TotalEnergies SE (TTE) 2014 Q2 法說會逐字稿

Hello, Patrick de La Chevardiere here.

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

Looking at the second quarter environment, Brent was close to $110 per barrel.

Natural gas prices were weaker, reflecting the lower NBP price, and, in the downstream, European refining margins were very depressed at $11/tonne.

Operationally, both the upstream and downstream were affected by heavy maintenance.

In this context, we reported solid results that were slightly below the level of the first quarter.

Adjusted net income was $3.2 billion, and adjusted EPS was $1.38 per share.

In the upstream, adjusted net operating income for upstream segment was basically flat at $3.1 billion in the second quarter, despite lower production volumes.

Second quarter production was 2.1 million barrels per day, a decrease of 6%, mainly due to exceptionally high seasonal maintenance that temporarily shut in about 70,000 barrels per day compared to first quarter.

The security situation for onshore Nigeria was unchanged, but increasing unrest in Libya decreased production by additional 15,000 barrels per day, and no contribution from ADCO and Angola LNG represented a negative impact of 20,000 and 10,000 barrels per day, respectively.

Based on our revised projection for 2014, and our long-range plan, I can tell you that the second quarter is the low point in our production profile.

The second quarter marks an important turning point.

Obviously, we will recoup the maintenance volume in second half.

More importantly our deep offshore CLOV field in Angola started up in June, on time, and in budget.

CLOV is producing about 80,000 barrels per day, and should reach its plateau of 160,000 barrels per day in the next few months.

CLOV demonstrates our expertise and excellence in major project management, which is a key to delivering future production growth.

We expect to have two more start-ups by year end, Laggan-Tomore and Ofon 2, and five more startups next year.

Compared to last year, on an ex-ADCO basis, we expect 2014 production to be basically flat, mainly due to delays on non-operated fields.

Like you, we will have to rely on the operators for revised guidance for Kashagan and Angola LNG, and except those two fields, I can tell you that the portfolio of major projects is progressing essentially as planned, and most of these projects, like CLOV, are operated by Total.

During the second quarter, after some rigorous cost cutting, we launched two new projects, Kaombo in deep offshore Angola, and Edradour in the West Shetland area, that will add to our 2017 production profile.

But remember that updated production targets will have to wait until our September presentation.

Rounding out the upstream story, we have a number of promising exploration wells that are currently drilling in the Kwanza pre-salt in Angola, deep offshore South Africa, and elsewhere.

We expect to report on these in the coming months.

We announce that we will review the exploration program at the end of the year, and you can expect that we will share the result of that review with you at our February 2015 presentation.

Shifting to the downstream, adjusted net operating income for the combined downstream segments increased by more than $150 million in 2Q compared to 1Q, mainly due to an adjustment we made in the first quarter, and I will describe that in just a moment.

Marketing continued to perform well, particularly in a weak environment.

Refining was resilient, thanks to gains from the restructuring program, and despite depressed European margin and turnaround at Leuna and Vlissingen.

At Satorp, all the units are operational, and we are in the process of optimizing their performance.

Now, coming back to the point I raised about tax adjustment affecting the results.

I would remind you that in the first quarter we applied the new IFRIC 21 rule that accelerated the recognition of about $120 million of taxes, mainly for property taxes in the downstream, so the second quarter improvement is comprised largely of this comparative benefit.

In the upstream, we had about $250 million net one-off favorable tax adjustment in second quarter, mainly related to allowances on the Laggan field.

So, this explains the low upstream tax rate.

And on the corporate line, starting this year, we are writing off tax credit on a quarterly basis related to the net operating losses in France, as they are generated.

We wrote off about $100 million in first quarter, and about $200 million in second quarter, which explains why the corporate line item was grown.

Until we can see that we will be in a position to use these tax credits, and the cost reduction program will help, we will continue this practice, depending on refining margins, among other things.

And finally, on the financial results, adjusted cash flow from operations for the second quarter was $6.2 billion, stable to the previous quarter, despite the lower upstream volumes.

Organic CapEx was $7.2 billion, in line with our budget.

