TotalEnergies SE (TTE) 0 Q0 法說會逐字稿

Welcome to the second-quarter results 2013 conference call.

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

Please go ahead.

Hello.

This is Patrick de la Chevardiere speaking.

I will make some comments on our results and then go to Q&A.

To begin, we are pleased to report a clean set of results for the quarter which highlight our resilience.

The environment for the second quarter was less favorable than the first quarter.

In the Upstream, Brent declined by about 9%, although it remains above $100 per barrel on average.

In the Downstream, European refining margins decreased by about 10% and Petrochemicals were on balance relatively flat.

Looking at the results for the second quarter, adjusted net income was $3.5 billion.

Adjusted earnings per share was $1.55 per share.

In the Upstream adjusted net operating income for the segment was $3 billion in the second quarter, a decrease of 7% compared to the first quarter.

The main explanation is a decrease in the Brent price.

However, this impact was partially offset by a lower tax rate for the Upstream.

Production in the second quarter was 2.3 million barrels per day.

This is relatively stable compared to the first quarter despite maintenance activities and security issues in Nigeria.

We successfully restarted Elgin in late March and it is currently producing just above 20,000 barrels per day net to Total.

Angola LNG delivered its first cargo in mid-June.

Looking forward, our near-term growth will be fueled by ongoing ramp ups and the anticipated start up of Kashagan.

In Exploration, drilling operation are ongoing in Gabon, Kurdistan, Indonesia, Argentina, Australia, and the Gulf of Mexico.

We are preparing to drill wells in pre-salt Brazil and Angola.

We acquired 10 deep offshore licenses in Brazil.

We have several exciting prospects and are optimistic about our high potential exploration program.

In development operations we remain focused on delivering our portfolio of high-quality projects on time and in budget.

We are entering an unprecedented period of start up over the next four years.

We are on schedule with our major startups for 2014, namely Ekofisk, CLOV, Laggan/Tormore, and Ofon 2.

We launched Moho Nord in March and Egina in June.

I remind you that these are both giant deep offshore oil projects operated by Total.

So we continue to increase the visibility on our production growth.

Shifting to the Downstream, despite the 10% decrease in European refining margins, the adjusted net operating income of the Refining & Chemicals segment for the quarter was $483 million.

Refining & Chemical continue to advance an ambitious restructuring program with major projects on our main integrated platforms.

At Normandy we have nearly completed the modernization project.

At Antwerp we launched a new modernization project.

This includes closing a cracker, maximizing synergies, and reducing dependence on external conversion feedstock.

And at Port Arthur the steam cracker was modified to optimize its ability to use ethane as a feedstock.

The Marketing & Services segment posted adjusted net operating income of $431 million for the second quarter, an increase of 23% compared to the first quarter.

Again, delivering impressive results thanks to a diverse presence in growth markets, notably in Africa.

The annualized ROACE for Marketing & Services further increased to a highly competitive 18%.

Finally, on the Corporate side adjusted cash flow from operations for the second quarter was $6.6 billion.

Net investments were $5.7 billion, in line with our target of $22 billion for the full-year 2013.

This includes asset sales of $1.3 billion, mainly from the sale of Tempa Rossa and our fertilizer businesses.

The sale of TIGF should be closed and tendered in the coming days.

The asset sales program for 2012 - 2014 has been a great success and we are on track to achieve our $15 to $20 billion target.

As you know, the asset sales program is giving us additional flexibility to fund a disciplined organic investment program.

Looking at the balance sheet, our gearing at 27.6% is within our target range of 20% to 30% and receiving the proceeds from the ongoing asset sales program should bring gearing back down.

Yesterday the Board authorized an interim dividend for the second quarter of EUR0.59 per share payable on December 19, 2013.

This is stable compared to the first quarter and is in line with our policy to maintain a payout ratio of 50% on average over time.

We recognize the importance of the dividend to our shareholders and our commitment to provide them with sustainable and competitive returns.

Our outlook for the environment remains favorable and our confidence in delivering growth increases as we continue to execute.

