Yahoo Finance TotalEnergies SE (NYSE:TTE) Q1 2024 Earnings Call Transcript
TotalEnergies SE (NYSE:TTE) Q1 2024 Earnings Call Transcript April 26, 2024
TotalEnergies SE beats earnings expectations. Reported EPS is $2.14, expectations were $2.06. TotalEnergies SE isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, welcome to TotalEnergies First Quarter 2024 Results Conference Call. [Operator Instructions]. I now hand you over to Mr. Patrick Pouyanne, Chairman and CEO; and Jean-Pierre Sbraire, CFO, who will lead you through this call. Sir, please go ahead.
Patrick Pouyanne: Good morning, and good afternoon, everyone, for this quarterly result session. I'm happy to welcome you together with Jean-Pierre, who will go through all the details of these good, strong results in first quarter 2024. But before to do it, I would like to highlight the way we have implemented our 2-pillar strategy during this quarter. And first, to celebrate this -- to recognize that the company celebrated its 100th year anniversary on March 28. We have been celebrating this event all through the company in 120 countries where we are present. We have company's ancestors who are really pioneers when they discovered oil in Iraq in 1927. And of course, it was the opportunity this anniversary to pay tribute to hundreds of thousands of pioneers who had followed them and who are, in fact, the past and the present employees of the company.
And we have decided, by the way, by the signature of this anniversary, would be pioneers for 100 years. So -- but today, I would say with the same pioneer spirit, that we have decided in 2020 to embark in our journey in the energy transition. And moving to TotalEnergies into an integrated, multi-energy company with a clear and simple strategy anchored on 2 pillars. First, on oil and gas, mainly LNG, with the objective to continue producing hydrocarbons in a responsible way -- producing and growing hydrocarbons in a responsible way in order to answer the growing demand. And second, investing and developing integrated power energy for the future with objective to become net cash positive by 2028. So this first quarter 2024 is really -- 2024 is about advancing this strategy.
I would say we are off to a great start on both pillars. We have achieved several milestones during this quarter that I would like to underline. First, on the oil upstream. We successfully started up some operated operations in Nigeria with Akpo West and the Tyra development in Denmark, both of which are additive to our overall corporate cash margins, as well as Mero 2 Brazil, which started at the beginning of the year. We continued to have success on the exploration appraisal front. We've recently finished a positive appraisal of the Venus oil discovery in Namibia, and we are now working towards FID targeting in 2025 for the FID. We have also captured in this prolific Orange Basin some new licenses of high interest on the South African side.
We are making -- also it's important -- I told you it's a matter of execution of growth towards 2028. So we are also making good progress on some FIDs, which were planned for 2024. We will sanction in this month of May as the Cameia project in Angola, 80,000 barrel per day, operated by us with 40%. And we also plan in May to first -- to place the LLI orders for Suriname projects. And we confirm that we envisage to take the FID before year-end 2024 in Suriname. Finally, I would like to also comment that we've done an interesting deal recently in Congo to increase our interest into a giant deepwater field, Moho and divested at same time some very mature assets. That's for oil. On the LNG side, quite a big activity as well during the quarter. First, we begin to benefit from a low reverse trading below $2 per million BTU to see some opportunities to integrate -- to further integrate U.S. LNG value chain upstream with the first acquisitions from Lewis Energy Group's upstream natural gas assets in the Eagle Ford, operated by a strong operator, EOG.
Earlier this week, we announced the FID of the Marsa LNG project in Oman, which is really setting a new low-carbon intensity standard for the next generation of LNG plants, 3 kilogram of CO2 per boe fully-electrified and the electricity coming from renewable sources. And it's a very good example of TotalEnergies deploying its integrated multi-energy model in the country. Thanks to that strategy, we reached a new scale in Oman combining LNG and renewables or 2 pillars. So it's a good example again of what we can achieve by moving on the 2 pillars. On LNG, I would also insist that we continue to work with Asian buyers, which have some appetite for medium- and long-term contracts. And I would say all linked long-term contracts, which is important, of course.