Since the start of the second quarter, we have announced more than $2.5 billion of asset sales, including our interest in the Shah Deniz project in Azerbaijan, $1.5 billion; our Totalgaz LPG business, $0.5 billion; and our coal-mining affiliate in South Africa, $0.5 billion, also; and our CCP Composites affiliate.

We are streamlining the Company across every segment and re-deploying significant amounts of capital from non-core assets to assets that will sustain future growth.

I would point out here that the sale of Usan to Sinopec was canceled last week.

This sale was valued at about $2 billion.

Excluding Usan, but including the sales announced so far this year, we are close to $17 billion now and confident that we will be well into the $15 billion, $20 billion target range for the 2012-2014 asset sale program.

We are currently selecting an advisor to pursue the sales process of Usan.

I should also mention that in the second quarter we decided to delay the Joslyn mining project in Canada.

We are still very positive about Fort Hills, and we are working on improving the design and economics of Joslyn.

And like the sale of Shah Deniz, this is a form of capital discipline.

Looking at the balance sheet, gearing at the end of the second quarter was 27%, within our 20-30 target range, and I should point out that if we had closed the $2.5 billion of recently announced sales, then our gearing would be below 25%.

In addition to the capital discipline and asset sale program, we launched a company-wide cost reduction program earlier this year, and we will present targets in September.

We consider that this program is essential to our performance, and we expect the initial gains to be reflected in our result starting next year.

As a final point, we paid the dividend of EUR0.61 per share on June 5.

So, I'm ready to begin the Q&A.

You should know that I will not answer questions about the September presentation.

So, please limit yourself to one good question at a time so that everyone has a chance to participate.

(Operator Instructions).

We have a first question from Oswald Clint from Sanford Bernstein.

Sir, your line is open.

Mr. Clint, your line is now open.

Yes, hi.

Patrick, thank you very much.

Just a question, firstly, on your gas volumes the first half of the year.

If you look at it year over year, it looks pretty flat, but quite a -- I guess quite a few moving pieces with Europe and Middle East falling, and kind of offset with CIS and North America.

I wonder if you could maybe talk about the earning swing or the cash flow swing, year over year, given that dynamic?

And just very quickly, secondly, you mentioned Joslyn.

I've also seen some comment on Northern Lights project in Canada.

These are projects you're reviewing the profitability, and if you decide to defer or cancel them, are those CapEx numbers that would have to be reflected in your CapEx guidance that you've given to the market?

Thank you.

Yes, on Joslyn, Joslyn is delayed.

We, Total, are the operator, and we decided to postpone it.

This is part of our capital discipline.

Studies will focus on maximizing the project value, and reducing the cost, and increasing the robustness of the economics of this mega-project.

That's basically the only project currently we have on Canada is, on one side, just Surmont, which is operated by Conoco, and Fort Hills, which is currently developed by Suncor.

That's the two main projects.

As far as the Northern Lights is concerned, this project is not in our agenda at the moment.

The second question was about gas production in Europe.

Production was impacted by planned maintenance in the UK, Alwyn, Jura field, and Norway.

In the Middle East, we suffered for the expiry of the ADCO concession the 10th of January this year.

And in CIS, in Russia, where increased stake in Novatek -- we currently own 18% of Novatek at the moment -- was compensated by a reduction of the Novatek production itself.

That's basically what I can tell you on gas production.

It's mainly driven by, on one side, Novatek, and second on the North Sea and elsewhere by the maintenance.

But given those volume moves is there any material kind of earnings or cash flow movement if we look at the first half this year versus first half last year?

There is, all in all, gas and oil the overall maintenance effect of the production -- on the production is minus 70,000 barrels per day less of production in comparison to first quarter this year.

Okay, thank you.

Thank you.

Thank you.

The next question is from Thomas Adolff, Credit Suisse.

Hi, Patrick.

Thanks for taking my question.

I just wanted to ask you on Yamal LNG and the question, really, is around the sanctions recently.

I mean, if you say the impact is limited, I wondered whether you can elaborate why that is limited.

I'm just curious whether you have, for example, contracted all the high technology equipment for the project, so on and so forth, and otherwise, whether you're also still confident you'll secure all the project funding by the fourth quarter of this year?