As a quick reminder, we will be in London on September 23 for our investor day presentations, so certain information will have to wait for then.

But having said that I am now ready to take your questions.

(Operator Instructions) Oswald Clint, Sanford.

Good afternoon, Patrick.

Thank you.

Just a question on Australia, if you could talk about the progress with Ichthys and Gladstone LNG please, specifically with relation to CapEx, that would be good.

Also, just on the Downstream you mentioned some of the restructuring -- the press release talks about further changes are still needed.

Is there other -- could you talk about the other changes that are needed over and above what you just mentioned within your script in terms of Downstream?

Thank you.

So thank you for calling.

If you could limit the number of questions to one question so that everybody can ask a question, but I will answer, because you are the first one, your two questions.

So about Australia, Ichthys.

First, in March 2013 Total completed the purchase of an additional 6% interest in Ichthys, raising our interest to 30%.

We are extremely confident about the economics of this project and it is an excellent fit with our long-term strategy.

To specifically answer your question, the project is processing well.

The EPC progress is about 22% by end of May.

We are currently working on the detail, design, and material procurement.

The site preparation work on the onshore LNG plant is ongoing, such as manufacturing of the gas export pipeline.

So good to see that this project is moving right as per plan and, more important, within budget.

About Gladstone, project is on track for first LNG in 2015.

We would prefer that the operator handle most of the communication on this project as it is usual for that type of matter and that is basically what I can say to you.

Your second question was about Downstream.

As you remember, we have merged our Refining & Chemical activities and launched a large restructuring program in order to concentrate on major platforms like Anvers, SATORP or Port Arthur in order to reduce our capacities in Europe for both refining and petrochemicals and to deliver synergies and efficiency plans.

Second quarter this year shows strong results, the first signs of improvement on costs, and the benefit of synergies between refining and petrochemicals.

We are on track on those three objectives and processing towards our profitability target of 13% in 2015.

The way forward is to continue to deliver on this restructuring.

That is great.

Thank you, Patrick.

Nitin Sharma, JPMorgan.

Afternoon, Patrick.

Hope you are doing well.

I will keep myself to one question.

Negative working capital swings have had a big impact on first-half 2013 cash flow.

How do you see this item in the second half, assuming no major move in the oil price?

Thank you.

Thank you, Nitin, for your question.

We were waiting for this question on working capital.

Second quarter of this year we have a negative impact from working capital that was related mainly to upstream tax payable in Norway and in Nigeria.

In the first quarter, and you have to listen quite specifically to that, we had strong prices and volumes for these two countries so that the tax liability was high.

In the second quarter we paid the first-quarter taxes, but prices and volumes decreased.

So the new tax liability was lower.

The net of this explains the large decrease in the tax payable.

Having said all of that this is part of the normal variation in working capital and by definition working capital changes are timing in nature.

That is why we concentrate on adjusted cash flow, the $6.6 billion, in second quarter of 2013.

Thank you, Patrick.

Theepan Jothilingam, Nomura.

Good afternoon.

Just a quick question on Kurdistan.

Could you just talk about your plans in terms of activity in Kurdistan for the rest of this year?

That would be great, thanks.

Thank you, Theepan.

On Kurdistan we have signed a farm-in agreement to enter into two blocks operated by Marathon, the Harir and Safen blocks.

In addition, one block operated Oil Search, the Taza block.

Our equity interests is 35% for Harir and Safen and 20% for Taza.

The first well drilled on Harir was dry, but the second well, which name is Mirawa-1, that is currently being tested is showing encouraging results.

The test performed on the first well on Taza, the one with Oil Search, has given good results and a notice of discovery has been published mid-July.

Finally, a first well is currently being drilled on Safen.

Our exploration program in this region is very active with three more wells to come.

I think I have enough detail for you.

Perfect, thank you.

Have a good holiday.

Blake Fernandez, Howard Weil.

Patrick, good afternoon.

Thanks for taking the question.

