partially offset -- but this has been partially offset by Bontang decline.

Bontang decline is about 0.15 million ton.

On top of that, I'd like to mention that LNG trading activity increased back to usual levels.

Give me an opportunity to tell you that we have sold 27 cargoes in last quarter where we only sold 16 on the second quarter.

And this was essentially due to the demand recovery and Nigeria LNG.

I would say in the future that if I have to give a rough estimate, I'm sorry I don't have so much detail to give you, a rough estimate will be between 3 million and 3.5 million tons per quarter.

I remind you that LNG is a core business for Total and it contributes by about 24% to the Upstream division net operating income.

One further thing then.

On Qatar, you said you're shutting something down in the fourth quarter.

Is that LNG or is it the pipeline gas?

This is LNG.

Just the LNG plant.

Yes.

Jean-Luc Romain, CM-CIC.

Could I have two questions?

One, on Elgin-Franklin again.

Is there a reason why production could not go back to 2011 levels (inaudible) to start?

Second question is on your exploration program, which is quite rich in the third quarter, could you give kind of more (inaudible) of expected resources you are targeting from these wells?

I'm sorry, on the second question I am afraid that nobody around the table understands your question.

Can you repeat it?

I would like to ask the figure about the resources you could expect from the exploration wells you will drill in the fourth quarter.

On Elgin, as I said answering, basically we anticipate a gradual restart.

It means that not always we'll be operational on day one.

Obviously it's too early to tell.

For 2013 the obvious position will certainly not be at the 2011 level, but we expect it to be higher than the average of 2012 level.

On exploration, a few detailed comments.

In the next 6 to 12 months we plan to drill several high potential prospects, notably Ivory Coast, notably close to Ichthys in Australia, offshore Kenya, offshore Egypt, pre-salt Gabon, pre-salt Brazil.

Honestly, if I was able to tell you how much resources I will add, I think I will be very rich and not attending this conference call.

Irene Himona, Societe Generale.

I had three questions, please.

The first the refining segment had a pretty good result with a step up in return on capital.

Obviously very strong Q3 margins.

Can you talk a little bit about the drivers behind that and your outlook for Q4, at least Q4 to date?

Secondly, given what's happened today with BG, can you just remind us of the sort of contingency you include in your production targets in terms of barrels perhaps or percentage?

And then finally, obviously some asset impairments this quarter in the US, but not in Shtokman, and I just wanted to ask whether that is something that you would consider at some point?

How was your leg by the way, Irene?

Oh, sorry.

Very well, thank you.

I'm fine.

I'm walking.

Okay, because sometimes it's my turn to ask question also.

Thank you.

Your first question was about the refining margin and what we can expect in the future.

The refining margin last quarter reached levels that we haven't seen since September 2008.

It was at $51 per ton last quarter.

And it was at $38 per ton second quarter.

This morning it was at $35 per ton.

Obviously this is definitely much better than what we have seen in the past three years.

We think that refining could actually improve strongly mainly due to the heavy refinery outage combining seasonal maintenance and unplanned events like what's happened to the refinery in Venezuela and some shutdown due to the hurricane Isaac.

On top of that, there were also the impact of the reduction of the refining capacity in the Atlantic basin and in Europe.

I remind you, for instance, that the Coryton refinery was shutdown in the UK.

Additionally, and this is more technical, the backwardation situation on the gasoline and on the diesel market, which has lasted for several months, has resulted in an unusually low level of stock.

And I think this is part of the answer also.

So there are structural improvements as part of the explanation and some technicality about the backwardation as I was telling you.

Most of the factors are one-off and we do not consider that the margin will remain at such high level in the future.

And as I was telling you this morning, the margin was down.

That's not so low, but was at $35 per ton.

Given the volatility of the refining environment we use $35 per ton assumption in our long-term plan.

About the production contingency we have in our assumption.

I'm glad that sometime you compare Total to BG.

I'd rather that we compare Total to BG when BG has good information to give to the market.

All of our projects, I remind you, for the 2015 production growth target of 3% are under development.

And we have a good track record for execution -- to execute our project.

We have some caution, but we do not factor that, and there are things like geopolitics or incidents that we cannot forecast.

Your last question was about Shtokman and a potential impairment on Shtokman, if I well remember.

As you probably know, the joint venture agreement for Shtokman terminated on July 1st.

We did not obtain terms that would have made just project profitable for all parties involved.

Nevertheless, we are still a 25% shareholder of the SDAG, the operating company, and we are discussing new contractual framework relating to define joint Shtokman project based on 100% LNG project.