Thank you.

On July 17th, Novatek and its controlled subsidiaries, including Yamal LNG, was added to the OFAC sanction list, if you well remember.

Honestly, we are currently reviewing the sanctions to determine what impact they can have, those sanctions on Yamal, and we will share our view with our partners by end of August.

You may know that sanctions from the European Union were given -- expressed yesterday evening, and this morning, and, honestly, we didn't have time enough to review them.

At this point, on site work on Yamal is still continuing, and I remind you that Yamal is not included in our 2017 production forecast, and, honestly, we need to further study the situation, and I have no more comment to make at that time.

Okay, thank you.

And on the project funding?

That's the same.

We have to study the consequences of the sanctions on this ability of commercial OECD banks to participate in the financing, and we will organize meetings with all banks after summer.

Perfect.

Thank you.

Thank you.

The next question is from Guy Baber from Simmons & Company.

Thank you very much.

I had a question on organic CapEx.

The CapEx so far this year is tracking in line with the guidance for the full year, but the 2Q number of $7.2 billion was higher than we had expected, and it looks like the spending rate needs to drop from that over the back half of the year to be consistent with your guidance.

So, the question was, is there anything specific in the 2Q number that might have inflated it, or is it just a part of normal quarterly phasing?

So, any color you could provide there.

And then, I wanted to, secondly, better understand the effect of maintenance over the back half of the year, but just to confirm your comments, we should be assuming limited maintenance over the -- during 3Q and 4Q?

Typical 3Q is a heavy maintenance quarter, as well, so, I just wanted to confirm that we should be getting back roughly 70,000 barrels a day of maintenance production over the back half of the year?

Okay, Guy.

Coming first to the organic CapEx, I think the first point you may remember is that the CapEx for first quarter, the level of those CapEx at first quarter were very low, actually, at $5.2 billion.

So, what's happened in the second quarter is basically that we recovered part of the CapEx which was not spent during the first quarter.

At the end of first half 2014, we have spent $12.4 billion in organic CapEx, compared to $12.9 last year for the same period.

I think this gives you the trend of our CapEx for this year.

About maintenance, the level of planned maintenance this quarter was exceptionally high, and had an impact, as I said before, of 70,000 barrels per day compared to first quarter this year, and the impact was about 30,000 barrels per day in addition to the second quarter 2013.

This quarter, production was mainly impacted by planned shutdown in various countries, Alwyn and Jura in the UK, Oseberg and Snohvit in Norway, Bongkot in South Thailand, and Akpo in Nigeria, I should not forget it.

This last turnaround, I think, being brought forward from third quarter 2014.

The 2014 seasonal maintenance should be basically in line with 2013, but the second Q had an unusually high concentration and that's it, basically.

So, you should find, in aggregate for 2014 the same amount as in 2013.

Okay, great.

Very helpful.

Thank you.

Our next --

I'm paid to be helpful, you know?

(laughter)

Thank you.

The next question is from Nitin Sharma, JPMorgan.

Afternoon, Patrick.

Hope you're well.

In the release this morning, you flagged progress made by the businesses in setting cost reduction targets and a likely announcement on 22nd September.

My question is, have you included any of these potential cost savings in your existing 2015-2017 free cash flow guidance?

And also, a small follow up on the previous question on cash flow.

H1 $12.1 billion of adjusted operating cash flow.

Assuming no major change in macro factors, any guidance on this, please?

Thank you.

So, the first question on cost reduction, Refining and Chemical cost reduction was included for 2015 in our target.

We are currently making a bottom-up process to assess the savings made by Marketing and Services, Upstream, and the mother Company.

Both figures will be given to you on September, and will be included in the guidance given to you in September.

Honestly, we need to leave these people working a little bit more to have a final estimate of those savings, but I can tell you that any branches and the mother Company will participate in the effort that the Chairman asked us to make.

Your second question was about free cash flow for first half 2014.

Remember, that we are still in a transitioning out of the 2012-2014 intensive investment phase.