In particular, for example, this quarter, we signed a contract with Sembcorp in Singapore beginning 2027, just perfect when we have more production. And to cover it, I would say, or to hedge it with some oil-linked contracts. That's the target. And there will be more to come as our teams are quite active on the Asian front: China, Japan, Korea. So we are working. Of course, it's important. We have a strong LNG position, and we know we have some perspective to sign some oil-linked LNG contract is on part of our strategy. And lastly, I would also mention on the integrated gas part that we have -- we are acquiring the rule of SapuraOMV in Malaysia. This is a gas business related to a netback of LNG pricing with quite a good potential to increase.
And in fact, it's quite -- it's a prolific -- Sarawak is a prolific gas region with some potential to grow in the future. That's why we're very interested to acquire these assets. Then moving to the second pillar, integrated power. We have again fourth time -- fourth quarter in a row an increasing adjusted net result income -- operating income, and Jean-Pierre will come back on it. As you noticed, we have implemented -- we are advanced in the implementation of the integrated strategy in Texas on the aircraft with the acquisition -- closing the acquisition of 1.5 gigawatt CCGTs. And -- but good, the demand is growing in Texas, data centers, AI. We are right on the good market there. And also in Germany, which is another key market for us. We closed the Kyon Energy acquisition, which is a battery storage developer.
So you will see through the results that -- or the relevance of our strategic continues to be demonstrated quarter after quarter as a proof of concept that our differentiated model works, delivering strong results, which are fundamentals that allow us to grow our shareholder distribution in a sustainable way. We confirm again that we increased the interim dividend by 7% compared to last year, which I think will be appreciated by all our shareholders. And by the way, it's also this proof of concept starting to pay off as we kind of serve the positive evolution of the share price recently, which is on their view, in the view of the Board, a signal that the strategy is being increasingly recognized by the market as a good one or the right one and also evidenced by our leading total shareholder return.
Finally, this value is not only shared with our shareholders, but also with the pioneers of TotalEnergies, and it's important for promoting employee shareholding plans. We are now in Europe the #1 company in terms of amount of capital owned by employees, more than EUR 11 billion, and a special grant of 100 shares to each -- or 100,000 employees has been decided by the Board to celebrate our 100th year anniversary. So I don't know if we have $100 billion of results, Jean-Pierre, but not yet. So then with that, I'll turn it over to Jean-Pierre, that was the transition, to go through the detailed financials this first quarter.
Jean-Pierre Sbraire: Yes. Thank you, and good morning, good afternoon, everyone. So as Patrick mentioned, our consistent strategy continued to deliver strong results, and we are well positioned to deliver on our '24 objectives of more energy, less emissions and growing cash flow. Brent prices were flat quarter-to-quarter, down only 1% to $83 per barrels and refining margins were strong, plus 36% quarter-to-quarter. Thus, European gas prices declined by 35%, reflecting a mild winter and high storage levels. In this context, TotalEnergies reported first quarter '24 adjusted net income of $5.1 billion, only down 2% sequentially. And cash flow from operations, excluding working cap, of $8.2 billion. Profitability remains strong with return on average capital employed of 16.5%.
And we maintain discipline, confirming net investment guidance of $17 billion to $18 billion for '24. Importantly, we continue to extend our track record of attractive shareholder distribution with $2 billion of buybacks executing during the first quarter and nearly a 7% increase year-on-year of the first interim dividend for '24, which is now at 20% compared to pre-COVID level. Moving now to the business segment results and starting with hydrocarbons. Production was 2.46 million barrels of oil equivalent per day in the first quarter '24, stable quarter-to-quarter and up 1.2% excluding Canada. Production benefited from oil start-ups at Mero 2 in deep offshore Brazil and Akpo West in Nigeria, as well as 6% growth quarter-to-quarter in LNG production, which has offset the Canadian oil sands asset disposal that closed in the fourth quarter.
