TotalEnergies SE (TTE) 2021 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to TotalEnergies' Second Quarter 2021 Results Conference Call. (Operator Instructions) I must advise you that this conference is being recorded today. I would now like to hand the conference over to Mr. Patrick Pouyanné, Chairman and CEO of TotalEnergies. Please go ahead, sir.

Hello. Good afternoon or good morning, good evening, everybody, for the second quarter conference call. I'm happy to join you together with Jean-Pierre, our CFO. It's quite unusual to have the CEO coming to the second quarter call. We generally is a very short one. So I wanted to make it a little longer for you before to go to early days. But more seriously, I think it was also because it is the first conference call of TotalEnergies. So I wanted to celebrate it by participating myself and also because as you've noticed, we have with the Board Directors to taken yesterday, an important decision that I wanted to share with you.

So first, I will just introduce the call with few comments, and then Jean-Pierre will review all the results, and then we'll go to the Q&A together.

As you all know, our shareholders have voted unanimously, almost 99.9% to adopt our new name and to embrace a new identity, very colorful. Every journey begins with one step, and this is an important step that marked the transformation of Total to TotalEnergies. TotalEnergies, our name pays homage of course, to our proud history as Total, but by expanding it to TotalEnergies with an S, we declare our ambition to become a broad energy company, a company producing several energies and world-class players in the energy transition.

At least as important as our new name, the shareholders also voted strongly more than 92% in favor of our ambitions for sustainable development and energy transitions towards carbon neutrality. And knowing that we have the support of our shareholders gives us comfort as we move forward to implement our strategy and transform TotalEnergies. I would like to emphasize that this resolution is very important for futures as it contains clear guidelines for our next 10 years. Not only in terms of decarbonization target, but more importantly in terms of the evolution of our portfolio.

First, increasing our renewable and electricity portfolio and building an integrated production trading service electricity business. Second, consolidating and growing on our LNG production and sales by effort. Third, lowering our oil product sales by 40%, while our oil production will be picking during the decade. And also in this resolution in terms of capital allocation criteria for new hydrocarbon projects, new technical costs -- low technical cost, sorry or low breakeven and a lower CO2 intensity for all our new projects, lower intensitive and our portfolio average. So it's a continuous improvement scheme in which we engage the company.

TotalEnergies are clearly an important role to play as a major energy provider in the global community and the responsibility to all our stakeholders to continue to grow, to succeed and to create value. The challenge we face is to find the best path that manage the risk inherent to our industry, but also the opportunities and to maximize the probability of our success and this path shapes our strategy. First, I would like, by the way, to underline some of the progresses we have made in our energy transition road map during the second quarter. For example, joining a new offshore wind development in Taiwan, acquiring a 5 gigawatt solar portfolio in India through Adani Green, in which we own 20%. And more regional, having our first branch of corporate PVAs, successes with Amazon, Microsoft, Air Liquide, Orange, Merck, which will support our renewables development.

Secondly, I would like to comment our decision to exit from the Petrocedeño asset in Venezuela, which is in fact a way to put a road map in action. I would like to underline that it's not related to the political situation in Venezuela or the sanction situation, even if this situation in the last 3 years does not make our life very easy and put some constraints on the capacity to maintain the assets according to TotalEnergies standards. But in reality this exit is to lower the consequences of the strategy of TotalEnergies as approved by our shareholders. Petrocedeño would indeed require in near future significant amount of CapEx to restore the production with new wells and to rejuvenate the upgrader. Clearly, allocating CapEx to the development of extra heavier projects in the Orinoco Belt would not be consistent with our hydrocarbon strategy in terms of CO2 intensity of new hydrocarbon CapEx.

So together with Equinor, which shares the same ambitions towards carbon neutrality, we engage with PDVSA, which offered us a possibility to exit -- yes, for a symbolic amount, but against a broad indemnity in relation to all past and future liabilities arising from TotalEnergies' participation in Petrocedeño. This results in the recognition of an exceptional capital loss of $1.4 billion in the financial statements of TotalEnergies for this quarter. But again, it is indeed a way to put TotalEnergies' strategy into action. This was the first specific item I wanted to comment.

The second one, of course, is related to our cash allocation framework, putting more color on it as there is more color on our new logo. In February, in a more uncertain crude oil price environment, we were clear that our priority was restoring balance sheet strength, which we define as a minimum A debt rating and a gearing below 20%. Thanks to the strong second quarter performance and the first one as well, particularly in terms of cash flow, we reduced our gearing much faster than expected beginning of the year down to 18% at the end of this first half. This, combined with a more positive economic outlook, improved our financial flexibility substantially over the first half and clearly, much quicker again than anticipated at the beginning of the year.

In terms of performance that it will be demonstrated by Jean-Pierre, I'm confident that we are back stronger than we were before the crisis, thanks to the action plans implemented last year. Given our stronger financial position, we are ready to move on to the rich path, the solution that addresses and combines our top cash flow priorities investing to maintain the powerful cash flow machine of today and to develop the profitable new energies for tomorrow, deleveraging the balance sheet to increase financial strength and flexibility and returning cash to shareholders. But includes showing the benefit of higher prices. As we stated it in February, if you remember, in our clear priorities for cash flow allocation, there was a fourth box in which it was written flexible at higher oil prices when gearing is under 20%.

So this was, in fact, and it is true that since the beginning of the year, we have captured the benefit of quite a high price environment. And so while respecting the implementation of our strategy, the Board debated about return to shareholder and which color could we give to this fourth box that I just reminded you.

First, before to speak about it, I would like to remind everyone that TotalEnergies is the only European major who decided to support the dividend through the crisis. And we are convinced that we were right to maintain trust of our shareholders and the quick financial recovery confirms that belief. I remind you that all dividend represent, let's say, 35%, 44% -- 33%, 35% of our cash flow from operations, which is returned to shareholders through dividends. Return to shareholders will continue to be mainly in the form of dividend, but the Board has decided it is time to use part of the surplus cash flow linked to higher prices for share buybacks. The concept is to allocate up to 40% of the cash flow -- the surplus cash flow above $60 per barrel to buybacks. So to be clear and to clarify, since the beginning -- since the start of the year, oil prices have averaged at $66 per barrel. And we have a sensitivity that we gave you in February, which is $3.2 billion of educational cash flow for $10 per barrel. So $66 minus 60$ -- $6 -- 60% of $3.2 billion. It makes $2 billion. And so 40% will mean buyback -- share buyback of $800 million in 2021. And if the average price is going up to $68, for example, so we are not far, it could go up to $1 billion. And you can move on if it's even higher, the more the price will be, the better would be in terms of the highest share buyback will be.

