TotalEnergies SE (TTE) 2014 Q1 法說會逐字稿

Ladies and gentlemen, welcome to Total's first 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.

As usual, I will make some short comments about the quarter and then go to the Q&A.

Looking at the first quarter environment compared to the previous quarter, Brent has remained fairly stable at well above $100 per barrel and our average liquids price realization was essentially unchanged at $102 per barrel.

Our average natural gas price realizations were slightly weaker.

And, in the Downstream, European refining margins fell by 35% to less than $7 per ton in the first quarter.

In this environment, our first quarter results were very solid.

Adjusted net income was $3.3 billion and adjusted earnings per share was $1.46 per share.

Our overall performance was roughly in line with fourth quarter and, on a relative basis, we should continue to be very competitive with our peers.

Also, as you know, effective this quarter, we are reporting in dollars and, by now, you should have the restated historical figures in dollars for comparison.

In the Upstream, adjusted net operating income for the segment was stable at $3.1 billion in the first quarter.

Looking at the first quarter production, the expiration of ADCO explains essentially the decrease compared to the previous quarter.

ADCO was contributing about 140,000 barrels per day when the license expired on January 10.

The impact is significant for volumes but not material for the net results.

Ongoing ramp-ups from new projects and lower maintenance basically offset the impact of the natural decline.

There were continued security issues in Nigeria and stoppage in Libya but the impacts were in line with the previous quarter.

And the good news is that we are on schedule to start up CLOV in June, which will be a very important cash flow generator.

And, in the second half, we have Laggan and Ofon 2 scheduled to start up.

In addition to startups, we have been actively adding new giant projects to the portfolio and increasing the visibility on our post-2017 production profile.

The FID on Kaombo follows the FIDs of Yamal and Fort Hills last year.

And finalizing our entry in Papua New Guinea follows our acquisition of a share in the giant Libra field in Brazil.

For Kaombo, we are pleased to announce, as after more than a year of re-engineering the design as well as working with the state and the contractors, we succeeded in reducing the cost from $20 billion to $16 billion and increasing the capacity from 200,000 barrels per day to 230,000 per day.

The economics are strong and we expect to see first oil by late 2017.

We are the operator with 30% and we are confident that our expertise in deep offshore and our experience in Angola will keep this giant ultra-deep offshore project on track.

On Elk and Antelope discoveries in Papua New Guinea, the next step will be some exploration and delineation drilling to confirm the extent of the reserve base.

We expect to prove up several Tcf of onshore gas that will support the construction of at least one new LNG train in the coming years.

And to finish the Upstream story, we have several exciting prospects in exploration.

We just announced a very encouraging oil discovery in Ivory Coast and we plan to follow that up with more drilling in adjacent blocks this year.

In pre-salt Brazil, we are drilling Xerelete plus we will drill two wells on Libra later this year.

In one of most anticipated drilling campaigns in recent years, we are about to spread two Kwanza pre-salt wells in Angola and there should be a third by year end.

We are also preparing to drill a high-potential frontier well in deep offshore South Africa.

So, the hunt for elephant-sized discoveries is continuing in several areas.

Operationally, the Upstream segment is performing well and, with the exception of our ongoing frustration with Kashagan and some disappointment with the startup of Angola LNG, we are confident about our future production growth and the increase in free cash flow that it will generate.

Shifting to the Downstream, adjusted net operating income for the combined Downstream segments was $607 million in the first quarter, a decrease of $164 million compared to the fourth quarter of last year.

In fact, the bulk of this decrease, about $120 million, is related to the application of the new IFRIC 21 rule on the timing for recognizing certain levies.

For Total, this is mainly property tax and social contributions in the Downstream segments.

Again, this is a timing issue.

Under the new rule we will record the charge in the first quarter and, under the old rule, the charges were spread out across the year.

Without this accounting issue, the decrease in results would have been very limited despite the much weaker refining margins and marketing volumes in Europe.

Our strategy to increase returns in Refining and Chemical and profitably grow Marketing and Services is working.

And, as a result, we are reducing our relative sensitivity to European market.

And, finally, on the corporate side, we generated very strong free cash flow of $2.2 billion in the first quarter.

Adjusted cash flow from operations for the first quarter was $6.2 billion.

Organic CapEx was $5.2 billion.

Typically, the first quarter tends to be a little light so this is in line with our budget.

In the first quarter we completed the sale of Block 15/06 in Angola for about $1 billion and our share of the IPO of GTT generated close to $0.5 billion.

Thus far, we have completed more than $14 billion of asset sales so we are well on track with our 2012, 2014 asset sale program.