First half 2014 our cash flow, adjusted, was $12.1 billion, and we spent $12.4 billion for organic CapEx, in line with the budget, as I mentioned in the previous question.

The asset sales program has been quite successful.

Honestly, if I leave aside the Usan question, and I will be ready to answer any question about this, and we were very effective in terms of allowing us to grow the Company and raise the dividend by reallocating funds generated by asset sale.

And I remind you that we maintain our gearing within the 20%-30% range.

We have announced more than $2.5 billion of asset sales this quarter, but we still have to wait for the cash to be there, as the transactions are not completed.

Thank you, Patrick.

Thank you, Nitin.

Your next question is from Bertrand Hodee, Raymond James.

Yes.

Hello, Patrick.

Yes, I have a question on Usan.

Can you explain to us why the sale was finally canceled?

Is it because of Nigeria bureaucracy or because Sinopec was fed up of waiting?

And then, can you also explain or confirm that the operatorship on Usan was effectively transferred to Exxon?

So that one of the objectives of the Usan sale, which was, if I remember well, not to have, I would say, a 20% stake in a field while being operator, which was not an optimization of your resources.

So, can you confirm that the operatorship was effectively transferred to Exxon?

And also, how much cost oil do you still have to recover on that -- on that Usan field, which, I believe, is still very material in terms of cash flow?

Okay.

It is a matter of fact that the process to obtain the local authorization to sell Usan was a long process.

The reason why the Chinese decided to withdraw, I know it, but I think you had rather to ask them in direct the question.

As they are listed, they will have -- you will have the opportunity to ask them the question, directly.

For the cost oil, honestly, ask the question for the COM-FI -- to the COM-FI, because I don't have the answer at the moment.

And as far as the operatorship is concerned, I confirm that Exxon is now the operator of Usan, that the operatorship has been transferred, but nevertheless, we will continue and pursue the sale of this asset.

Okay, thank you, Patrick.

Thank you.

The next question is from Theepan Jothilingam, Nomura International.

Yes, hi, Patrick.

Theepan here.

I just had a quick question, coming back to cash generation, actually.

Just is there any way to frame what you left on the table versus your sort of internal expectations for the first half of this year, particularly in terms of I think you've talked about modeling and the missing volumes for -- from the non-operating projects?

And then, going forward, when we model volume and cash flow for 2015, ahead of September, I think you've mentioned a number of projects and also Abu Dhabi.

Again, is there any other moving part we should think of relative to the -- relative to when you set expectations for the 2015 guidance, previously?

Thank you.

Okay, Theepan.

You know that one of the most frustrating assets, which is not operated by us, is Kashagan.

At plateau, Kashagan should have provided some kind of $1 billion cash flow per year.

So, if you listened to what was said by the operator, namely that Kashagan startup is to be expected by mid of 2016, this $1 billion of cash flow is missing for 2015.

That's basically the main impact I foresee in our 2015 cash flow.

Going forward, I remind you that we have CLOV.

CLOV would be at plateau prior year end.

It is currently producing 80,000 barrels per day, about 50% of the capacity, and when it will be at plateau prior year end, it will make $1.5 billion of cash, net to Total.

Okay.

And then just a follow up.

There was no odd variance on cash taxes versus P&L taxes to think of in the first half?

No.

Nothing unusual there.

Okay.

Thank you very much.

Thank you, Theepan.

The next question is from Gordon Gray, HSBC.

Thanks, Patrick.

It's a quick one.

I know you're going to update your volume guidance in September.

I was just wondering if you could recap how you view that guidance in terms of, is this a number we should expect to see?

Is it more a guidance for capacity?

Is there a contingency in there?

And, specifically, what's the current assumption in there for ADCO?

Thank you.

Well, we will decide by September what assumption we will use for ADCO.

The current assumption we have is that we had a 10% stake with a 50% probability of success.

This is the equivalent of 5%, if you want.

Looking forward, our 2014 production should benefit from maintenance recouped over first half 2014, CLOV, as I mentioned at the last question, and also, you should not forget them, Laggan and Ofon 2, which are expected to start up last quarter this year.

However, as you have understood, the non-operated projects, Angola LNG and Kashagan, will not be there by end of the year.