In this favorable context. So not only I think we clarify this element of our cash flow allocation today. But we want also, of course, to confirm our priorities in terms of cash flow allocation, invest in profitable projects to implement TotalEnergies' transformation strategy to a broad energy company. Support the dividend through economic cycles, like we have done it and we continue to do it. To maintain a solid balance sheet and a minimum A long-term debt rating by sustainably incurring the gearing below 20% and increase the return to shareholders via share buybacks in a high price environment.

So now I leave the floor to Jean-Pierre, which will review the second quarter results.

Thank you, Patrick. So let me tell you that, first, that we are proud to have a strong set of numbers for this first conference call as TotalEnergies.

TotalEnergies' second quarter adjusted net income increased to $3.5 billion or $1.27 per share, which is 20% higher than the pre-funding in second quarter of 2019, even though Brent prices were essentially the same in both quarters, and despite the lower production this year. The increase in results reflect, as Patrick mentioned, the benefits of the action plans we implemented in response to the crisis and it ties in the importance of ongoing discipline on cost and on net investments.

Analyzing the second quarter adjusted net income. Return on capital employed is close to 11% at 10.9%. That means that we are back with double-digit profitability in such an environment. From this point for obvious reasons, I will focus on the second half comparison rather than looking back at last year, which was completely different due to the crisis. So TotalEnergies benefited from oil and gas markets that were 13% and 28% higher, respectively, in the second quarter versus the first quarter. Brand continued to rebound reaching $76 per barrel end of June and averaging $69 per barrel during the Q2 versus $61 for the Q1.

Our average LNG price increased by 8%, which takes into account the lag effect on oil-linked contracts and the increase in spot prices. Refining margins in Europe, although higher compared to first quarter levels remained weak at $10 per ton. But Petrochems performed historically well thanks to very high margins on polymers. Operationally, oil and gas production was 2.75 million barrels per oil equivalent per day in the second quarter, down 4% from the previous quarter mainly due to major maintenance shutdowns as often planned in Q2, but higher than last week -- last year. For the 2021 full year, we anticipate production will be around 2.85 million barrels per oil equivalent per day as the production will progress in Q3 and Q4.

In terms of results by segments. First, the iGRP segment. So it confirmed its first quarter performance with adjusted net income and cash flow of around $900 million. Premium project farm-out activity which is, as you know, an integral part of our model was lower in the second quarter compared to the first quarter, and this explains some of the difference quarter-to-quarter. There was nothing unusual about our Q2 gas trading activities. But I remind you that in comparison, gas trading was stronger than usually in the first quarter due to the winter storm in Texas. Gas and power sales are seasonally lower in the second quarter than in the first, mainly due to weather. Looking ahead, since most of our LNG sales are under oil-linked contracts we have good visibility and expect the price to increase to more than $7.5 per million BTU in the third quarter.

Looking now at the renewable and electricity activity. We are continuing to grow this business with more than 500 megawatts of gross renewable power generation capacity commissioned in the second quarter. We have more than 8 gigawatts of gross installed power generation already online and more than 40 gigawatts in the portfolio. So we're on track to achieve our objective of 35 gigawatts online by 2025. Net power production increased to 5.1 terawatt hour, reflecting higher output from both renewable and CCGT. Notable among the highlights of the quarter, Ichthys. Ichthys we started this month after a long shutdown and delivered its first cargo of carbon-neutral LNG to Japan. We acquired a 23% interest in a 640-megawatt offshore wind project in Taiwan, as Patrick commented already. That is already covered by PPA and expected to start up next year. And Adani Green Energy in which we have a 20% interest since January, acquired a portfolio of 5 gigawatts of renewable power generation capacity in India. That will contribute 1 gigawatt to total energy target of 35 gigawatts in 2025.

Moving now to the E&P segment, which is, as you know, the cash machine of the company. The story here is positive and straightforward. Capturing the benefit of rising oil and gas prices, the segment reported $2.2 billion of adjusted net operating income, up 10% quarter-on-quarter and $4.3 billion of operating cash flow, up 11% quarter-to-quarter. Operationally, we had a successful well on Parasol in Suriname, and we started production in Zinia Phase 2 in Angola.

The Downstream delivered good performance as well. Refining & Chemicals plus Marketing & Services, reported combined adjusted net operating income of more than $900 million in the second quarter, up by more than 75% from the previous quarter. And operating cash flow recovered significantly in the second quarter, increasing to $1.5 billion, up 67% from the first quarter. Indeed, thanks to the strength of our integrated model, the downstream was able to overcome depressed European refining margins and benefits from very high petrochemical margins as well as the rebound in Marketing & Services results to precrisis levels.

As the global economy continues to recover, and particularly as the amount for aviation fuel comes back, we expect refining to improve. And polymer benefits from historical high margins, and we expect the situation to continue as it is a result of a high worldwide supply chain stress.

Finally, at the group level, the main takeaway from the second quarter is that we are back with solid results and strong cash flow, which is the lifeblood of the company. Adjusted net operating income was $3.5 billion, a 15% increase quarter-to-quarter. Sales adjusted cash flow was $6.8 billion. The 18% increase compared -- 18% increase compared to the previous quarter. And for the first half, it reached $12.5 billion. We had a working capital release in the first quarter and later on again this quarter. So cash flow from operations after working capital was $7.6 billion in the second quarter, a $2 billion increase over the first quarter and for the first half, it reached more than $13 billion. As a result, we reduced the net debt-to-capital ratio of the gearing, faster than expected to 18.5% at the end of the second quarter. It is a major step towards encoring gearing sustainability below 20%. And once again, annualizing the Q2 adjusted net income we are back to double-digit profitability.

In terms of cash flow allocation, net investments were $3.2 billion in the second quarter and $7.2 billion in the first half. And the Board decided to distribute the second interim dividend of EUR 0.66 per share, stable in euro but representing an increase in dollars compared to a year ago.

And now Patrick and I, we are ready for the Q&A.