Of course, for this reason it will be premature for us to consider an impairment.

We are still discussing for a new Shtokman project I would say.

More globally speaking, I would say that Total remains interested in playing an active role in the development of this project.

But at the end of the day, it will be Gazprom that decides which would be the partner in the new project.

And that's it, Irene.

Oswald Clint, Sanford.

I wonder if you could share with us the LNG earnings as a percentage of upstream earnings again?

You've given us that number in the past, it would be useful, please.

And also, talking about Shtokman, could you just indicate what's happening with the Yamal LNG project in terms of should we expect that to sanctioned in 2013?

And I mean if you want to talk about the Capex number, I know the $20 billion seemed a bit low for you, but how much higher do you think it's going to come in at?

So your first question as well was about LNG earning.

LNG contribution last quarter increased versus second quarter, mainly thanks to the recovery of Yemen LNG production.

And an increased utilization rate to Nigeria LNG.

And also due to better trading.

In third quarter, Total LNG sales were close to 4 million tons.

This is 15% higher than second quarter 2012.

LNG trading activity increased back to usual level.

The 27 cargoes per quarter I was mentioning to you, this is a normal level for us.

Last quarter, LNG represents 26% of the Upstream results.

For the nine months, it represents 24% of the Upstream results.

I like to remind you that Total is in the leading position in the global LNG business.

We are working hard to make sure that we continue to develop this competitive advantage in the future.

Both in the LNG production and also, and you should not forget about that, in the LNG downstream activity.

So your second question was about Yamal.

So the project is currently in the FEED stage.

The FEED is progressing well, even so there are still some challenges in front of us.

In the meantime, tender competition is in process to select the main EPC contractor that will coordinate the process for an open book estimate.

Yamal LNG also started to approach LNG buyers as well as banks to finance the project, of course.

So things are moving forward on this project, but I think it's too premature to give you more detail in that respect.

Lucas Hermann, Deutsche Bank.

Couple of questions if I might.

Firstly, can you make any comment on hedging in your downstream operation through fourth quarter?

You'd clearly thought that margins were very attractive in refining through Q3.

And I guess question their sustainability.

And beyond that, do you mind giving some indication of the cash flow associated with the assets that you're discussing with divestment of -- at the present time?

So on hedging, I'm not going to tell you a detailed figure.

We did some hedging in the refining business for a small part or a medium size part of our volume.

So your second question was about the cash flow associated with the assets that we plan to sell.

Honestly, I'm not going to tell you that.

Sorry, Lucas.

But the impact of sale could be in the range of about a few billion euros.

We don't know when we will be able to close them.

Will it be prior year-end or after year-end, I don't know.

And Patrick, sorry, a third if I might.

On exploration in the wells that you're talking about on the Ivory Coast, Kenya and Gabon, when might we actually get some news or some detail on the success or otherwise of the outcomes there?

Do you think that's a fourth quarter event or is your expectation that it'll be into 2013?

This is 2013 event and even maybe beginning of 2014.

For the wells you're drilling in Q4 this year?

Ah, the well we are drilling now.

Yes, sorry.

No, I didn't understand that.

North Platte may be this year, the results may be this year.

North Platte in the Gulf of Mexico.

French Guiana, you will have the results this year also I think.

I think that's all I can say.

In the North Sea we will have the result on Fettercairn -- well, you don't know about that -- in our way also.

And Ivory Coast result will be first quarter 2013.

And by the way, how long is Qatar going to be down for?

25 days.

Jon Rigby, UBS.

Just three questions actually if I could.

The first is what's notable on some of your disposals?

I'm thinking of the gas pipeline network in Norway, the proposed gas pipeline network in France.

I assume that they are -- they generate or they will go for prices that imply a very different style of multiple to the way that you trade.

And therefore you're not getting recognition for those cash flows.

Is that a way you think about it?

And do you target those kind of assets that sit in your portfolio for disposal rather than things that people tend to focus on as being your core business, such as E&P?

And I guess follow-up question for that is, are there some more to come or are there more in your portfolio we don't know much about?

The second question is on Yemen.

Can you just give me for say the first three quarters what the utilization rates coming out of Yemen were?

And is there a way of sort of managing interruptions for the gas supply to the plant by using storage to basically manage that disruption?

And the third is a bit of a technical question, but I note that when you declare your dividend, it's payable quite a long time in the future.

Is that just a French issue?

It just seems like an incredible length of time between you declaring a dividend and paying it.