Looking at the balance sheet, gearing is at 23.5%, in our target range of 20%, 30% so the balance sheet is strong.

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

Thank you sir.

(Operator instructions).

Guy Baber, Simmons.

Yes, thank you.

Guy Baber with Simmons.

I had a question on the 2014 production outlook.

I believe the guidance is for underlying growth of 4% and I think you've talked about 150,000 barrels a day of incremental contributions from startups and ramp-ups.

I'm just hoping you could be a bit more specific on some of the drivers of that growth outside of the three major operated startups you have this year.

Just trying to get a better sense of what those major components are.

And, is Novatek in that incremental 150,000 barrels a day?

I'm just hoping to gain a bit better confidence in your ability to achieve the guided production growth this year.

Thank you.

Yes.

Thank you, Guy.

Excluding ADCO, our production in first quarter 2014 is up slightly compared to last quarter last year.

As expected, 2014 production will include only 10 days of ADCO volumes as the license expired on January the 10th.

That's for ADCO.

On the other side, I have to say that we are very frustrated and disappointed by the non-operated projects, namely Angola LNG and Kashagan.

And, even if limited, these two projects represent respectively about 15,000 barrels per day and about 10,000 per day in our 2014 forecast.

On Kashagan, I'm not sure I understood everything which was said yesterday in a conference call, but I understood that ENI say yesterday that the two pipelines would most likely have to be replaced.

That's my understanding of what was said yesterday.

And that, in June, they would provide further detail on the way forward.

So, I'm still waiting for news on this Kashagan subject.

Therefore, we will communicate more on those two projects once we have a better understanding on the way forward from the operator.

2014 should benefit from the startup of our operated projects that are on schedule; CLOV, which, as you will know, will add strong volume and cash flow and is expected to start up in June and Laggan and Ofon 2, which are set to follow in the second half this year.

In respect of Novatek, our plan has not changed and it is still to increase our share up to 14.4% in 2014.

So, basically, we have no reason to change our 2014 target with the comment I've made on Kashagan and Angola LNG, about both figures that I am not sure.

Thank you.

Thank you.

Thank you.

Blake Fernandez, Howard Weil

Hi, Patrick, thank you for taking the question.

My question is actually kind of a tie-on with Guy's and it relates to your 2015 production target.

I guess I'm just trying to get a sense of maybe when we're going to get an update on that.

I know, typically in September, you would have an analyst update.

You've already pointed out Angola LNG, Kashagan, ADCO, and then, of course, Nigeria and Libya.

Do you think it's fair to think that we would get a potential revision on that target later this year?

Usually, we do not increase our target at the end of the first quarter so you will have to wait a little bit.

Our 2015 production targets at that stage remain unchanged.

Our operated projects, CLOV, Laggan-Tormore and Ofon 2 are expected to start up in the coming months.

And 2015 startups, which are Eldfisk, Surmont 2, GLNG, and Termokarstovoye in Russia will also fuel 2015 production.

However, as I said, we were disappointed by Angola LNG and Kashagan.

I will give you the figures that we had included in our 2.6 million barrels per day production target for 2015.

We had included 25,000 barrels per day for Angola LNG and about 50,000 barrels per day for Kashagan.

And, basically, that's all I can comment.

Okay, fair enough.

Thank you very much.

Thank you, Blake.

Thank you.

Alejandro Dimichelis, Exane BNP Paribas.

From Exane BNP Paribas.

A couple of questions.

The first one is in terms of your financing of Yamal LNG.

Have you seen any changes in the discussions you're having around that?

And the second question is, you mentioned Kashagan and your frustrations there.

Is your understanding that every extra dollar that you spend from now onwards would be available for cost recovery or not?

First question, on financing Yamal.

As a reminder, in December last year we took the FID in order to develop the onshore Yamal LNG project.

Since then, Yamal made significant progress as the main EPC contractor has been selected.

The infrastructure construction is going on.

And today we have two rigs in operation.

12 development wells have been drilled.

So, you see, the project is going on.

As far as the financing is concerned, you may know that Chinese bank mentioned that they will provide the majority; this is to say more than 50% of the financing.

And my understanding is that discussions are continuing on this basis.

As far as the ECA are concerned, for the financing, there is only one ECA which withdraw from the process as that date.

That's for the financing of Yamal.

Alright.

Great, thank you.

On Kashagan, the priority is to restart, honestly, the production.

And as far as the recovery of the cost is concerned, I cannot comment.

Remember, we own 16.8% and, honestly, I don't know if we will be able to recover through the contract those costs.