(Operator Instructions) And your first request is from the line of Christyan Malek of JPMorgan.

Congratulations on this result. Great to see TotalEnergies is back on the front and the buyback frame to cement that. Two questions, if I may. Patrick, I know in the past, you've talked about the impact of underinvestment exacerbated by COVID-19 energy transition trends and so on. Can you update us on your thinking of how you frame the next few years on your market? We've clearly had some constructive comments from your peers. And how does it influence decision to launch a buyback arguably sooner than the needle anticipated?

The second question, some ways so related to that net CapEx remains guided within the sort of $12 billion, $13 billion range and half of it is for maintenance half of it is for growth and of that growth element, half of it is renewable and electricity. If the oil market is getting tighter and looks more attractive, is there a case to allocate more investment within oil and gas, potentially to benefit from that through high oil volumes given that's what's over the years, Total has been exemplary at?

Thank you, Christyan, for your -- to your comments and your questions. So first about the industry and the investments that we have observed. I'm still on that mood. I know that at $75 per barrel, obviously, people will tend to forget, but you have a global environment, with all the climate debate, which puts pressure on many players. And which gives, I would say, when you are listening to the last Net Zero IEA report, even if we disagree with the conclusion, obviously, it puts some pressure on many players. And my view is that probably the industry will be more prudent to relaunch a bunch of projects.

Making a link, by the way, with your second question, obviously, like into -- what we will do in Total is being able to relaunch some short cycle CapEx like we have in last year with the crisis, we stopped, I would say, $2 billion of infill wells and the short cycles in Angola, in Nigeria, in Congo. Of course, obviously, today, the instruction is that we can relaunch that and probably next year in our budget will not stick to $12 billion, $13 billion, but probably more to $13 billion, $14 billion. This is $1 billion extra CapEx, which could come -- might come let's say, just to give you the magnitude. So we'll activate that. Considering, I would say, the larger projects, I'm still more cautious. I think we have observed quite a lot of volatility. And by the way, it's also true that if you have less investments, you give some support to higher prices for the oil price. So my view is the atmosphere today is more to have less investments, more prices, of course, then cycles can come back. One, of course, the key question for the market will be to observe what will happen in the U.S. shale oil players, which will have an influence. My view is that by end of next year, we might come back at the level of the production we had before the crisis. But then even there, maybe we are wrong, we are -- as you know, we are not a direct player in that game and we do not intend to become one. But my view is that investors and financial players, financial investors, which are giving equity to these shareholder players are also because of ESG and all these I would say, trends and market trends, strong market trends are probably also more cautious to deliver equity and money to oil and gas. Oil in particular.

So I'm still -- I don't think -- I mean, of course, at a higher price, you see more investments, but I don't think it will be as much as before, and that it will not compensate quickly the underinvestments in which cycle in which we entered. Considering Total, I think, yes, this year, $12 billion, $13 billion, probably next to $13 billion-- more next to $13 billion than $12 billion because we have been a little more active on the renewables and electricity that I anticipated at the beginning of the year, which leads to the split that you mentioned. Honestly, I think this level is quite okay, around 3 billion for this business. It's an acceptable level. Not much, probably. And it's clear that I told you, I think the company revisits type of environment, keeping in mind that we plan our CapEx on a $50 per barrel for, I would say, large greenfield projects, and we'll continue to stick on that discipline. I think the right figure for the global financial balance of the company is around let's say, up to $14 billion. And so this is probably a type of figures that we will confirm to you at the CMD in September. And again, it would be more on short cycle oil projects rather than on the large greenfield projects that we might do it. But we have quite a lot of -- and we'll come back on that in September of -- we had 1 billion barrels of oil reserves to activate. We activate only part of it and the crisis we've stopped. So we can do it again. And we have, for example, put into production Zinia 2 but Angola is specifically a case where we can do it.

There is 1 limit to my comment, which is that COVID is still there. And we have teams and we have been obliged, for example, a country of Angola, where we have a lot of opportunities to drill. The limitation is an operational one because our teams are under stress for almost 18 months. So it's not so easy. And so we do not want to overburden them even themselves, they would like to benefit from the high oil price. So this is a challenge we face as well. We should not keep that in mind, but we still are even if the environment is brilliant, but the COVID is still there. So safety is, of course, a value, and we have not in mind when we allocate CapEx capacity to deliver in a safe and healthy environment.

Patrick, we've gone from just, sorry to follow up on this. You've gone from $12 billion to $13 billion to $14 billion. Is there a capital CapEx? Or is there a framework that you're sort of referring to here just on a sort of medium term just to help us understand the capital frame of that?

For 2021, I repeat 2013 next to $13 billion. I was more giving you the framework on which we work considering your second question, that it could go next year to $13 billion, $14 billion rather than $12 billion, $13 billion.

Your next question is from the line of Jon Rigby from UBS.

Two questions. One sort of jumps out of me with the sort of narrative around the withdrawal from Venezuela. And then some of the additional disclosures that company is have been making about new FIDs and the sort of carbon emissions per level of production. So I wanted to ask you whether you could just sort of talk a little more about how you balance sort of economic returns of new projects sort of around IRRs and paybacks, NPV, et cetera, versus the carbon emission or emission profile of those projects. Does it lead you to certain projects, maybe some offshore or deepwater and away from others? And is that shaping both your FID pipeline, but also potentially your sort of review of your existing projects that makes sense.

The second is, can we just have a quick update on Mozambique and current thoughts there and whether there's any further thinking around time lines, et cetera?

Okay, thank you, Jon, for your 2 questions. First one, yes, it's clear that -- and again, it was the core of the resolution, which was putting to the vote of our shareholders over AGM, when we described what will be the ambition of TotalEnergies in terms of sustainable development, climate portfolio for the next 10 years and allocation of capital. It was probably the most important line of it, where we described that the criteria to sanction new greenfield hydrocarbon projects. We put 2 criteria on the table. One, which is in line with our strong economic belief, which will low technical costs under $20 per barrel, typically. I think it's written like that or low breakeven in case we could benefit from specific fiscal terms and breakeven and typically in the $30 per barrel. So it's a technical aspect, which was, by the way, in our strategy for the last 5, 6 years, since 2015. So there is nothing fundamentally new. Just -- and why did we do that? Just because if you think that you are in a market, all market where demand might decline in the future, it's obviously very safe to have your projects being on the safe side in terms of technical cost or breakeven. That's an obvious economic case, which this is the right bridge between climate and volatility of the oil price.