The disposal of pipeline is basically due to the fact that this is not our core business.

That the return on capital employed on this business is quite low and not compatible with our target ROACE for the Group.

On top of that, they are not anymore necessary for our upstream business.

The asset we sold, I'm meaning Gassled in Norway, where we maintained our right to go through the pipeline by the way, and TIGF.

We don't need them for our upstream business.

We need them in the past in France when we had the Lacq field in production, like it's close to be completely down, so we don't need anymore TIGF I would say.

And on top of that, the European regulations make it very difficult to integrate such type of company within a group like us.

Are there any other nuggets like that set around that will probably go after TIGF?

Not that I am aware of.

Okay, that's a shame.

Yes, it's a shame.

On Yemen?

On Yemen, first quarter the utilization rate was very high, it's 100% basically.

Second quarter we started to face attack and then the utilization rate was down to 50%.

And last quarter it was at a little bit more than 80% basically.

What we lose since the beginning of this year was about 20 cargoes out of about 100 scheduled per year.

Right.

And there is no way you can manage that disruption through storage at the site?

What we tried to do, but I don't know if we achieved that by the way.

But what I know is that we tried to do is to increase the production just after we repaired the pipeline in order to catch up one cargo.

The dividend issue, it's a very technical issue.

Basically in France, you need to wait for the AGM to have the first dividend.

And if you time up each quarter, quarter after quarter, it's happened that there is no other choice than the one we select.

Okay, so that's sort of stacking them up.

Yes.

Bertrand Hodee, Raymond James.

A couple of questions, if I may.

What was the actual contribution of TIGF at EBIT on that level in the past quarters or last year?

I don't know the answer and revert to Martin.

He will give you the figure when he reviews that.

Can you remind us what kind of contribution do you expect from Jubail when Jubail will reach a plateau somewhere in 2014?

And the third question is on Elgin.

Do you believe you will have to perform a walkover or intervention on all the wells then to G4 before restarting production?

I am starting on the Elgin question.

The answer is yes, we need to sign to put cement plug on other wells and the G4 well.

So the answer is yes to your third question.

So what will be the contribution of Jubail?

What I know is that from all six platforms, the cash flow is about $2.5 billion a year.

And this is by about 2015.

And how much of that will flow into Total's cash flow, given that it will be treated as an asset share, no?

This is our share.

Okay.

Guy Baber, Simmons & Company.

I had a question on the Upstream, but Upstream earnings from equity affiliates obviously very strong this quarter, especially when you look at the implicit margins there.

Is there anything you can point to specifically that helped out the profitability there above what it normally is?

And can we expect that positive trend to continue going forward?

Basically it's coming from LNG.

You have the recovery of Yemen LNG and you have also good export from Nigeria LNG.

And also Qatar, sorry.

And then one point of clarification on some of the near-term production guidance.

But did you say that 4Q production guidance was expected to be flat with what 3Q was?

And then can you quantify, if that's the case, the downtime for maintenance that you're expecting for 4Q?

I think you mentioned Nigeria, North Sea and Qatar.

It just seems like an above average level of maintenance.

And then if you could just remind us what the volumes are shut in with OML 58 I would appreciate it.

OML 58 was about 40,000 barrels per day.

The outlook of the 4Q in 2012 production.

This 4Q production will benefit the ramp-up of Usan, Halfaya and from new production from the small field of Alta and the start up of South Mahakam in Indonesia.

We will announce that pretty soon.

Also up fully we should benefit from a good quarter in Yemen LNG and some startup on Angola LNG and Sulige, by the way, in China.

But on the other side, maintenance will remain high in Nigeria, namely Amenam and Akpo.

In the UK also with Bruce.

And we will have the end of the maintenance on Train 5 in Qatar.

Of course you know that we are also suffering from heavy flooding in Nigeria on OML 58.

And currently production is stopped on OML 58 with a negative impact on the quarter.

And I repeat myself, the contribution of OML 58 is about 40,000 barrels per day.

That's basically what I can tell you.

We have no further questions.

Mr. de la Chevardiere, back to you for the conclusion.

Thank you very much, everyone.

I would like once again to thank you for your participating in the call.

Let me close by saying that we remain confident about our continued progress in executing this strategy for profitable growth.

We are pleased to have a diversified portfolio of high-quality projects, and delivering these projects on-time and in-budget is our priority.

That's it for today and have a good afternoon.

Ladies and gentlemen, this concludes the conference call.

Thank you all for your participation.

You may now disconnect.