Angola LNG, according to the operator, should start up again by mid of 2015, and Kashagan it's for mid 2016.

As I said, the 2014 production only includes 10 days of ADCO.

This is about 20,000 barrels per day for the first quarter this year.

Compared to 2013, without ADCO, 2014 startups should offset natural decline and essentially maintain stable production compared to 2013.

For 2015 and 2017, obviously, you have to wait for the update in September.

I remind you that for 2015, we will benefit from CLOV, Laggan-Tomore, and there are five additional startups in 2015, which are Eldfisk, Surmont, GLNG, Termokarstovoye, and Vega Pleyade.

And, obviously, we will update you in September.

For 2017, I remind you that the 2017 previous production capacity target we gave in the past were not including neither Yamal and Fort Hills.

Great, thanks.

Thank you.

The next question is from Anish Kapadia, Tudor Pickering Holt.

Hi.

Good afternoon.

Just a couple of questions.

Just wondering if you could clarify the impact of Angola LNG on cash flow, if it has a meaningful effect, given the structure of that?

And then secondly, just in looking at Dalia, that field seems to have had some pretty sharp decline in the first half of this year, down over 20%.

I was just wondering if there was anything in terms of maintenance over there, whether that's natural decline or any other issues on Dalia.

Thank you.

Your first question was about Angola LNG.

Angola LNG, obviously, it's a small impact.

It was expected to produce for Total's share 10,000 barrels per day for us.

I'm sorry, I don't have the cash flow impact directly, but that's a limited impact.

On Dalia, honestly, I don't know anything specific related to this field.

I'm not aware of anything specific.

So, honestly, sorry, but I can't answer your question.

Okay.

No problem.

Thank you.

The next question is from Lydia Rainforth, Barclays.

Lydia, speak slowly, huh?

I will try, Patrick.

Thank you.

A very quick question.

In terms of the non-operated projects that you mentioned having an impact on where production will be for this year, has that changed how you think about including contingencies in the production guidance, going forward?

And then, just a quick follow up on the cash flows you gave from the expectation for CLOV, can you just remind us what cash flow contribution you would expect at peak from Laggan and Ofon?

Thank you.

Okay.

The first question was on non-operated projects.

Honestly, we are -- and you can imagine that -- very frustrated about it.

In our guidance, we mentioned since the beginning that Kashagan was not operated by us.

We were surprised by the pipe issue on Kashagan.

In our guidance, I think, by September, we will point out for the risk attached to the target we will give you, as we usually did, by the way.

I remind you that for 2017, that was the capacity, which were not taking into account any political risk effect, as we are currently facing, for instance, in Libya, where we expect to produce about 65,000 barrels per day, and where we are producing something like 20,000, 15,000 to 20,000 barrels per day currently.

On the Laggan-Tomore and Ofon 2 cash flow, you remember that the Laggan and Ofon 2 cash flow per barrel should be in line with the average of the new startups, which is to say, about $50 per BOE in 2017.

Laggan-Tomore at capacity is about 90,000 barrels per day, and Ofon 2, 70,000 barrels per day, 100%, of course.

That's perfect.

Thank you, Patrick.

Thank you.

The next question is from Iain Reid, BMO.

Hi, Patrick.

Could I ask a couple of questions about those tax impacts you mentioned earlier?

Did you say that the upstream tax rate, 52%, we're only going to see in this quarter, or do any of those tax reliefs you talked about materialize in any subsequent quarters?

And on the corporate tax line, did I hear you right in saying that you're going to take a charge of $200 million per quarter until you start making more profit in France from your refining business?

Is that kind of what you were saying?

Well, I won't say it exactly like this, but this is not far from what I am thinking.

About the upstream tax rate, it has been very low this quarter.

It's mostly a one-off, this tax adjustment we have in the UK, and the average tax rate you should expect for the upstream is about 60%, and not 52% as it was this quarter.

For the tax situation in France, the way it works is the following.

That's why we write off the NOL at the level of corporate.

We consolidate French income or losses from marketing, head office, and refining and chemical, and at the end of the day, currently, it is making losses in the tax book.