But we have added another criteria, which is that we consider that each new greenfield projects, carbon intensity must be -- must improve the average of our carbon intensity today. So to be clear, the average of CO2 intensity of our oil portfolio today is a 20-kilo per barrel. And so each new projects must be below it. It's a case for Uganda. It was around 13. It will be the case for projects, which we just are approving with our partners, which is Mero 4 in Brazil, where we are around 18. So that's true. But in the way we appreciate today and this is a change for sure, in TotalEnergies compared to Total. The way we appreciate the new projects, we have on one side the IRR, the NPV, keeping again, the same fundamentals that you knew adding my 2 elements of technical costs and low breakeven, but the company is run like that since 2015. But we have also -- we are considering for each project as well this carbon intensity impact. And what I described from Upstream is true in all the business. It's true as well for marketing people where we look to growth projects, we speak about Scope 3 in the same way we speak about Scope 1 for Upstream.

So it influenced the new projects with the future projects. This does not lead to a full review of our portfolio, even if in the case of Venezuela. I think we look at -- okay, we are in this asset for long. But as I said, the context is not so easy. And we stayed in Venezuela in 2008 when we were partly nationalized, I would say, by the government because of -- in fact, fundamentally, because of the huge potential to develop new projects in the extra heavy-oil Orinoco Belt. This today is no more in our agenda. It's no more consistent with TotalEnergies because developing extra heavy oil in the Orinoco Belt, you are above my 20-kilo per barrel. You have a low technical cost, but a high intensity content. And so we are as a Board and ourselves, our very management is very consistent with what we submitted to our shareholders. So we decided because there is -- there was an opportunity. And also because together with, as I said, with Equinor, we shared, in fact, the same views we decided, and we had the opportunity offered by PDVSA to exit and rather than dragging our it and not willing to participate in any new CapEx. It's better to leave PDVSA the capacity to do what they want, but this has clearly an influence.

I know that you are not a big fan of our position in Venezuela. So it took time to us to execute your comment, but sometimes, it came one by one. If you have another question, do we have other ideas like that? My answer is no. We don't have so many assets on which we like that.

And deep offshore, of course, again, the example of deep offshore Brazil, a large portfolio of large projects like Mero is fitting with the criteria. And by the way, again, Jon, we have taken a strong commitment in our resolution, which is that every year, you will see reports coming from TotalEnergies, demonstrating that for each of these projects, hydrocarbon projects, if we yes or no, we respect this criteria. And if we do not respect, of course, we'll have to explain why we considered that it was still acceptable to make a sanction, but this is a clear guideline for all our teams.

Mozambique. Mozambique you know the situation. You can read the newspaper like me. We have been quite clear. There is a war in Mozambique. It's a civil war. It's a war in this area in the north of Mozambique. We have been forced to declare force majeure. We have decided to stop and even to, I don't know, how do we say that dismantle -- to stop the project and dismantle the teams because we don't see a clarity of time line. I said publicly, it will take at least 1 year. In fact, today, it's no more in our hands. There is -- it's -- the government of Mozambique is taking actions to reinstate the stability in this Cabo Delgado region. It's not just, by the way, only the area where the project is. It's not only the Palma and Fuji area. It's a Cabo Delgado as a rule because these insurgents are everywhere, I would say. You've seen that they have taken decision at the AC/DC level, to the government -- the Mozambique government has asked AC/DC to mobilize some help, military help. Well, you've seen probably you're right, probably as well, but -- so [Rwanda] is involved now. But frankly, to be clear, TotalEnergies is not involved at all in these military actions. It's no more -- we are out -- we are there to -- of course, we are following. But my view is that it will take time. We -- of course, we -- what I can just tell you is that I had a chance to discuss with the President Nyusi in May, in Paris. It told me his willingness to solve the issue. And what I can observe is that months after weeks after week is respecting and taking the actions that he described to me. So then let's see if they can get out. But again, this issue is beyond, it's not a measure of gas development, it's beyond us. It's the question of peace and stability. And when we stay back there was quite a lot of casualty. So the populations there is suffering and -- of course, this is a priority for them. And as TotalEnergies, if we can support, we continue to support the population as much as we can including by keeping some means to evacuate some people when there are difficulties.

So this is a situation in Mozambique. I have observed that Area 4, as just last week recently joined our declaration -- for force majeure declaration. But again, the gas is there, the project is there. So let's be patient and the time line, I said at least 1 year, we hope that again, the military actions taken by the government will be able to restore peace in that part of the planet.

Your next question comes from the line of Irene Himona of Societe Generale.

Thank you, Patrick, for clarifying the investor distribution policy and the amount. My question is really regarding the dividend. Obviously, as you said, it's a flat euro amount, an increase in dollar terms. How does the Board think around dividend progression? If it is a progressive policy, what would drive an increase in that quarterly euro amount going forward?

And I had a second question specific to the second quarter result in Marketing & Services, where your sales volumes remain around 21% below precrisis levels, and yet de novo is pretty much the same. So clearly, unit margins are exceptionally strong. I wonder if you can talk a little bit about the sustainability of this in the second half of the year. Is it likely to be sustainable as demand recovers post-COVID?

Yes, Irene, so your first question, I mean, I'm always amazed by the capacity, your capacity when we announce something on one side to go on the other side. But I mean, I think we are quite clear. No, we -- I said that we will support the dividend through the cycle. We've done it when it was down. So today, obviously, we don't -- we have not the capacity to serve of peers who divided the dividend by 3 to announce big increase because it will be not reasonable. So we have decided a policy, which is to a continuous -- we never decreased the dividend for 30 years. So we progress when we have the feeling that we have -- we are able, but we fundamentally the dividend will grow when it will be linked to a structural increase of free cash flow. So it means by, as you know, within the next 3, 4, 5 years, we'll have some increase of productions with large projects. And then it will -- we will be able to deliver an increase of free cash flows. We told you last year between '20 and '25 or '26, we have an increase of cash flows of $5 billion per year. So that will be obviously the source of dividend increase.

