TotalEnergies SE (TTE) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary presents a mixed sentiment. While there are positive aspects like a focus on high-potential projects and digitalization, there are also concerns such as delays in divestments, unclear responses about cash flow growth, and challenges in chemicals. The Q&A session did not significantly alter the sentiment, as management provided strategic insights but also faced uncertainties with regulatory impacts and market challenges. Overall, the sentiment remains balanced, leading to a neutral prediction for stock price movement.

Key Financial Performance

Cash Flow for Q3 2025 Increased by 4% year-over-year despite a $10 per barrel drop in oil prices. This was due to hydrocarbon production growth and high-margin new project barrels, which contributed $400 million in additional cash flow.

Adjusted Net Income for Q3 2025 Held steady year-over-year despite lower oil prices, supported by high-margin production and downstream recovery.

Hydrocarbon Production for Q3 2025 Increased by more than 4% year-over-year, driven by new projects like Mero Fields in Brazil and deepwater projects in the U.S.

Downstream Cash Flow for Q3 2025 Increased by $500 million year-over-year due to better refining margins and efficient asset utilization.

European Refining Margin Improved to $63 per ton in Q3 2025 from $35 per ton in Q2 2025, an increase of close to 80%, due to tension on the diesel supply chain and low inventories.

Return on Equity (ROE) 14.2% for the 12 months ending September 30, 2025, reflecting strong profitability.

Return on Average Capital Employed (ROACE) Close to 12.5% for the 12 months ending September 30, 2025, indicating efficient capital use.

Net Investments for Q3 2025 Decreased by $3.5 billion quarter-over-quarter, reflecting capital discipline.

Working Capital Release for Q3 2025 Contributed $1.3 billion to cash flow, aiding in financial resilience.

Gearing Reduced to close to 17% in Q3 2025 from nearly 18% in the previous quarter, showing improved financial stability.

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Operating Highlights

New project barrels: New barrels from Mero Fields in Brazil, deepwater projects in the U.S., Tura, and Phoenix contributed 170,000 barrels per day in the first 9 months of 2025, generating $400 million additional cash flow year-on-year.

Integrated LNG: Recent FID on Rio Grande LNG Train 4 in South Texas and acquisition of shale gas assets in the Anadarko Basin, U.S., to enhance LNG and gas-to-power strategy.

Integrated Power: Net power generation increased 9% quarter-over-quarter to 12.6 terawatt hours. Executed farm-downs in North America and France, generating $1.5 billion cash impact.

ADR transformation: Board approved the transformation of ADRs into ordinary shares, enabling trading on the New York Stock Exchange from December 8, 2025, to enhance market presence.

Refining margins: European refining margin improved to $63 per ton, up 80% quarter-over-quarter, contributing to strong downstream results.

Hydrocarbon production growth: Third quarter hydrocarbon production increased by more than 4% year-on-year, with further growth expected in Q4 2025.

Downstream operations: Efficiently captured high refining margins in Europe, with utilization at 84% and cash flow up 11% quarter-over-quarter.

Capital discipline: Net investments decreased by $3.5 billion quarter-over-quarter, with full-year guidance of $17 billion to $17.5 billion.

Portfolio optimization: Divested assets in Argentina and Norway, and sanctioned Phase 2 of the Ratawi oil field redevelopment in Iraq.

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Risk or Challenges

Oil Price Volatility: The company faces challenges due to oil price volatility, with Brent prices dropping by more than $10 per barrel year-on-year, impacting cash flow and adjusted net income.

Project Execution Risks: Although 95% of production by 2030 is either online or under construction, there are inherent risks in executing large-scale projects, including potential delays or cost overruns.

Refining Margin Dependency: The company's downstream performance is heavily reliant on capturing high refining margins, which are subject to market fluctuations and supply chain tensions, such as those seen in the diesel supply chain.

Geopolitical and Regulatory Risks: The company operates in multiple regions, including Angola, Iraq, and Nigeria, which may expose it to geopolitical instability and regulatory challenges.

Supply Chain and Turnaround Risks: Planned turnarounds and asset availability are critical for capturing margins. Delays or inefficiencies in these processes could impact financial performance.

LNG Market Challenges: The LNG segment faces challenges from planned turnarounds, such as at Ichthys LNG in Australia, which impacted production by around 50,000 barrels of oil equivalent per day.

Economic and Market Uncertainty: Economic uncertainties and fluctuating demand, particularly in the European refining and LNG markets, could impact profitability and cash flow.

Portfolio Divestment Risks: The company is divesting assets in regions like Argentina and Norway. These divestments could lead to short-term operational disruptions or financial impacts if not executed as planned.