According our assumptions, which are extremely reasonable, and I would say, on the downside, according those assumptions today we cannot use those losses within five years, so that we decided to write off the amount of NOL created at the Group entity level.

The cost reduction program will help us in trying to turn this situation in the other way, i.e., making profit in our tax book, but, as of today, we are writing off any NOL generated at the French tax level.

The $200 million you mentioned is a -- it's a reasonable amount.

It's obviously depending on basically marketing is offsetting the head office losses, and then on top of that, you have the refining result, which is currently, with the low margin we had in the first and second quarter, which was a loss.

Now we are facing a more favorable -- slightly more favorable refining margin, and we will see by end of the quarter if it is losses, but I think if it remained like it is today, it will be an additional loss that we will have to write off, and $200 million, maybe $300 million per quarter, it's a reasonable amount.

Okay.

That's very clear.

Thanks very much.

The next question is from Michele della Vigna, Goldman Sachs.

Hi, Patrick.

It's Michele.

Thank you for taking my question.

I was wondering, on the E&P, you've been very successful at taking new FIDs this year.

Are there more that you feel comfortable taking over the next six to 12 months?

And on the other side, on downstream margins, are you seeing any signs of recovery in July?

Or should we assume that this difficult environment is likely to continue in the coming quarters?

Sorry, I'd just like to come back to the previous question.

I was saying $300 million per quarter.

That was by semester, and not per quarters.

The FID, Michele -- I'm glad you're back in our phone call meeting, Michele, by the way.

The next FID, with the sanction of Kaombo in April, all the major projects needed for 2017 are already in production, in production or under development.

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

Those are the two main ones.

For the refining margin, honestly, it is a difficult question.

Currently, the refining margin is about $25 to $20 per tonne at the moment.

It's getting better, but for how long, we don't know.

Refining margin in Western Europe remains structurally challenged, I think, due to the over-capacity we are facing.

We estimate that about 1.5 million barrels per day of capacity will need to be closed to balance the system in Europe.

Good.

Thank you.

The next question is from Irene Himona, Societe Generale.

Good afternoon, Patrick.

I had a few questions, please.

So, firstly, on cash flows, the working capital, you had a negative $1.5 billion working capital in the first half.

Now, last year you also had a big negative in the first half, which, however, reversed in the second half.

So, can we anticipate a similar reversal, perhaps, in the second half 2014?

My second question, going back to the French tax write-offs, the $200 million per quarter, I mean, is that indefinitely?

Is there a total number, a total number that you are writing off which you can disclose?

Is it going to last a few quarters or indefinitely, basically?

And my third question, a quick one on the affiliates profit in refining and chemicals.

You had $97 million in the quarter.

Does that include anything at all for Satorp?

And if not, perhaps you can remind us the guidance you gave us in the field trip last year on Satorp's contribution, please?

Thank you.

For the first question about working capital, you were right by mentioning that it had a negative effect of $1.5 billion, roughly the same amount for first half this year as it was last year.

And we are working, because this will need to be worked out, we are working in order to reverse it for the second half of this year.

Usually, the second quarter we see the same trend, but we need to work on the working capital for the second half, and we will do.

On the tax level, I am afraid that it will be difficult for me to give you an overall amount of tax assets we agreed, but currently the level of tax assets we have in front is minimum.

Okay.

For Satorp, there is no material contribution of Satorp the second quarter this year.

We just started to book results in June.

I remind you that in the 2012 environment, which was a very positive environment, with a refining margin of above $30 per tonne, the cash flow expected from Satorp 100% was $800 million.

That was given to you at the field trip.

Yes.

Thank you very much.

Thank you, Irene.

The next question is from Jon Rigby, UBS.

Yes.

Hi, Patrick.

Thanks for taking the questions.

Sorry to labor a point, but if we can just have, maybe, one more go at these French tax losses.

Is there any way, other than miraculously making profits from your refining business, that you can move profits into France?

I'm thinking about your tax consolidation, for instance.

Or are those permanently stranded unless you do make profits in France?

Secondly, can I just ask on Libra, you mentioned it as an FID.

