TotalEnergies SE (TTE) 2013 Q3 法說會逐字稿

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

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

Sir, please go ahead.

Hello.

This is Patrick de La Chevardiere speaking.

I know that there are many conference calls today, so I will make short comments about the quarter and our recent announcement and then go to the Q&A.

For the results, we are pleased to report another solid set of numbers.

Compared to the second quarter, the third quarter environment was mixed.

In the upstream, Brent rebounded to $110 per barrel, which is the level it has maintained for most of the past three years.

In the downstream, European refining margins fell sharply to about $10 per ton, but petrochemicals remain satisfactory.

Third quarter results were slightly improved over the previous quarter.

Adjusted net income was $3.6 billion and adjusted earnings per share was $1.58 per share.

I remind you that our second quarter results were already quite good, so we are continuing to deliver resilient and very competitive results.

In the upstream, adjusted net operating income for the segment was $3.1 billion in the third quarter in line with the second quarter.

Stronger oil and gas price were offset mainly by higher exploration charges, higher taxes and a negative production mix effect.

The mix effect included the decrease in better than average barrels, for example in Libya and also a lower contribution from equity affiliates, mainly Nigeria LNG.

Compared to last year, first quarter production increased by 1.2% to 2.3 million barrels per day, making this the second consecutive quarterly increase in production.

Compared to the previous quarter, the positives were ramp-ups at new fields, including Halfaya, Sulige and South Mahakam, as well as lower maintenance activity.

These were offset mainly by ongoing security issues in Nigeria and stoppage in Libya.

Kashagan started up late in the third quarter and had very little impact on volumes.

Looking ahead, we are on schedule with our 2014 start-ups, in fact Ekofisk South has started production ahead of schedule.

So 2014 should be a strong year for adding new production.

In exploration we just announced a discovery on the Harir block in Kurdistan.

We are successfully delineating the giant Vaca Muerta play in Argentina.

We are actively drilling in places like Gulf of Mexico and Australia.

And we are preparing to drill in offshore South Africa and Ivory Coast, as well as pre-salt prospect in Angola and Brazil.

So the hunt for elephant sized discoveries is still ongoing.

For development projects, we provided an update last month at our investor day showing that we are on track with the major projects scheduled to start-up through 2017.

For project sanctions, we are moving forward as planned with the recent final investment decisions for Vega Pleyade in Argentina and Fort Hills in Canada.

Vega Pleyade is a high return conventional offshore gas and condensate field that we will develop using horizontal drilling and we expect first production in the second half of 2015.

Fort Hills is a giant oil sand mining project in Canada with estimated CapEx of CAD13.5 billion to develop more than 3 billion barrels of resources.

We expect first production by end of 2017 and then a plateau of 180,000 barrels per day that will remain stable for decades.

We also announced that Total is part of the consortium that was awarded the Libra pre-salt field in Brazil.

We are pleased to add these giant resources to our portfolio, especially at less than $1.00 per barrel.

Total's share in the bonus is $1.4 billion, which should be paid in November.

There is also a minimum work obligation of about $50 million net to Total for 3-D seismic, two wells and an extended well test that must be completed by 2017.

The bulk of the investment and production will come after 2020 when we expect this Libra field to become an important part of sustaining our future production growth.

Just to give you an order of magnitude, Libra should represent about 8 billion to 12 billion barrels of oil equivalent and has the potential to reach about 1.4 million per day of production full field at 100%.

The estimated profitability of Libra is comfortably above our hurdle rate.

Fort Hills and Libra are giant long plateau projects that add strength and stability to the portfolio and provide us with better visibility on our post-2017 production.

We are committed to the targets that we presented last month.

We expect 2013 to be the peak year for organic CapEx, which is mainly upstream.

As the current generation of development projects move into production, the investment required for the next generation of projects, assuming that we also sanction Yamal and Kaombo, will be within $24 billion to $25 billion range of estimated CapEx that we provide for the 2017 timeframe.

We are on track to achieve the 2015 and 2017 targets for production and free cash flow.

Shifting to the downstream.

European refining margins fell sharply in the third quarter but the adjusted net operating income of the refining and chemical segment decreased by only 10% to $437 million.