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Guidance & Outlook

Upstream Production Growth: The company anticipates upstream production to grow by 3% per year through 2030, with more than 95% of this production already online or under construction. For the fourth quarter of 2025, upstream production is expected to grow more than 4% year-on-year.

Net Investments: Net investments are expected to decrease quarter-over-quarter in the fourth quarter of 2025, with $2 billion in disposal proceeds anticipated. The net of acquisitions will represent $1.5 billion of cash inflow, and full-year 2025 net investment guidance is reiterated at $17 billion to $17.5 billion.

Balance Sheet and Gearing: The company forecasts gearing to decline further to 15%-16% by year-end 2025, supported by positive contributions from seasonal working capital and net investments.

LNG Price Outlook: The company anticipates an average LNG selling price of around $8.5 per MMBtu for the first quarter of 2025, with forward European gas prices sustained at around $11 per MMBtu for the winter of 2025-2026.

Refining Utilization: Refining utilization is expected to range between 80%-84% in the fourth quarter of 2025, accounting for scheduled turnarounds at Antwerp and SATORP.

Integrated Power Business: The company plans to continue capital recycling in its Integrated Power business, with farm-downs of renewable assets in North America and Greece expected to generate a combined cash impact of around $1.5 billion in the fourth quarter of 2025.

Shareholder Returns: The company expects a 2025 payout ratio of around 56%, supported by annual cash flow between $27.5 billion and $28 billion. The Board has authorized up to $1.5 billion of share buybacks for the fourth quarter of 2025.

Ordinary Shares Listing: The company plans to transform its ADRs into ordinary shares, with trading on the New York Stock Exchange expected to begin on December 8, 2025. This is anticipated to act as a catalyst for the stock in 2026.

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Shareholder Return Plan

Dividend Growth: The Board of Directors decided to increase the first interim dividend by close to 8% in euros and more than 10% in dollars compared to 2024.

Share Buyback Program: The Board of Directors authorized up to $1.5 billion of share buyback for the fourth quarter of 2025.

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Key Q&A

Q:Can you clarify the current status of tax issues in France, particularly regarding the tax on share buybacks?

A:Patrick Pouyanné explained that the French parliament has been discussing various tax proposals, including a super tax on multinationals, but he believes these proposals are unlikely to be implemented due to existing fiscal agreements and constitutional protections. He emphasized that TotalEnergies generates 90-95% of its cash flows outside France, so the impact on the company would be minimal.

Q:What is the expected growth in cash flow compared to production for 2026?

A:Patrick Pouyanné stated that more precise details would be provided in February. He anticipates a production growth of more than 3% for 2026, with cash flow growth being accretive due to new production coming online, such as Brazilian production. He reiterated the company's roadmap to deliver $10 billion of additional free cash over the next five years.

Q:Are you able to capture the extraordinary refining margins currently seen, and how are the improvements at Port Arthur and Donges refineries progressing?

A:Patrick Pouyanné confirmed that the company is capturing high refining margins, which have recently been around $75 per ton and could increase further due to market impacts from Russian sanctions. Port Arthur is fully back online after a turnaround, and Donges is operational with further improvements expected by the end of the year.

Q:What disruptions are being observed in Russian volumes following the latest sanctions, and how is this impacting the physical market?

A:Patrick Pouyanné noted that recent sanctions on Russian oil are causing significant market impacts, including higher refining margins and cautious trading behavior. He highlighted that TotalEnergies stopped trading Russian oil at the end of 2022 and is compliant with sanctions.

Q:How do you see upstream margins evolving with the current growth trajectory, particularly with the inclusion of Iraqi production?

A:Patrick Pouyanné stated that Iraqi production is accretive to margins due to low-cost production and contracts that capture upside from oil prices. He expects upstream free cash flow to grow faster than production due to the mix of new barrels with higher margins.

Q:What is the status of divestments for the year, including the SPDC sale in Nigeria?

A:Patrick Pouyanné outlined that the $2 billion divestment target includes sales in Nigeria (Bonga), Norway, and renewable assets in the U.S. and Greece. The SPDC sale in Nigeria is not included as it has been delayed to next year due to unmet conditions precedent.

Q:Has the letter on European competitiveness signed by CEOs catalyzed any policy response?

A:Patrick Pouyanné mentioned that the letter has led to discussions with European commissioners and some calls for revisiting legislation. He emphasized the importance of ensuring European competitiveness and security of supply.

Q:What are your thoughts on the strong LNG FID activity this year, and how does it impact TotalEnergies' decisions on future LNG projects?