Okay.

That's clear.

Thank you.

Thank you, Alejandro.

Thank you.

Michele Della Vigna, Goldman Sachs.

Thank you.

Hi, Patrick.

On Kaombo, could you tell us what have been the key moving parts, in terms of the cost going down from $20 billion to $16 billion?

Then, you clearly had a very successful startup of the year in terms of big FIDs.

Are there more that you feel comfortable taking for the rest of the year?

Sorry.

Can you repeat the question on the FID?

Whether there are other major FIDs that you intend to take, let's say, in the next 12 months?

Thank you, Michele.

On Kaombo, Total made the final investment decision to develop the ultra-deep offshore Kaombo project in April, last month.

After more than a year of work, we have managed to increase the -- first, to increase the capacity from 200,000 to 230,000 barrels per day and to reduce the cost from $20 billion to $16 billion.

This $4 billion cost reduction has been achieved by several actions.

The first one is by significantly optimizing the project design which saves about $2 billion; basically, in simplifying the design.

The second action was to negotiate with the authorities for an effective local content reduced by $1 billion.

But that remains one of the most substantial ever, despite of this reduction.

And then the third action was, thanks to innovative commercial and contractual approach that has reduced CapEx by an additional $1 billion, in particular through a build and operate contract for the two converted FPSOs and by promoting competition between local contractors.

So, you have this split of $4 billion; $2 billion plus $1 billion plus $1 billion.

That's for Kaombo.

Kaombo, I think is a good example of our capital discipline and of our objective to reduce CapEx.

The second question about the FID coming the next 12 months.

Now that Kaombo is sanctioned, nearly all of our 2017 production targets will come from projects already producing or under development.

The production target, I remind you, is a potential of 3 million barrels per day.

The next major project to be FID now will be Libra, PNG, and Uganda.

Thank you.

My pleasure, Michele.

Jean-Luc Romain, CIC Securities.

Good afternoon.

Two questions if that's possible.

One, on the asset sales, if I understand correctly the Akpo sale has not closed yet.

What is missing to close that sale and is it still in the production figures until the sale is closed?

And the second question is about the Utica shale.

We saw BP yesterday taking a $700 million depreciation on that asset.

Are you satisfied with your performance there and how do you see that developing?

Thank you, Jean-Luc.

The first question about asset sale and namely Usan.

Today, the approval by the Nigerian authority has not yet been received for the sale of our 20% interest.

It is honestly taking longer than expected.

The good news is that ExxonMobil is the operator since February this year, which has freed up our people to work on other projects.

If you ask me to give you any tentative date, I am unable to give it to you.

About the Utica shale, we have to say that, even if we were not so lucky in the Barnett acquisition we made, we, I think, make a good transaction on the Utica acquisition we made a few years ago.

The production has ramped up to above 100,000 barrels per day, 100%.

I remind you that we own 25%.

There are currently 265 wells producing.

More wells are being completed and production is ramping up as we connect them and ramp up processing units.

Ultimately the plan is to drill 6,400 wells over seven years and to reach a production of 400,000 barrels per day, 100%.

This is to say, 100,000 barrels per day for Total's share.

To give you an idea of the activity on site, we currently operate eight rigs on Utica.

Based on what we have so far, the wet gas area has given very encouraging results.

That's on our site in the Utica Basin.

I'll remind you that the liquid content is about 25% to 30% and this helps.

Thank you very much.

Lydia Rainforth, Barclays.

Slowly, Lydia.

Thanks, Patrick.

I will try.

On the cash flow projections that we're looking at for 2014, 1Q was probably just a little bit weaker than I would have thought for this time of year.

Is it still the case that you would expect to be free cash flow positive after CapEx this year?

So, Lydia, once I understood your question.

First quarter, our cash flow adjusted was above $6 billion.

If were to remember it is something like $6.2 billion.

All else equal, our 2014 cash flow should benefit from the new Upstream projects, mainly CLOV.

That should begin producing in June.

And SATORP, which should be fully operational by end of June.

But, as you know, our cash flow is also depending on the Downstream environment.

And currently, the margins were very low first quarter.

Margins are better today.

But who knows in one month's time?

Our 2014 free cash flow should also benefit from the decrease of CapEx -- I'll remind you that our CapEx target is of $26 billion -- and the remaining asset sales.

Post-2014, our free cash growth will be fueled by our startups and ramp-ups, the accretive barrels of our new projects, and the increasing contribution of Downstream.

So, yes, in 2014, free cash flow should be positive.

Madame Rainforth, do you want to add a comment?

No, that's very clear.