The dividend increase for me is linked to a structural increase of cash flow of operations. That's fundamental. So today, it's not the case. This year, we are benefiting from a higher oil price, which is good. We are -- and so the tool that we want to use when we are in such a situation as we announced it in February. Again, it was quite clear with the share buyback boxes, which is when we have higher -- we benefit from higher oil price. We want to return part of it to shareholders. And today, we give you the crude, which is above $60 per barrel. We give 40% of this additional cash to up to 40% of the additional cash to the shareholders. So our policy will be on the dividend increase only if we link that to a structural increase of cash flows linked to better operations, not only upstream production, but it could come downstream as well, where we have new projects and a strategy which aims to deliver additional cash flow, and we will come back on that in September, for sure. And so that's the dividend part. And for the buyback, it is a way. And I think it's a legitimate request from our shareholders or oil older oil and gas shareholders to see part of the returns coming from the high volatility of the oil price, which we are in the high range. Of course, when we are in the low range like last year, and so we define that as a $60 per barrel threshold between high and low. This is a message of today.

The second question is about marketing and services. So I think there are 2 sources. It's true but yet we did not recover all the volumes but it's coming back, yes. So volumes, it's an average between -- during the -- but there are 2 sources, I think, because the network on the retail networks, the volumes are down only by 5%, not 20%. So these figures of all product sales is a mix of retail network where we have quite a good margin. And of businesses with very low margin. And to be honest, as well with you, the TotalEnergies' vision when we said that we will reduce our oil product sales by 30%. Obviously, we have discovered that we can clean our portfolio of oil product sales by not losing much margins in some areas of the business. This is the way to cope with the Scope 3 objective. So it's beginning to be in action, I think, somewhere in this marketing and services company being more efficient. And so that does not impact margins. But the source of the margins or the additional -- I mean, of the good, very strong result is twofold. One, is not only given by the market, better margins, which, by the way, is a way to -- it's linked also to the low refining margins. You have a sort of counterbalance effect there when margins in refining are low. So marketing is benefiting. So it's why we put always the Downstream business together. It's the best way to look at it.

The other source, it's a positive one, is the cost because you know last year, and this is true for the whole company, my comment, we launched because of the crisis on strong saving program, action plans, $1 billion last year. We move on, on this year to more -- an additional $300 million, and it will move to next year, an additional $200 million. And the teams are still -- are very focused on that. We did not, I would say, stop this effort on the contrary. And marketing and services, in particular, have been very strong. So part of it for me is structural. So to your question, I'm not sure we can repeat every quarter a $400 million or more performance. But clearly, this is our objective to -- on the marketing and services to continue to improve the return. So -- but the reason why -- but the fundamental reason between these results.

Your next question is from the line of Biraj Borkhataria from RBC.

Apologies if this has already been asked but I got cut for a little while. On the buyback front, I just wanted to ask -- thanks for the clarifications there. But to the extent that you generate free cash flow and the oil price is below $60 a barrel because refining margins are high or chemical margins are high, et cetera. Are you assuming all of those excess free cash flows go to the balance sheet? Because I'm looking at your financial framework and thinking in a year or 2, you may be under-geared. So I'm wondering if the 40% guidance maybe should move up over time if your balance sheet continues to de-gear.

And the second question on that is just timing wise, do you need to wait for approval at the AGM for the buyback to start? Or is that already in place?

So first question, and thank you for the question. No, it's clear that the Board considers that below $60 per barrel is for the benefit and of the company and fundamentally, to strengthen the balance sheet, like we said. So there is a -- but if I give you the framework, in 2021, we are spending, I'd say, $12 billion to $13 billion, let's say, next to $13 billion of CapEx, dividends, more less $8 billion, a little more and $60 per barrel, we might be above $22 billion, $23 billion. So it gives -- it's part of what has been allocated already to the debt, in fact. So the $60 -- so it's clear that it's -- that's the way to think to that. So yes, we have free cash under $60 of breakeven is lower than that, but it will be allocated primarily to strengthening the balance sheet as we explained that in February.

No, we don't need any AGM approval. It's in our decision. So the decision is taken. So to answer to your question when it will take place, we are going to holidays, so it will not take place in August because we don't work during holidays. And there are overall dates, which are Christmas holidays, so it will take place between end of August and Christmas. So -- but we will execute it. It's a commitment. I know my colleagues told me this morning, there were some questions about, are you sure. So in TotalEnergies, and does not change from Total before because you have the same management. I think we have a strong track record of saying what we tell, executing what we tell. And so I can tell you that it's quite clear, we will do it and including -- and so we are very -- there is no trick there, we will execute this buyback. Of course, the price is moving. But when I look to end of July, we are already a little more than $66. And I think that August will stay as strong. So we will execute that, I would say, before year-end according to our market allocations.

And your next question is from the line of Martijn Rats of Morgan Stanley.

I also have 2 questions. First of all, Patrick, I wanted to ask if you could say a few words about the Fit for 55 package from the European Union. I know there's a ton of measures in there. But I was wondering from your perspective, there was anything sort of unexpected or something that caught your eye or something that impacts Total sort of disproportionately. It can be quite difficult to really sort of oversee the full implications of this. So just at a very keen that what you think of it?

And the other thing, it all follows a little bit of a similar trend to be honest. But I noticed that you're now disclosing greenhouse gas emissions on a quarterly basis even down to the level of Scope 1, Scope 2, Scope 3. I think this is sort of very interesting. But I also noticed that actually from 1Q to 2Q, the Scope 3 number was already down quite a lot, I think, from 88 million to 77 million tons of CO2 equivalent. And just to sort of start to understand these numbers a bit sort of going forward. I wanted to ask you sort of what level of sort of quarterly volatility should we expect in those numbers? Because they're clearly not going to trend down like this every quarter. There'll be quarters where they're going to be up there maybe several quarters in a row that they're going to be up. I just want to make sure that we understand that if they go up for a couple of quarters that what is -- that is normal. So I wanted to ask sort of how variable are these quarterly numbers in these CO2 emissions so we can understand them when they come in, in quarters ahead.