I had a question on Argentina, given that one of your peers here in the US has decided to be more active in the area and, as I understand it, there has been a recent decree allowing some exports.

Just curious if you can talk about your activity levels and opportunities that you see there going forward.

Thank you, Blake, for your question.

Actually, on the Vaca Muerta Shale we are very active in exploration and appraisal.

We are currently operating four drilling rigs, three of which are purely dedicated to the shale gas drilling -- shale oil and shale gas drilling sorry.

A fifth rig is expected during third quarter this year.

We in aggregate have spud 14 wells since the start of the campaign in late 2011.

Two wells have been already connected to the production network in Aguada Pichana and San Roque.

Testing has been completed on three other wells and is currently ongoing on four other wells, including oil wells that give encouraging results.

Three horizontal wells have been spud as of June this year, one on the dry gas window, Aguada Pichana, and two on the wet gas window Rincon de la Ceniza and San Roque.

I think that if the results of the long-term test are positive and if it proves to be profitable enough with the new pricing mechanism recently negotiated, we could develop an early production system.

You know that basically we have negotiated an agreement with the Argentinian government by which we commit to produce up to a certain level of gas in exchange of it we enjoy a higher gas price.

And at the end of the day Argentina represents less than 4% of our current production.

I appreciate the detailed color, Patrick.

Thank you.

Alejandro Demichelis, Exane BNP.

Good afternoon, Patrick.

If you can give us some kind of indication of how you see maintenance taking place in the second half of the year, would appreciate that please.

Thank you, Alejandro, for the question.

As usually you know the second quarter has been impacted by a seasonally high level of maintenance.

In total, maintenance has an impact of 25,000 barrels per day this quarter compared to the previous quarter, just to give you an order of magnitude.

Looking forward, maintenance should be stable next quarter with planned shutdown in the UK at Elgin, Jura and Dunbar, and in Norway at Ekofisk.

That is very good.

Thank you.

Lydia Rainforth, Barclays.

Congratulations on returning to production growth for the quarter.

Could I just come back to the cash flow that Nitin was asking about earlier?

Even at $6.6 billion for the quarter you are still below the run rate needed to get you to the $29 billion on average for the 2012 to 2014 period.

Are you still happy with that $29 billion number for cash flow over that period?

Basically you are asking me if we are still in line with our cash flow objective for 2013?

Yes.

In 2012 our cash flow from operations was $29 billion and we announced the same objective on average for the period 2012 to 2014 on average.

Looking at the first six months, we generated adjusted cash flow from operations to close to $13.5 billion, in line with our expectation.

The second half of the year should benefit from the start-up of Angola LNG and Kashagan.

In terms of net cash flow, including the announced asset sales, we are confident that we will cover our organic CapEx and our dividend for the year.

Looking forward, 2014 is a big year for us with four major project start-ups -- CLOV, Ekofisk, Laggan/Tormore, and Ofon 2. These new projects together with Kashagan that will be ramping up will continue to cash flow growth.

An important information, in my view, is that we estimate that organic CapEx will peak in 2013, this year, so by 2014 organic CapEx should start trending down.

We are, therefore, confident that we will meet our objectives, both in terms of cash flow and net cash flow.

Very helpful.

Thank you very much, Patrick, and have a good holiday.

Iain Reid, Jefferies.

I hope you enjoy your holiday and just a quick question.

On the production growth outlook for 2013, could you give us an update of where you stand on that given delays to Angola LNG and we still haven't seen the start up of Kashagan yet.

Yes.

Compared to 2012 production for the second quarter 2013 increased by 1.3% actually, which is good news.

So far this year we are recovering a good part of the volume lost in 2012 to one-off events.

I remind you Yemen LNG and half of Elgin recovered yet.

We are ramping up production on new fields - Bongkot South, Halfaya, and Utica.

By September I think we will have more visibility on the contribution from 2013 start-ups, namely Angola LNG and Kashagan, OML 58 upgrade, and also the security situation in Nigeria.