Thank you.

Thank you very much.

Ian Reid, BMO Capital Markets.

Hello.

Is that supposed to be Ian Reid?

Exactly, sir.

Okay.

Sorry about that.

Patrick, just a quick question about Novatek.

Can you just confirm what interest you have in Novatek right now?

I thought I heard something like 14%.

I thought you had more than that.

And, secondly, on Yamal LNG, have you seen any impact of the U.S. sanctions or do you expect any impact of the U.S. sanctions in terms of using U.S. contractors or U.S. equipment on that?

Because, obviously, the chairman and major shareholder is on the sanctions list right now.

Yes.

On Novatek, the answer is that we currently own slightly more than 17% and our intention is to increase our share to 19.4%.

As of today, on Yamal LNG, what are the impacts of the sanctions on this project?

And everybody knows and we are monitoring the situation very closely.

The U.S. and European Union have imposed sanctions against Ukrainian and Russian individuals and companies.

These sanctions have not affected Novatek nor any of our activities in Russia.

As of today, my view is that there is no impact on Yamal itself.

Okay, very clear.

Thank you.

Irene Himona, Societe Generale.

Good afternoon, Patrick.

I had a couple of questions on the Upstream, if I may.

So, firstly, can you say anything on the progress you're making on reducing Upstream technical costs?

It's something you've referred to before and I was wondering if there's any quantification you can provide.

And then, secondly, in Q1, I think the E&P tax rate was quite high.

What can we expect for the rest of the year, please?

Thank you.

In the Upstream, during the first quarter we saw a slight decrease in unit operating cost.

But, honestly, I don't want to put too much importance on one quarter result and I would rather to see that over a one-year period.

In Refining and Chemicals, you know we saved $250 million of synergies and efficiencies in 2013.

We have launched the same process all around the company, including the Upstream.

This cost reduction program is a bottom-up process.

And I think we will be in a position to give you objectives and figures by our September presentation.

Something about the tax rate, I'm not sure I can fully answer your question.

First quarter, the Group effective tax rate increased slightly from 56.7% to 57.7%.

This increase comes from the Upstream where the effective tax rate, you are right, was higher at 59.5%; higher than in last quarter last year.

I remind you that fourth quarter 2013 benefitted from a favorable one-off item.

This is to say, some lower tax rates on some capital gain.

The rule of thumb that I am using myself is to use a 60% tax rate for the Upstream.

Thank you, Patrick.

Thomas Adolff, Credit Suisse.

Hi.

Thanks for taking my question.

Just a question on your Australian projects, Ichthys and GLNG.

On Ichthys, INPEX has given some positive updates and a bullish target for the end of the year in terms of milestones.

Given the progress to date, I think it's been completed to around 40%, does that give you greater confidence on the guided timeline for startup or is it simply too early at this stage to say?

The question on Gladstone LNG, you said earlier on, you're confident that the project can start up sometime in 2015.

But, I guess, given the potential issues that Bechtel may be facing with respect to the lack of welders at QCLNG, can you perhaps give me some form of confidence indicator since you're using the same commissioning team from Bechtel for your own project in Australia?

Thank you.

I think I can answer on Ichthys.

I'm not sure I can answer on GLNG.

I will try but I'm not sure.

Ichthys project is progressing well, in line with the expectation and is currently more than 40% of progress.

On site, the first modules are expected to be delivered this year, second quarter, and work started in Darwin with a large mobilization of workforce on site.

I will not go through all the details but the laying of the gas export pipeline will start second quarter of this year.

The drilling of production wells will start in October and so on.

We maintain that we expect first gas by end of 2016.

And first LNG cargo is scheduled by early 2017.

So, on Ichthys, I think everything is going fine at that stage.

On Gladstone, the overall progress is approximately 80%.

Honestly, this is all I have as a figure now.

The first gas is expected by second half of 2014 and first LNG cargo in 2015, as planned.

As of today, I think one can say that we are confident and this is the latest news I can give you.

I'm sorry, I don't have enough more than that.

No.

Thank you very much.

You can get, I'm sure, more information from the operator.

Yes, sure.

Thank you.

Martijn Rats, Morgan Stanley.

Yes, good afternoon.

I've got two short ones, if I may.

First of all, I wanted to ask where we now are with regards to the ramp up of the Jubail refinery.

Is that now already all complete or is there still more to go?

And, secondly, I really appreciate all the detail you gave with regards to the $4 billion savings of Kaombo.

That figure was very useful.

As a quick follow-on on that, I wanted to ask if there are other projects where you think those types of results are replicable or whether this situation was a bit more specific to Kaombo only.