Looking now forward. Production for Q2 '24 is expected to be between 2.4 million and 2.45 million barrels of oil equivalent per day and reflects planned maintenance that is partially compensated by ramp-ups of Mero 2 in Brazil and Tyra in Denmark. We reiterate full year '24 production guidance of 2.4 million, 2.5 million barrels of oil equivalent per day, which is 2% growth year-on-year, excluding Canada. Exploration and production reported adjusted net operating income of $2.6 billion and cash flow of $4.5 billion. Also, we continue our leadership as a low-cost producer with first quarter '24 upstream production cost at $4.6 per barrel. Moving now to Integrated LNG. Hydrocarbon production for LNG was strong during the first quarter, up 6% quarter-to-quarter, thanks to higher availability, mainly additives in Australia and Qatar Energy, LNG and 2 in Qatar, as well as the increased supply of LNG in Nigeria.
However, first quarter LNG sales decreased by 9% quarter-to-quarter, primarily due to lower demand in Europe, given the mild winter and high inventories. Volumes also reflected partial downtime in Freeport LNG in the U.S. this quarter. Integrated LNG adjusted net operating income was $1.2 billion during the quarter, reflecting lower LNG prices sales, but also low volatility in the markets. Cash flow totaled $1.3 billion, impacted by the timing of dividend payments from some of our equity affiliates. Given the evolution of oil and gas prices in recent months and the lag effect on price formulas, we anticipate that TotalEnergies average LNG selling price should be between $9 and $10 per MBtu during in the second quarter '24. Now moving on our integrated power business segments.
We are pleased to report that this business continues its profitable growth trajectory with adjusted net operating income growing sequentially for the fourth quarter in Europe as activity grows. Adjusted net operating income grew 16% quarter-to-quarter to more than $600 million and was supported by production growth in both renewable and flexible generation. So flexible generation, as Patrick mentioned, now includes the 1.5 gigawatt CCGT acquisition in Texas, which closed during the quarter and further enhanced our integrated position to provide clean firm power in the attractive and growing ERCOT markets. Cash flow from Integrated Power was $692 million for the first quarter, on track to achieve our target of $2.53 billion of cash flow for the full year '24.
Finally, return on average capital employed for the 12 months ending March '24 reached 10%. Moving to Downstream. The refinery utilization rate for the first quarter of '24 was stable at close to 80% with the restart of SATORP in Saudi Arabia, following a planned turnaround during the fourth quarter '23, offsetting the impact of the unplanned shutdown at the Donges refinery in France. LNG contributed $960 million of adjusted net operating income in the first quarter of '24, up 52% quarter-over-quarter due to higher refining margins. Free cash flow from operating -- from operations excluding working cap evolutions of $1.3 billion also increased double digits quarter-to-quarter, although it was impacted by the timing effect in cash dividend payments from equity affiliates.
Looking forward now, we anticipate that the Q2 '24 refining utilization rates will increase to around 85% as the Donges refinery progressively restarts and because there are no major turnaround plans. On marketing and services, this quarter demonstrates the efficiency of the implementation of our value-over-volume selective strategy with cash flow from operations increasing by 5% year-on-year to $480 million in the first quarter of '24, despite the decrease in our sales of petroleum products. At the company level, we reported a working CapEx of $6 billion during the first quarter of '24. And the main components behind Tierra, first, the reversal of the exceptional working cap release of $2 billion in the first quarter of '23 we highlighted during our last earnings call.
Secondly, $1.5 billion related to the effects of higher oil and petroleum product price on inventories at the end of the first quarter '24 compared to end of '23. And $2 billion of seasonal effects, $1 billion related to the seasonal effect on tax liabilities and an additional $1 billion related to the seasonal effects on gas and power distribution activities. Gearing at the company level increased to around 10% at the end of the first quarter compared to 5% at the end of last year. And the just described $6 billion working capital led to a 4% increase in gearing. And the decision we made given the interest rate environment to exercise the cool end of March on the EUR 1.5 billion IB bonds resulted in an additional 1% increase in gearing. Therefore, we expect gearing to structurally range around 7% to 8% as 2% to 3% of the current gearing related to seasonality impact on working cap at the end of the quarter.
Our consistent and balanced strategy is paying off, as Patrick mentioned. And the first quarter has positioned us for continued success in '24. In this context, the Board of Directors of TotalEnergies decided the distribution of our first interim dividends of EUR 0.79 per share for the fiscal year of '24, representing an increase of close to 7% compared to '23 and authorized an additional $2 billion of share buybacks for the second quarter '24. And with that, I'll turn it over to Q&A.
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