The contribution for petrochemicals had a positive mitigating effect on results.

We are continuing to implement the restructuring plans that will further strengthen this segment.

Part of the plan is to upgrade and diversify the downstream asset base so we are pleased to report that the SATORP refinery at Jubail in Saudi Arabia has started up some of its units and the first cargoes have sailed.

The marketing and services segment posted adjusted net operating income of $437 million for the third quarter, stable compared to the second quarter and delivering again impressive results thanks to a strong presence in growth market and to an improving New Energies business.

And finally on the corporate side.

Adjusted cash flow from operations for the third quarter was very strong at $7.2 billion.

Organic CapEx is in line with budget and net investments were $4.9 billion.

We are on track to achieve the $15 billion to $20 billion target for the 2012-2014 asset sales program.

In the third quarter we completed the sale of TIGF network in France and our E&P assets in Trinidad and Tobago for about $2.5 billion in cash and $1 billion in debt assumptions.

There are a few other transactions pending, including Usan and Congo, which will put us above the $15 billion mark in total.

Looking at the balance sheet, gearing is at 23% in the lower end of our target range of 20% to 30%, so the balance sheet is strong.

The third quarter dividend of EUR0.59 per share is stable compared to the second quarter.

I would like to add as shareholders the entire management team of Total is pleased with the recent share price performance.

At least we feel it is a good start.

So I am ready to begin the Q&A and I ask that you please limit yourself to one question at a time so that everyone has a chance to participate.

(Operator Instructions) Iain Pyle, Bernstein.

Looking at the refining and chemicals results this quarter, they looked pretty strong year on year given the refining margins.

And I wondered if you could just give a bit more color on the benefits you're seeing from cost reduction and from efficiencies in that business.

Yes, in refining and chemical we are satisfied to see how resilient we are in an environment that remained challenging with refining margin in Europe down by 80% about.

We estimate basically the effect of our plan for this three -- third quarter of this year at about EUR160 million.

And there is more to come in the last quarter.

On top of that, I'd like to mention to you that the petrochemical margin improved on all markets thanks to a more favorable supply in naptha in Europe and Asia, ethane and LPG in the US.

So there is an effect -- a positive effect on the petrochemical side also in our refining and chemical segment.

I think that's all I can tell you.

Blake Fernandez, Howard Weil.

I had a question for you on Libra in Brazil.

I recognize the production may not begin to start-up until post 2020, but presumably there's some spending prior to that, so I'm just curious if you could talk about how the project may impact your current outlook on CapEx.

And if I could also just tie in a second question associated with Libra, could you just say whether that's been evaluated on a short term or a long term project?

In other words, $80 or $100 barrel?

Thanks.

Basically on Libra, Total has a bonus that we will pay in this year at about $1.4 billion to be paid in November.

The bulk of the investment and production will come after 2020.

And CapEx for the early production facilities is planned for 2017-2021.

So all or most of the CapEx expenditure for this project are beyond 2017.

Therefore, as we announced during our investment day, our organic CapEx, which does not include acquisition, will peak in 2013 and then, and I repeat it, then trend to $24 billion to $25 billion as it was said.

Olivia Rainforth, Barclays.

If I could just ask in terms of the impairments charge for the quarter.

What actually prompted that impairment in both the US and in Syria?

So on the US this is very simple.

We have an accounting rule internally by which we assess the value of our asset using the long-term plan assumptions.

We have changed the long-term plan assumption for the gas price in the US down to $4 to $5 per million Btu and this leads to an additional write-off of about half a billion dollars this year.

In Syria we impaired about $0.2 billion pre and post tax of our asset.

This is I think honestly is a consequence of the suspension of production and in compliance with the European Union regulation regarding this country and basically we believe that there is little chance for us to recover those assets.

Alejandro Demichelis, Exane BNP Paribas.

A couple of questions here.

The first one is in terms of the disposals that you still have outstanding.

Can you please give us some kind of indication of when you're thinking those could be coming to its completion?

And the second question is regarding your DD&A cost.

How do you see that developing over the next year or so?

So your first question about disposal.

Basically we have two assets where we have signed the agreement and where we are waiting for approval.