Okay, let's start with Jubail and Satorp.

The startup of the first units was achieved by end of last year.

Basically, distillation hydrotreaters.

Since then, all units have started.

Conversion units are in stabilization phase and should be fully operational by end June this year.

We do not anticipate material contribution to our results until all the units are fully operational.

That was on Jubail.

So can we replicate what we have done on Kaombo?

I think what the Kaombo story tells us is that the capital discipline is quite efficient.

You know that it's first cost estimate the Kaombo project didn't fly and that we start again to work on this project in order to reduce the cost because the project was not matching our investment criteria.

That's on one side.

The second thing is that we are currently moving into a cost culture mode and so we are looking for ways to improve the economics on all of our pending projects.

No examples, sorry, that I am ready to provide today but we should have more detail in September.

But, as I told you, this is a new culture that we are implementing on top of the capital discipline.

Alright, thanks.

That's very useful.

Jon Rigby, UBS.

Yes.

Hi, Patrick.

Can I ask a couple of questions?

The first is, can you just remind me how or how the process of getting cash out of Jubail works?

So, obviously, you account for the associate earnings but can you just explain to me the cash mechanism as well?

And I guess, in the context of any project financing debt that sits in the business.

And then, secondly, you referenced the fact that you're starting to get close or there's some visibility on moving to being free cash flow positive post-CapEx.

What is your current thinking around what you do with that cash?

And, I guess in the context of the way your share price has moved -- and, well done -- over the last three months, will that affect your decision around whether cash is used for share buybacks or not?

Thanks.

Always easy questions with you, Jon.

As a reminder, Jubail Satorp company is an equity affiliate.

So, in our books, we do not have direct access to the cash flow generated by the Jubail refinery.

Jubail itself, when producing, will be making more than $800 million per year.

The cash will be back to us through two ways.

The first one is reimbursement of shareholder loan; second, through dividend.

The second question about what I can do with the cash and if the share price changes my mind.

Honestly, we demonstrate strong operational progress in every segment and we are backed by a strong balance sheet today.

And we decided last quarter of last year to increase the dividend by 3.4% pending to the AGM approval.

So, currently the dividend is, this quarter, EUR0.61 per share.

And I think this demonstrates our confidence in the future of the Group.

As free cash flow accelerates with the startup of our value-creating projects, we will continue and gradually increase the dividend.

I will remind you that Total has delivered the highest total returns to shareholders among the majors since the beginning of 2012.

The use of the cash I think most of the issue, if I may call that an issue, we will face it late this year and beginning next year.

We could reduce the gearing a little bit to be in line with our competitors and then return shareholder by dividend and maybe by share buyback.

Okay, thank you.

Thank you, sir.

Theepan Jothilingam, Nomura.

Afternoon, Patrick.

I had just two quick questions, actually, if that's okay.

One was just; could you quantify what the seasonal maintenance will be in E&P in Q2?

And then secondly, could you provide any guidance on how the LNG business performed in Q1?

Thank you.

Thank you, Theepan.

About the maintenance, the level of planned maintenance this quarter was lower than fourth quarter 2013.

Looking forward, we expect second quarter 2014 production to be impacted by seasonally heavy maintenance affecting mainly the UK, Norway, and Thailand.

For the LNG, LNG, as usual, represent about 20% of our production and 30% of our Upstream result, slightly higher compared to last quarter last year and first quarter last year.

LNG sales were slightly down at 3.1 million tons, first quarter this year compared to 3.4 million tons last quarter of 2013.

This was due to a decrease in feed gas in Yemen LNG.

But revenues were strong thanks to diversion on Qatargas 2 and Yemen LNG.

Let me tell you that about 12 cargoes been redirected this first quarter and LNG, together with deep offshore, represents 30% of our production and more than 50% of our Upstream results in 2014.

LNG remains strong and a strong business for us.

Is there any way you can give me a number on that maintenance for Q2, or?

No.

Okay.

Thank you, Patrick.

Thank you sir.

We have no additional questions for the moment.

(Operator instructions).

So, sorry, Theepan, for the no but I don't have the answer.

And thank you, everyone for joining us today.

I think I'd like to leave you with this short message.

We are off to a good solid start for the year.

Our new projects are progressing as planned and we expect 2014 and 2015 to be strong years for the new startups.

We are confident about our strategy to grow production and free cash flow over the coming years.

And we are committed to creating value for our shareholders over the long term.

Have a good weekend.

Ladies and gentlemen, this concludes the conference call.

Thank you all for your attending.

You may now disconnect.