I think originally when the investment was made it was felt to be quite long term and a minimum amount of CapEx in the near term.

So, could you just update me on that?

And then lastly, I guess, a comment.

You can turn it into a question, if you like, but it seems to me -- I take your point about your frustration on Kashagan.

But it seems to me as having sunk, I guess, the best part of $8 billion or something of shareholders' money into that as an equity participant, do you feel that Total, along with the other non-operators, has exercised enough governance over that project through its history?

Thanks.

Okay.

On the French tax situation, there is a solution that I could not propose, which is to buy a profitable business in France, and I do not suggest that to my management at the moment.

A vineyard, perhaps?

Sorry?

A vineyard, perhaps?

Yes, a large one.

(laughter)

I think the main -- the main way for us to turn around this issue is to reduce the charges of the mother Company, mainly, and expecting -- and I'm sorry that the cost reduction program, which is quite important in the downstream, both refining and chemical, and marketing -- to improve the income generated by those two businesses.

Of course, we should have to wait for the cost reduction program to know about it.

But with the current depressed refining margin, the situation is that we have to write off those losses.

Okay.

The target -- I remind you for the second question about refining, the target for us is to reduce our capacity in Europe by a further 20% by 2017.

On Kashagan, honestly, can you repeat your question?

I was -- I mean, what I was making the point was that I hear the frustration being vented by the non-operating partners on Kashagan, but you guys have all spent a vast amount of money, of shareholders' cash on this project, and yet, whenever you're asked a question about it, effectively just say, deal -- it's the operator's issue.

And it seems to me a greater degree of governance by the non-operators, a number of whom are very experienced oil companies might not have gone amiss through this last decade.

I think you will remind that I already mentioned in the past that Kashagan was a failure on the -- of the industry, not only of the operator.

Okay.

So, we, with the others, are a part of this mess.

A decision has been made to modify the JV operating mode to a single operating company, with no more agent, I would say.

But at the end of the day, we need to complete phase one, and that is the responsibility of who you know.

Yes.

Yes, exactly.

And I did mention just Libra.

Have your views on Libra evolved since you made the initial investment?

It seems to me you're accelerating that slightly.

Is that a fair observation?

That's fair.

Our Libra project is progressing rapidly.

In last -- next quarter, sorry, two wells will be spud, one in the northwest panel, near the discovery, and one to the central panel, which is more exploration.

Okay.

Okay, thank you.

Thank you, Patrick.

You know that my car is warming to go for vacation.

I can almost hear it.

Thank you.

The next question is from Blake Fernandez at Howard Weil.

Hi, Patrick.

It's Blake Fernandez at Howard Weil.

I'll be brief so you can get on your way.

I had a question on Jubail.

I realize you don't break out specific refinery contribution.

You've been pretty clear that the European macro market has weighed on the result.

I'm just curious if Jubail is contributing the way you had expected, so that if we ultimately see a turnaround in European macro, if that -- if we'll see some strong contribution from Jubail actually show up in the results?

And I was hoping, too, if you could elaborate on where the products are going?

In other words, if they're being consumed in the domestic market there in Saudi Arabia, or if you could elaborate a little bit on where the products are actually flowing to?

Okay.

Basically, we had no contribution of Jubail, a very limited one, last quarter.

Since end of June, all units are operational.

In July, now, Satorp should reach 90% of its distillation, and about 70% of its conversion capacity.

The operational performance of the platform is in line with our plan.

The intrinsic advantages of Jubail are still there, like the price of Arab heavy, the cost of energy, and the economies of scale.

That's basically what I can tell you.

Okay, that's great.

Thank you.

Thank you.

The next question is from Jean-Luc Romain, CIC Securities.

Good afternoon.

My question related to the Termokarstovoye project, which is well advanced, given your comment.

Is there a risk that current sanctions in Russia threaten the start of this project?

Not that I am aware.

Termokarstovoye is expected to produce 40,000 barrels per day of oil equivalent of gas, and 25,000 barrels a day of condensate.

As of today, 15 wells are already drilled, and all major long-lead items are delivered to the site.

So, at that point, I still maintain that first oil is expected by mid next year.