A:Patrick Pouyanné acknowledged the strong LNG FID activity but emphasized the importance of securing good financing and maintaining discipline. He highlighted that TotalEnergies postponed the Cameron LNG project due to high CapEx and is focusing on projects with strong fundamentals, such as Papua New Guinea and Mozambique.

Q:How does the consolidation of Paris and U.S. shares impact the buyback program?

A:Patrick Pouyanné clarified that the buyback program will primarily be executed on the Paris Stock Market and will not be affected by the consolidation of shares. He dismissed concerns about tax proposals affecting buybacks, emphasizing the rule of law and constitutional protections.

Q:What is the outlook for refining throughput and margins in 2026?

A:Patrick Pouyanné expects refining throughput to be in the range of 84-86% in 2026, with fewer turnarounds planned. He anticipates capturing higher margins due to improved operations at Port Arthur and Donges refineries.

Q:What drove the improvement in marketing margins this quarter, and is it structural or temporary?

A:Patrick Pouyanné attributed the improvement to a structural focus on value over volume, reducing low-margin activities, and divesting non-core assets. He emphasized that this strategy will continue to enhance margins.

Q:How is TotalEnergies accelerating digitalization and AI adoption?

A:Patrick Pouyanné highlighted significant investments in digital platforms and AI tools, totaling around $350 million. The company is leveraging its digital factory and exploring talent acquisition in India to support these initiatives, aiming to improve operational efficiency and generate additional revenues.

Q:What is the current situation in Iraq, and could it become a major production growth area?

A:Patrick Pouyanné stated that the security situation in Basra is stable, allowing for project execution. He believes Iraq has long-term growth potential but does not see it significantly impacting oil prices in the short to medium term.

Q:How confident are you in achieving a 12% ROACE for the Integrated Power segment, and what steps are being taken?

A:Patrick Pouyanné expressed confidence in reaching the 12% ROACE target over five years through project execution, rationalization, and focusing on high-potential markets. He emphasized the importance of turning non-productive assets into productive ones.

Q:What is the impact of the proposed EU ban on Russian LNG imports from 2027?

A:Patrick Pouyanné stated that the company is analyzing the new regulation and its scope. He emphasized compliance with sanctions and is exploring options to redirect Yamal cargoes to alternative markets if necessary.

Q:What is the outlook for chemicals, and is there any industry movement to address the challenging environment?

A:Patrick Pouyanné acknowledged the challenging environment for chemicals due to overcapacity, particularly in China. He emphasized the importance of feedstock advantage and highlighted TotalEnergies' focus on investing in the U.S. and Middle East while rationalizing European operations.

Q:What is the exploration strategy under the new Head of Exploration, and what are the plans for Namibia and South Africa?

A:Patrick Pouyanné stated that the exploration budget remains consistent at $800 million to $1 billion annually. The company is focusing on high-potential areas like Namibia and South Africa, though legal challenges in South Africa are causing delays.

Q:What is driving the quarter-to-quarter volatility in organic CapEx, and what is the outlook for production and cash flow growth?

A:Patrick Pouyanné explained that CapEx volatility is due to project cycles and emphasized the company's commitment to annual budget targets. He reiterated the roadmap for production and cash flow growth, with more details to be provided in February.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the expected cash flow growth for 2026, stating that more precise information would be shared in February. Additionally, the response to the EU ban on Russian LNG imports lacked clarity, as the company is still analyzing the regulation's scope and implications.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

TTE Transcript

TotalEnergies SE (TTE) Q3 2025 Earnings Call Transcript

Unknown10-30

TotalEnergies SE (TTE) Presents At Barclays 39th Annual CEO Energy-Power Conference 2025 (Transcript)

Neutral9-4

TotalEnergies SE (TTE) Q1 2025 Earnings Call Transcript

Positive4-30

TotalEnergies reported strong financial performance with EPS exceeding expectations and a solid increase in cash flow. The company's commitment to maintaining a 40% buyback and positive guidance on CapEx and gearing ratio are reassuring. Although there were concerns about tariffs and refining margins, management's confidence in handling these issues, coupled with optimistic guidance on integrated power and renewables, indicates a positive outlook. The Q&A section showed analysts' interest in the company's strategic decisions, but management's responses were generally optimistic, supporting a positive sentiment.

TotalEnergies SE (NYSE:TTE) Q4 2024 Earnings Call Transcript

Positive2-6

The earnings call reveals strong financial performance with EPS exceeding expectations, a robust share buyback program, and strategic expansion into integrated power with safety enhancements. Although there are HSE risks, the company is proactively addressing them. The Q&A section highlighted some concerns, but overall sentiment remained positive with flexible strategies in LNG and AI investments. The positive earnings and strategic initiatives outweigh the potential risks, leading to an expected stock price increase.

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