The first one is Usan for which the authority's approval is still expected.

And then second one is entry of QPI, the Qataris, within Total Exploration and Production Congo.

The first one is about $2 billion, the second one is $1.5 billion.

For both of those assets we expect closing by year-end.

Taking those asset sales into account we will end with a net asset sales of $6 billion as planned.

Of course, this does not include the payment of $1.4 billion bonus on Libra.

I remind you that $1.4 billion only represents a point of gearing basically.

The second question was about DD&A.

We also had higher DD&A since the beginning of the year because of the depreciation of exploration bonuses and new project start-ups.

So you ask two elements, the exploration bonuses and the project start-up.

Project like Kashagan, Halfaya, South Mahakam, or Bongkot South are adding significant amount of DD&A as the cost to develop project has been rising and those projects are in cost recovery phase at the moment.

Keep in mind that there is a mitigating tax effect on higher DD&A and also that our technical cost remains lowest of the industry based on benchmark available recently.

Colin Smith, VTB Capital.

I was wondering if you could tell us a little bit about what you're seeing on the ground in Libya and how you think that might play out over the next few months?

On Libya in recent months onshore production from several oil and gas facilities has been disrupted by various groups in Libya.

On Mabruk production has been stopped since the beginning of August because of terminal blockage.

On Shahara field, namely Murzuk, operated by Repsol and located southwest of Libya, were shut down on two occasions for total of five weeks.

Production came back mid-September and was stopped again this week.

In total for us, the impact on our 3Q result production was about 20,000 barrels, which was lost for us.

Going forward, there is still uncertainty on onshore production stability but our offshore production from Al-Jurf, which represents about one-third of our production in Libya remain unaffected.

Theepan Jothilingam, Nomura.

Just a quick question on Yamal LNG.

Could you just talk about how you see the timing on an FID there, what remains to be done?

We had good news yesterday about an approval by the cabinet at the ministry level of a changing law in order to be -- so that in order so that Novatek and the Yamal project will be permitted to export LNG without going through Gazprom, which is a key element for the financing of the project.

You know that Yamal is a fast track project and we are making excellent progress I would say on many fronts.

CNPC signed an agreement to acquire a 20% stake in the project and to sign also a long-term contract for an offtake of about 3 million ton of LNG per year.

Heads of agreement have been signed with European and Asian buyers for more than half the LNG volume on long-term contract.

The current plan is to split the volume about 50-50 between Europe and Asia.

On technical front, the consortium made by Technip and JGC has been selected to conduct an open book tender and the detailed design is progressing.

On the onshore location itself, site preparation has been launched and drilling has started with two rigs already in operation.

Studies show that Yamal with the capacity of more than 16 million ton per year should be highly competitive compared to other LNG projects.

And the giant gas resources of the Yamal peninsula provides the potential for a long testing future growth.

All of this supports our objective to make a final investment decision by the end of this year.

And just in terms of pricing on that volume, is it right to think that the Asian volumes in most of Europe is priced off an oil derivative?

Yes, the price is correlated with an oil price for all volume sold in Asia.

Jean-Luc Romain, CIC Securities.

My question relates to exploration.

I was wondering if the announcement of yesterday in Iraq would qualify as a giant discovery?

Honestly, Jean-Luc, I don't know.

This discovery is an important discovery.

We have drilled wells on three blocks in Iraq and make at that time already two significant discoveries.

On Harir, where we own a 35% stake the well Mirawa-1 was successfully tested in both in the Jurassic and the Triassic play.

We will launch the appraisal of this field Harir by next year.

So I think you have to wait a little bit to have an estimate of the resources available there.

Biraj Borkhataria, RBC.

Just a quick one on realizations in the upstream.

The liquids realizations were particularly strong this quarter.

I wonder if you could talk a little bit about that and how we should think about that going into Q4?

Thank you for your technically difficult question.

Third quarter 2013 Brent was at $110, with for us a liquid price of $107 per barrel.

Second quarter was $102 for the Brent and the liquid price was $97 per barrel.

So our differential is reducing by $2 per barrel at $3 per barrel.

This evolution is mainly coming from an increase of prices and a mixed effect in Norway, reduced inventories in Nigeria and in Angola.