So we will wait until the September presentation to make any change, if needed, to our outlook for 2013 production.

Just to be clear enough, for 2015 and 2017 our targets remain intact.

Okay, thank you.

Jon Rigby, UBS.

Thank you.

Hi, Patrick.

Last question you said your experience thus far on this strategy of elevated CapEx, financed partly by operating cash flow and partly by disposals.

Can you sort of comment on A) how you sense the capability of the Company to sustain -- I know you had talked about it dropping off in 2014, but I am more interested in the medium-term about the sustained -- the kind of elevated spending you are doing now.

Then, second, as you look across the portfolio of assets that you do own, to what extent do you have the capacity to continue to make disposals over and above, let's say, the kind of disposal program that you have given us in the medium-term?

So I am kind of wondering what when you look at it do you think is unusual and what do you think is more like a sort of longer-term run rate and capacity for the Company itself?

Thanks.

Our CapEx disposal -- our disposal program, sorry, for the period of 2012 to 2014 was made for two main reasons.

The first one was to renew the portfolio.

The second one was to balance the cash flow of the Company, i.e., to finance our organic CapEx, which were not financed by the organic cash flow.

By 2015, if you will remember our long-term plan presentation, we will have ample cash flow available in a $100 per barrel scenario.

Nevertheless, we will continue and sell assets to rotate the portfolio.

The sale of the asset is not made only for the purpose of making cash, but also to manage the portfolio.

I don't know how much assets we will be able to sell by 2015, 2016, and 2017, but there will be further sales of assets at this period just to improve the portfolio.

Okay.

And in terms of --.

This is your second question, John.

No, no, this is a follow-up to my first question.

In terms of your internal capacity at the moment with the projects that you are launching, are you running at pretty much full capacity, or do you have any sort of slack there that you could take on more activity?

It is true that currently we are in an intensive investment program, but going forward with the start-up of major projects -- CLOV, Laggan for instance -- the magnitude of CapEx will reduce.

As I mentioned before, 2013 is a peak in terms of CapEx, and that is basically my answer.

All right.

Thank you, Patrick.

Michele Della Vigna, Goldman Sachs.

Patrick, thank you for taking my question.

I was wondering on Yamal LNG and Fort Hills you are aiming for FID before year-end.

What are the key remaining issues that you want to overcome before proceeding with FID?

For both projects we need to have a final cost estimate of the project in order to estimate the economics of those two projects and I have to say we are confident.

We have made a lot of progress on both Fort Hills and Yamal and basically we are confident that we can launch these by year-end.

Namely on Yamal, Yamal is a fast-track project and we are making excellent progress on the technical and marketing front.

You have noticed that CNPC signed an agreement in June to acquire a 20% stake in the project and also in order to sign a long-term contract for the supply of at least 3 million tons a year of LNG.

Studies show that Yamal LNG should be highly competitive compared to other LNG projects.

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

On Fort Hills engineering optimization has increased the projected plateau from 160,000 to 180,000 barrels per day.

The project is advancing toward an FID probably later this year and the project could start up in 2017/2018.

On Yamal finally - Fort Hills sorry -- on Fort Hills we believe the export issue will eventually be resolved with the major pipeline expansions and additions.

However, more clarity on this issue, of course, will be positive for the Fort Hills project.

Thank you.

Brandon Mei, Tudor Pickering.

I was wondering if you could provide further color on your exploration projects coming up, specifically Diaman in Gabon, Kiboko in Kenya, and Ardennes in the US.

So about Diaba in Gabon, first the drilling of first exploration well Diaman-1 is ongoing with the Ocean Rig Olympia.

And these results should be available pretty soon I would say.

This is a frontier exploration and therefore it's a high risk/high reward potential well.

Currently we are drilling in Iraq, in Kurdistan, in the Gulf of Mexico, in peri-Ichthys in Australia, and in Indonesia in the Southeast Mahakam.

The second well you are asking a question was in Kenya.

I have to say that I don't know so much about it.

We farmed-in on five blocks with Anadarko with a 40% stake.