Yes. I think, Martijn, as always, you want to go quicker than us. Now we have decided it through with the board, and I think it was a good remark for Board member to tell us, okay, now TotalEnergies. We have this resolution part of the strategy is driven by Scope 1 and 2 and Scope 3 objectives. So you need to -- so it's good in your financial results. And I think it's a way to speak pragmatically of ESG to disclose your emissions. As you noticed, we were not able because it's new to us, and we have not a full system. We were not able, by the way, to have the historic figures. So we have decided to begin from '21. So you will see -- and I think the question of volatility as we don't have a track record also for quarterly results, we took a risk. So I will not answer to you easily. But my view is that there is a fundamental why Scope 3 of Q2 is under Scope 3 of Q1 is just linked to, I think we are selling less gas because it's not as cold in spring, but in winter. And so I think there will be a seasonal effect, which is just linked to our gas sales. Fundamentally, our gas sales or -- and our CCGT are earning more in winter than in summer, but obviously as well. So I think you could expect some seasonality from the Scope 3 according to just the consumption of energies because in fact if we just consumption of energies.

On the Scope 1, we begin, of course, to why do you have a decrease. First, because 1 refinery has been sold. Lindsey is out of the perimeter now. So -- and also because we have some continuous effort. So on the Scope 1, normally, you should see more declining even if be careful Scope 3 might be impacted by a new project coming in -- coming on stream. For example, in Q3, we are just on the verge to start up our new cracker in the U.S. I think it's coming -- it's a matter of days or -- we will put them a challenge to be able to start it up before this call, but they failed, but I still supported them. No, but I mean, so this one, obviously, is adding I think, 1 million tons of CO2 on Scope 1 immediately. So it's why you could have as a Scope 1 and 2 where the rhythm will be a global continuous improvement and decline because we are engaged to lower our emissions by 40% between 2020 and 2030. But each time you have a new asset coming on stream when we operate it, it will increase. So that's -- but thank you for recognizing the effort. And I think it's again a pragmatic way to speak, to do what we propose to promise to our shareholders.

The first question is a little more complex because to be honest, I have asked my teams to deliver to me a summary of Fit for 55, and I think I received 55 pages. So as -- so I ask them a second summary. Not to be -- I think what is interesting for me is the political debate, which seems to emerge in Europe because now we are entering into the hard part of it. It was -- everybody was quite brilliant to say, okay, let's go for the reduction of 55%. And now we put the real world and the real world means that people are discovering that if you want to get there, there will be an impact on energy prices in Europe. And I think this is when the commission proposed an ETS on heating, I mean, urban heating or this begins to, of course, governments begin to realize what it means. So we'll see how it will be able to manage by for TotalEnergies, I think we are following carefully obviously, all what is linked to play, I would say, all the play in the industry and the target for jet fuels because it seems that it's very ambitious. And we will -- we have to check if all the conditions is quite technical. But today, it seems that, for example, some of the animal fats would not be possible according to the scheme, which is very strange to us because if we do not have access to this source of lipids, I don't know if we can make all these liquid -- jet-fuel liquids -- the new jet fuel be possible. So we just have a thing to engage now with governments and commission to check from an industrial point of view, we can deliver the various energies which are required. But it's a package which obviously -- so I will be probably more able to answer to you in September, but in July. I'm not sure I will use my holidays to read hundreds of pages but at least maybe a small summary, but we'll come back to you.

Wonderful. Well, if your team could share that short summary with all of us, that would be terrific because frankly, we're struggling with it.

Yes, yes. Thank you.

Your next question is from the line of Christopher Kuplent, Bank of America.

I want to echo what Martijn said, I think this is a great detail in your disclosure. And on that point, if I may ask you for clarification and widen the debate, not on a project by project, but including inorganic moves. You've been famously, I think, very successful in countercyclical acquisitions over the last 5 years. Do you think they have become particularly more difficult considering their direct impact, particularly from producing assets on your progress regarding decarbonization. So if you wouldn't mind, including M&A in your answer for a bit of clarification, please. And otherwise, Patrick, just wanted to ask you about the name change. What's been the feedback? Do you feel Total under the old brand has been misunderstood and is becoming a company that is associated with more than just oil and gas. And if I may add a sneaky comment, then why link your buyback to exclusively oil? Why not link it to other metrics? So sorry, that's just a stupid aside, but those are my 2 questions.

Yes. If I'm linking today just to even of our results are increasing to our electricity business. I'm afraid the buyback will not be very high, but it will increase in the future, right? Took the suggestion for the future. Now but -- so on the name change, I think we have been clear. I think Total is perceived as an oil company, even not an oil and gas company, oil company. We are the oil man, which is our history is true but fundamentally, and it's a fundamental change. The strategy is shifting to become a multi-energy, a broad energy company, encompassing not only oil and gas but also electricity. I've explained several times why because we see some growth in these markets, and we think we can build a profitable and large business. So we wanted to have, again, our name in line with our new strategy and not hiding. So TotalEnergies, I think it was a perfect choice because it's everything in your name, you describe the strategy.

So the feedback, of course, it will take time, I think, to including in our share price to people to understand it. But for example, this morning, we gave you another aggregate but which is quite unusual, like Jean-Pierre told you, which is the EBITDA. Why did we give you the EBITDA of Total, by the way, it's almost $9 billion, I think, for the quarter is just to help you to compare it to the one of you to the utility because it seems that today the new energy major are utilities just compare the magnitude of the figures, and you will see the capacity of the -- being able to become a world player in the energy transition that we think will drive our strategy and profitable strategy.

Coming to your first question, to be clear, no, we are very pragmatic people. We look to different opportunities. For example, you have probably noticed in newspapers that we are working in the Middle East countries when everybody exits where we come in and we look to if we can get some access to good resources at a very -- in the framework of a very profitable contract. So we are working on it. So it means that our strategy does not impact at all our capacity to move on new hydrocarbon projects providing, again, that when we look to some projects, or new assets, it must fit with the idea that it's a low-cost asset, I mean, low cost in terms of technical cost and new projects beyond in terms of development or/and the capacity to -- of course, if they are older assets, the capacity to drive the emissions down.

Honestly, I would be surprised to see Total moving on mature assets with very high emissions tomorrow. But if it's a very good opportunity, we'll think. Again, it's a question of comply or explain. And if things make sense for the company, for the -- for TotalEnergies because TotalEnergies is a company, which wants to continue to deliver the energy of the present for the planet, which is oil in gas and which prepare to deliver the energy of the future. So we are in -- we have 2 fits, one in the present, one in the future and the present is still there. And so we have been quite agile to capture opportunities. So if there are good ones, we will look at them.