If I were to expect something it may continue.

We estimate the differential should be stable at around $5 per barrel, below Brent.

(Operator Instructions) Irene Himona, Societe Generale.

In the third quarter you released about EUR1.6 billion of cash from working capital.

I was wondering what you expect for the full-year on that line.

And any guidance you can provide for the full-year average group tax rate please.

Thank you Irene for this very simple question.

You know that I think in my job assessing the working capital is the most difficult part of the job.

We have made an assumption, which is an assumption not a target, an assumption of a need of $1.5 billion for next quarter.

So this can give you that you can have by adding all those figures from the previous quarter an estimate of your overall working capital effect for the year.

Having said that, this is part of the normal variation in the working capital.

By definition, working capital changes are timing in nature and that's why we concentrate on our side on adjusted cash flow, which was about $7 billion in third quarter 2013.

For the tax rate, for upstream we maintain our average tax rate of about 60%.

Brandon Mei from Tudor, Pickering, Holt & Company.

My question is on European refining.

What are your thoughts on cutting refining runs due to the low margins?

How much capacity is that risk and how fast could you do that?

We have reduced our capacity in Europe by cutting rates by some mainly in France I would say.

The overcapacity in Europe is about 1.5 million barrels per day.

We have made clear in our investor day that we target to reduce further the capacity of our system by an additional 20%.

And we have announced recently, I don't know if you heard about it, a project to close the Dunkirk, the Carling cracker in east of France and of course we will continue and adapt our system to the demand.

And along the same lines on the SATORP refinery, can you speak about where you're at in that ramp-up process?

Yes, we start up Jubail several -- we started several units in Jubail.

You know that Jubail is one of the most complex refineries in the world.

The project is on track.

Overall construction progress is 99% and pre-commissioning progress is 94%.

Test run has started during the second quarter and will continue during third quarter and fourth quarter.

We will have a contribution from Jubail in 2014 and not before.

Alastair Syme, Citi.

It's actually Mike [Lauford] from Citi.

One question if I could, Patrick, just on Fort Hills.

You've obviously announced today that you sanctioned that project, but you could perhaps give us some color on what your long-term view is on WCS crude differentials going forward?

And then perhaps a little bit more color as to what using the IRR how that project will be under that assumption.

Yes, we sanctioned Fort Hills yesterday with Suncor.

Fort Hills fits very well in our portfolio.

We needed to have new asset in low tax environment like we have in Canada.

Usually we don't comment on a differential assumption we use.

We believe that the export issues will eventually be resolved with major pipeline expansion and additions that should be completed before our mining project comes onstream.

And as far as Fort Hills is concerned, a dedicated pipeline from the mine to the Fort McMurray will be built.

On the economics of Fort Hills, the estimated cost to develop Fort Hills is about $13 billion, 100%.

So less than $5 billion net to Total.

We expect the project to generate cash flow of about $1 billion per year before payout.

The payout is within five years basically.

And more than $500 million per year after that payout for decades.

Fort Hills represents -- and that's for Total, yes, the $1 billion and more than $500 million, that's Total share.

Fort Hills represents more than 3 billion barrels of recoverable resources.

Should start by end of 2017 and reach 80% of full capacity by year-end 2018.

And the capacity of this project is 180,000 barrels per day.

So this long plateau project is completely consistent with our strategy to continue to think long-term and to develop in OECD countries.

I remind you that Fort Hills CapEx is already included in our $24 billion to $25 billion target for 2015-2017.

We have no other questions for the moment.

(Operator Instructions)

If there are no more questions, I'd just like to add that thank you for joining us on such a busy conference call day.

I'd like to leave you with some short messages.

As we move towards the end of 2013 we can see more clearly what has worked well.

We are clear about the strategy and the steps we are taking to implement it.

We are confident about the portfolio of projects, about the projects that will contribute to our 2015 and 2017 free cash flow targets.

And we are increasingly confident about the foundation we are preparing for post-2017 future.

And I think that's it for today and maybe have a good weekend.

Thank you.

Ladies and gentlemen, this concludes the conference call.

Thank you all for your participation.

You may now disconnect.