The second exploration well is currently being drilled on Block 11 operated by Anadarko.

We also signed a PSC for the Block L22 that we do operate.

In the Gulf of Mexico, finally, we are currently drilling the Ardennes exploratory well spud early February.

Ardennes is targeting both Miocene and Inboard Lower Tertiary reservoir.

Results are expected in the coming weeks.

The fifth obligation well, which name is Aegean, will be drilled following Ardennes and will target the same reservoir objective as the North Platte discovery.

Martijn Rats, Morgan Stanley.

Good afternoon.

My question is also about exploration, but it is not forward-looking.

It is more backward-looking.

You are drilling a lot of wells this year and, of course, the exploration budget is commensurately large, but I was wondering how you would assess the overall success of the exploration program so far in the first half, given the number of wells that is involved?

It is a little difficult to keep track of all of them, but how do you see it internally?

Have you achieved in the first half what you set out to achieve?

First of all, you have to view those type of exploration program over a long period of time.

We have an active and high potential exploration program.

Honestly, we haven't yet found the giant field we are looking for.

We made some discoveries in the Vaca Muerta in Argentina, in Iraq Kurdistan.

We have also had encouraging results in Ivory Coast, in peri-Ichthys area in Australia, and with the Laphroaig well in the UK.

We are still looking for the next elephant.

Exploration is a process that has to be looked, as I mentioned to you, over a number of years and we continue to be optimistic.

Okay.

Thank you very much.

Bertrand Hodee, Raymond James.

Just one question about Nigeria.

Can you give us an update on the situation there?

What is the impact in terms of production or earnings in H1 so far?

And also what is the current situation and your assessment of the situation there either on the LNG side or on the onshore production side?

Thank you for your question.

Yes, Nigeria, as you know, bunkering activity, thief from pipeline, sabotage in the Niger Delta has increased since the beginning of the year causing important damages for both oil and gas pipelines, mainly in the SPDC joint venture operated by Shell.

As a consequence, our onshore operation has been affected mainly through our stake in SPDC.

We lost about 30,000 barrels per day this quarter compared to the same quarter last year.

This is minus 20,000 barrels per day in comparison to the first quarter this year.

Some pipeline has been stopped for repairs and this progress is underway.

I would remind you that those incidents that I didn't like were more than offset by the good performance of Yemen LNG.

Last year we had issues on Yemen LNG, this year it is the SPDC joint venture and the progressive restart of Elgin.

Can you quantify?

Elgin, the restart provides 20,000 barrels per day.

Yemen LNG provides an additional 40,000 barrels per day.

Thank you, Patrick.

Guy Baber, Simmons & Company.

Thank you, guys, for taking my question.

I wanted to go back to the Downstream segment, but was just hoping for a little bit more detail there.

You put together a nice run of solid quarters there despite a pretty challenging environment and Downstream earnings again this quarter surprised higher.

So my question is have you done any type of look-back analysis yet that can maybe help us better appreciate just how much your self-help improvements have helped the profitability there, setting aside any changes to the macro?

Basically, what we did, and that was made clear to everyone, is that we said to the guys in the refineries and in the petrochemical plant please focus on your current operation.

Do not dream of implementing new projects and just run at maximum capacity your plant.

We are satisfied to see that we are improving our resilience in an environment that remains, honestly, challenging with a refining margin being down by 37% and petrochemical environment staying stable in Europe.

This quarter the run rate of our plants was slightly down due in particular to planned maintenance in Antwerp.

Also we can see the first sign of improvement on costs and the benefit of synergies between refining and petrochem.

Honestly, it is -- we are seeing the first result of our efforts to maximize synergies and we will update you in September in detail about those actions taken in Refining & Chemical.

Okay, thank you for the comments.

Jean-Luc Romain, CIC Securities.

Good afternoon.

You mentioned ramping up on the Utica Shale.

Could you give more details and maybe an idea as the capacity that is mentioned in your latest presentation is up to 400,000 barrels per day?