Thank you.

Thank you.

The next question is from Lucas Herrmann, Deutsche Bank.

Patrick, good afternoon.

By the way, Lucas, thank you for the bottle.

Not at all.

It's an absolute pleasure.

And I'm just going to remind you that you are paid to be paid helpful, apparently, so that's always a good way to start questioning you.

Just some bits and pieces, if I might.

Jogging back on the corporate charge, I mean, the implication, I guess, is that with tax rates at 35% in France that the losses you're realizing are of the order of, what, $1.8 billion or so at a gross level, per annum, in France.

Can you -- how much of that is in the downstream business, or the refining business, and how much of it is central, on the assumption, Patrick, that the math isn't mad?

Secondly, I just wonder whether you could give us some idea of what the impact of the down time of Vlissingen and Leuna was through the quarter on the downstream results?

I'm sorry, the third question -- apologies for keeping the car running -- how large is the cost base that you're tackling and looking to drive material savings from?

Okay.

I start it, Lucas, with the cost base, because I have it in my mind.

Basically, we are facing about $15 billion of cost base.

That's what we are working on it at the moment?

Is that your operated base, Patrick, or is that the base overall?

That's mostly operated.

Okay.

This is including refining, marketing, and Upstream division plus the mother Company.

Coming back to the corporate charges, refining losses are about, currently, $500 million, $600 million a year.

The corporate overhead is about $800 million.

Right.

That's basically what's -- what comes to my mind at the moment.

Thank you.

What was the question about --?

The other one was just what the down time, whatever, or maintenance at Leuna and Vlissingen may have cost profit or contribution to refining this past quarter.

You're doing very well on being helpful, Patrick.

Big tick.

Thank you, but on this one, I am afraid that I can't answer, because I don't have the answer.

Okay, strike three.

You on purpose ask me difficult questions.

Listen, have a very good summer.

Thank you.

Thank you.

'Bye-bye, Lucas.

Thank you.

The next question is from Jean-Pierre Dmirdjian, Liberum.

Yes, good afternoon.

I have two quick questions.

I'll try to be brief.

But on Uganda, you mentioned that Uganda is in the list of your upcoming FIDs, but apparently, one of your partners, Tullow Oil, is experiencing some tensions with the government regarding some tax issues.

Do you believe that if Uganda is being delayed, combined with other postponed projects, like Joslyn, we can have an even lower CapEx guidance than your $24 billion guided in the medium term?

Or do you expect to update that guidance in your September strategy presentation?

And second quick question, on the maintenances, can you give us some color on the main regions impacted by maintenances in the second quarter?

Are we talking about high margin dollars?

Thank you.

On maintenance, we were having maintenance in the North Sea and in Nigeria, where we were having and where we are having high margins, but there was also some maintenance in Thailand.

Uganda is currently being studied.

We will update you on CapEx guidance in September.

Okay, thank you.

Thank you.

We have a further question from Bertrand Hodee at Raymond James.

Yes, Patrick.

Sorry, just one before hitting the road.

When I look at the -- at your tax rate in refining and chemicals, it's been quite low.

It was probably in the low 20s.

Can you give us guidance going forward on this overall refining and chemicals tax rate?

Basically, we had a -- you had a low tax rate, because at one time you had profit from one side and losses on the other side, profit on specialty chemicals and losses on refining.

But, basically, I have no guidance to give you, because it is such a volatile business that I can't give you any guidance.

Okay.

Because for my model, I was using your normalized tax rate, going back to 30%, as it was, in fact, in the mid-20s, or the low 20s in the last three years.

This is not -- Excuse me.

So, can you help me on that?

30% is not a stupid assumption, huh?

Three-zero?

Three-zero, yes.

Okay, thank you.

Thank you.

We have no further questions.

We have no further questions for today.

Okay.

Thank you, everyone, for joining us.

We look forward seeing many of you in our September presentation in London, and between now and then, I hope all of you will enjoy some time off as most of us will enjoy.

Thank you and we will keep in touch.

'Bye-bye now.

Ladies and gentlemen, thank you for your attendance.

This call has been concluded.

You may now disconnect.