And your next question is from the line of Lucas Herrmann from Exane.

A couple of questions, maybe a little abstract. The first one, Acorn CCS project. My understanding is you've decided not to remain within that consortium. I just wondered whether there was a particular reason? Was it just balancing projects. There's a lot going on. This was not right or something else was.

And the second question is just how do I think about the EBITDA numbers that you presented with from the renewables business? Do I just look at them and think, well, they're too small to me, and I think at the moment. But it's just a trend, I guess, and it's the thought that you're building a business. And yet at the present time, I kind of see the EBITDA falling between 2Q '20 and 2Q '21 or indeed 1Q '21 and 2Q '21. So it's trying to make sense of what those speakers are actually saying to make residing.

Okay. Acorn, yes, no, just, we had last year, we made a review of all the CCS projects we had in the North Sea. We had 4 projects in our portfolio. We have no full night. We had the one with BP in the U.K. North Sea, which is called the [Net Zero T side, I think, 100 T]. And we had another one Aramis in the Netherlands. And so we look at the map, we look at the potential and in fact -- and the potential for us to use these projects because we want to develop CCS investments not only for customers but also for ourselves. And we made an arbitration, I would say, to say, okay, with 3 projects for the next years we have enough. So let's concentrate on efforts on the BP, Aramis and Northern Life, and we decided to leave the Acorn one, where we had, in fact, less direct interest to use the capacity of storage of Acorn due to our activity in Scotland, in fact. So that's the reason. So it's not, again, the project. It's a good project, but it's just an arbitration within our portfolio of the capital that we want to dedicate to CCS in the coming years.

So the second question is about proportionate EBITDA. Yes, I think -- but I will leave the -- I think Jean-Pierre will explain you, but I think it gave you the crew if in his speech. It's about this quarter, there was less farm down.

As I explained to you, we come down is part of our model. And so in Q2, we are less turndown compared to Q1. So that explain why the EBITDA, it was free 14% in Q1 and now it's 290 million. It's just a matter of found out. But of course, the underlying trend is an upward trend. And it's reflected by the capacity that now we reported on a quarterly basis and the fact that we have increased the renewable capacity by 500 million.

So just a limit of the quarter effect. Nothing saturate because as we have more and more potful projects, we farm down more and more, and so it will just increase. So that's the point.

And as Patrick mentioned to you, we use this metric because it's metric used by our competitors, and we want to give such metrics to allow you to compare our performance with...

I think in Q1, we farmed down something like 50% of 200 almost 300 megawatts. And Q2, we had no farm down. So again, it's not a permanent activity. It depends quarter-by-quarter. So that's the limit of it. Okay?

And your next question is from the line of Bertrand Hodee from Kepler Cheuvreux.

Two, if I may. One on your LNG portfolio and one on your remaining oil sands portfolio. First, on LNG, can you update us on current status of negotiation with Qatar Petroleum on Qatar north field expansion. And your current thinking on the potential return you can make here?

And the second question is about oil sands, your position in -- on oil sand in Canada, cement and oil field. So if you've announced today the exit from Venezuela, you made no secret and correct me if I'm wrong, that you were looking for divesting at some stage your Canadian oil sands position. Are you making any progress on that divestment process? And do you see an appetite for any buyers out there?

Qatar, there is no negotiation. There is -- it's a tender. So we have submitted a tender like I think, 5 or 6 of our companies. So Qatar, I think is just looking towards the offers. And of course, we have put, I think, quite an appealing offer, but I don't know the offers of my competitors. So I cannot comment on something I don't know, just but I can confirm you that Total has submitted an appealing offer to Qatar, feeling is only in my view. Maybe they don't have the same. You will see. And the returns from okay, Qatar is offering I think they have made public the CapEx figure of $29 billion for 4 trains. And so when you make the math, it's quite an efficient LNG scheme. So we consider that it's a good opportunity to expand our portfolio in LNG, and we have a clear strategy on this side. Then we'll see if we are successful or not, I remind you that we have many opportunities to grow LNG within our portfolio with P&G, with ECA, with Mozambique, with Russia. So it's a question of generating optionalities. But we are committed to Qatar if we are successful.

Oil sands, I don't know where you read, but we have announced that we want to exit from Canada, and I'm not sure we have ever needed. We just last year when we made a review of all our assets according to our climate ambition, the Board made a review of what could be, I would say, the stranded assets. I mean, it was the criteria used were very long reserves beyond 2050 and high technical costs. And in fact, that's true. But in this category, we didn't have much assets, in fact, many assets, but we had the oil sand. So we made publicly. We made a write-off, I think, of almost $6 billion or $7 billion on the oil sands. So we have put back in our portfolio in our assets the value of the oil sands projects we are for (inaudible) are down to what we consider is the right value for these assets within an acceptable time line.

So we have also committed, and we have announced that we will not sanction any new projects. That's true. So we have limited our ambition. But again, today at $75 per barrel, it makes sense, it makes money. So I'm a happy shareholder of the assets today. it makes money. And as I've also explained, I think, to many potential buyers, we maybe think that Total is in this array. We are not at all. We are very patient. But these assets will have more value, and we will be more buyers. The day that the pipeline between Calgary and Vancouver will be built because you see that day, you begin to be able to export your oil sands to nice markets. And then I think new buyers will be potentially there.

So again, we are not in a -- it's part of the assets on which we will not invest new projects, but these assets have value, the value will increase again with this new outlets for the Alberta. And so we'll wait for such a point. But we'll wait for them.

(Operator Instructions) And your next request is from the line of Jason Gabelman from Cowen.

Two questions for me. First, on the announcement today to buy back stock with oil over $60. Can you just discuss, is that based on a backward-looking basis for the entire year? Or what's the time frame that you're assessing that buyback for? Is it quarterly or just any guidance on the period? And when are you going to give the first announcement in terms of the figure that you plan on buying back? Will that come with next quarter's earnings?

And then secondly, on chemicals, I know it's reported as part of the Refining & Chemicals segment. But it'd be great just to hear any insight on how much chemicals contributed to the quarterly results just given the strong indicator margins in the quarter that have persisted into 3Q and the outlook for that segment?

Yes. Yes. So the first question was about?

Buyback.