What kind of timeframe would that be to take to such a high production?

So Utica 100% figures I'm giving you.

Production has ramped up to 45,000 barrels per day in June and that is coming from a little bit more than 100 wells.

More than 260 wells have been completed and production is expected to continue ramping up as we connect them and ramp up processing units.

We maintain a target of 100,000 barrels per day production in our group share, so the Total share, by 2020 - 2022.

Thank you.

Rash Bukataria, RBC.

A quick question on the depreciation charge in the Upstream.

In the first quarter of 2013 you reached record levels over $15 a barrel.

The second quarter has tapered off a bit.

I was wondering how you see that metric over the rest of the year and then maybe if you could talk a bit about 2014.

Thanks.

Basically, as we will start new operation we will increase our DD&A basically with the start-up of Kashagan and Angola LNG for instance.

OpEx increased -- no, sorry, we have higher DD&A since the beginning of the year because of the new project start-ups, so it's like the same phenomena.

Projects like Halfaya, South Mahakam or Bongkot South are adding significant amounts of DD&A as the cost to develop those projects has been rising and those projects are in a cost recovery phase.

And that will be the same phenomenon in the future with Kashagan and Angola LNG.

Keep in mind that there is a mitigating tax effect on higher DD&A and also that our technical cost -- please remind it that our technical costs are the lowest among our peers.

We had a good resilience in terms of net operating income per barrel.

We are in line and we see upside in the coming years.

Okay, perfect.

Thank you.

Irene Himona, Societe Generale.

Good afternoon, Patrick.

I had a question on refining and chemicals, actually two questions.

One was on the tax rate, which has come down quite a bit from the first quarter, down from 27% to 20%.

What can we expect over the course of the second half?

And related to that, if I look at the first half affiliate profit in that division, it is up something like 26% year on year.

If you can talk a little bit about the drivers of that and mention perhaps Jubail in the process.

Thank you very much.

The normal tax rate for refining should be in the range of 30% basically.

Sometimes we have a lower tax rate, sometimes we have a higher tax rate, but a normal tax rate should be in that range.

On the affiliate, just a comment on Jubail, which is not yet started.

You remember that it is one of the most complex refineries.

The start-up of the first unit is due by next quarter and by year-end the refinery should be at full operation.

We will have a contribution from Jubail in 2014.

Okay, thank you very much.

Neill Morton, Investec.

I am not sure if this is one question or three questions.

But with regards to your net CapEx guidance of $22 billion for this year, could you just update that in terms of the organic spend, acquisitions, and disposals?

Thank you.

We maintain the $22 billion net CapEx figure for this year.

We have announced in February a target of organic CapEx of $28 billion and net asset sales of $6 billion.

And we have basically announced what is necessary to achieve that already.

As an information, the TIGF sale is for the forthcoming days.

So far this year we have invested $13 billion.

We are in an intensive investment program, but going forward with the start-up of major projects the magnitude of CapEx will reduce.

And I repeat myself, again, CapEx should be peaking this year.

Okay, that is great.

Jason Kenney, Santander.

Just going back to that equity affiliates conversation that you had earlier, can you put some color around the kind of seasonality of equity affiliates?

I am conscious that Jubail is not going to contribute until next year.

So the kind of run rate we are seeing in the first and second quarter so far, where do you see that playing out over the second half?

We have -- basically the main effect we have on our equity affiliate is coming from maintenance.

When we have maintenance in big assets like Qatargas you see a decrease in our affiliate return.

You know that is a good question, but I think, Martin, we will call you back to give you further detail on that.

Okay, thanks very much.

We have no more questions at the moment.

No more questions?

So thank you for your time today.

In order to summarize I think we continue to enjoy a Brent price above $100 per barrel.

The balance sheet remains strong and we are confident about the progress we are making with our portfolio of major projects.

I look forward to seeing many of you in London for our investor day presentations where we will provide you with a detailed overview and outlook.

That is it for today.

Have a nice weekend or vacation and enjoy your summer.

Bye-bye now.