Yes. No. I mean no, I my enhancement is for the year. So we are not just looking to the forward quarter, but you gave me and I need to save money, but we are which was to start only from this quarter. No, in fact, we will consider we will consider the full year -- I mean, the full year. At a certain point, we'll have to decide at which level, but we can easily, month-after-month, manage it. And again, it's up to 40% because it's not a mathematical figure. It's a look to 40%. Just before I said $67.5 per barrel to make $960 million, but it means $1 billion, in fact, fundamentally. So we are not -- we are running the figure. But we will monitor it. I will not describe to you all the mechanics because I think you need to be sometimes not to know all me, but it's a commitment. It's based on the yearly average, and we'll monitor it from, as I said, not in August because we are on holidays, but between September and December, we'll monitor that point before year-end, don't take it before it will be done.

On the Downstream, I think Jean-Pierre used a nice word, which was the historic result for petrochemicals and for polymers. I can tell you the polymers, of course, today, like in many other, I would say, commodities, you see a huge pressure on -- high pressure on prices because a lot of the -- in fact, what we observed at the world level is 2 effects. One, of course, is the growth at having a low, so quite a high growth in many areas of the planet, but also the fact. But last year, when the crisis came, people have almost emptied all their inventories. Why? Because when the crisis came to maintain the capacity to continue to manufacture, as the system was stopped, we just -- the people -- our customers have emptied their inventories. And then but did not rebuild them because of the economic crisis. So today, you have a planet, and it's not true only for polymers, it's true in many other, I would say, semiconductors and others where the inventories were down. And now you have quite a good demand because the economy is coming back to the levels previous the crisis. So it's quite -- it put some upward pressures on all these commodities, and so we benefit from it. And you -- I think today have many comments were positive about the Downstream result, which is good for them. But I can tell you with the margin -- the refining margin was quite poor. European margin, I think, was around $10 per ton as an average or a $10 per ton, we lose money. We have a target of breakeven for European refining margin, which is around $20 per ton. So $10 the results is negative. So if you have a plus $500 million, just to give you some clue on the downstream, the trading was a normal trading, no exceptional last year on the same quarter. I commented during the same call but there was an exceptional $500 million reserve on the trading. So I give you plenty of clue today because I'm happy to be in TotalEnergies.

So it's a normal trading this quarter. You have quite a negative figure of refining, so you can deduct yourself the results for polymers, which is quite a historical high. And so -- and this, I think, my view is because of the structural impact, why I described it, I think it will be maintained for next quarter. I'm quite optimistic about our petrochemical results because this polymer stress -- global stress will not disappear easily to build on one side the inventories back to our customers and on the other side to deliver the products required by the economic growth. So I think it's a trend, which compensate again somewhere this tough refining margin. Polymers, by the way, integration works as well because we benefit from low naphtha prices in our petrochemical business. So this is why we -- I always consider this integrated model for has some value, and this is another proof this time.

There's another question?

And we have a final question from the line of Alessandro Pozzi from Mediobanca.

I have 2 questions. The first one, I'd like to go back to the Fit for 55. And the one thing that was probably missing was carbon capture. And I think across Europe, we are seeing a bit of a divide between government supporting carbon capture like Norway, U.K., Holland and some others. I mean, nobody is also providing substantial grants. So how important do you think carbon capture will be for Europe to reach the carbon reduction targets by 2030 and 2040? And what is the breakeven that we need to see in terms of carbon price to see a widespread use of the carbon capture technology?

Okay. I think there is a debate. But at the end of the day and the commission is quite clear. If you want to have a carbon neutrality in Europe, without these years, you cannot achieve it. I mean we have to be pragmatic. We have also in the plan Fit for 55 putting emphasis by the way, on nature-based solutions and forest, you have an interesting part of the action plan is also around natural and carbon things, I would say. So we need it. We need that. There are some debates, of course, there are some pressures from NGOs, but it's interesting to see that some very different governments like Norway on one side, which obviously is an oil and gas country, but also the Netherlands, which will not be an oil and gas country by 2050, are pushing for these type of technologies like the U.K. as well.

To come back to your question, in fact, the best way to lower the cost is not only the question of the cost of capturing. It's more the question of infrastructure to store. And then you need to have a sort of a mass effect. It's easier to make it, I would say, to lower the cost when you build a CCS scheme in Rotterdam or in the Netherlands with many industries putting together the CO2 in some infrastructure, you can lower the cost.

In terms of cost, by the way, in Europe, today, the ETS, the CO2 price is around almost $60 per ton, not far. It's not a big guess to think that we can reach more than that $100 per ton by 2030. And at $100 per ton, the Norfolk project is profitable. So I mean, it's a question just of -- because all these you cannot think CCS, if we don't think carbon price. But if everything in Fit for 55 is organized to reach at least $100 per ton for CO2 by 2030, if not more. So this makes these technologies profitable. So there is -- this is my feedback to you.

Okay. And the second question is a bit more old-school Surinam. I've seen you announced a new discovery. Maybe can you give us an update on what the potential for the basin there could be?

Again, we announced a new successful well, Sapakara South. After Sapakara, we have another one. The priority today for all of us is for Apaches is to move to a first development, oil development. And we have a well going on, which is called Ks. I think it's another important world. And I think we'll have with the sequence of wells by the year -- the end of the year, we should be able to answer more precisely to your questions. There is a lot of hydrocarbons. There is as well quite a lot of associated gas. And as you know, neither Apache or TotalEnergies have any policy to develop a feed while flaring. So that means that for today, what we are working on together is appraising in order to identify a first oil development mainly with limited associated gas in order to be able to develop according to our standards.

So I understand it was the last question. And so thank you to all of you for attending this call. I would like, of course, to wish to all of you a happy early days. I think we have not been too long, even if when the CEO is present, it's a little longer, but is only the CFO. But again, I would like just to have a conclusion to say that I'm very proud as Chairman and CEO of all what our teams are doing in TotalEnergies despite the COVID crisis. We are really putting all our action plans. We are transforming the company. It's a lot of effort. We have managed to overcame the 2020 crisis environment. And at the same time, we took an important major step in our journey by committing to our Net Zero ambition and to building together this new more sustainable broad energy company. And thank you again for your attention.

Thank you.

Thank you. With that, we conclude the presentation today. Thank you for participating. You may disconnect.