TotalEnergies SE (TTE) Q1 2025 Earnings Call Transcript

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Overview

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.

Key Financial Performance

Adjusted Net Income $4.2 billion, no year-over-year change mentioned.

Funds From Operations (FFO) $7 billion, no year-over-year change mentioned.

Return on Capital Employed (ROCE) 13.2%, no year-over-year change mentioned.

Buybacks $2 billion executed during Q1, maintaining consistent shareholder returns.

Interim Dividend €0.85 per share, a 7.6% increase compared to 2024.

Production Growth (Oil & Gas) 2.56 million barrels per equivalent per day, nearly 4% growth year-on-year.

Operating Costs (OpEx) $4.9 per barrel equivalent, maintained despite inflationary trends.

Adjusted Net Operating Income (E&P) $2.5 billion, up 6% quarter-to-quarter.

Cash Flow (E&P) $4.3 billion, up 9% quarter-to-quarter.

Adjusted Net Operating Income (Integrated LNG) $1.3 billion, up 6% year-on-year, down 10% quarter-to-quarter.

Cash Flow (Integrated LNG) $1.2 billion, impacted by timing of dividend payments.

Adjusted Net Operating Income (Integrated Power) $500 million, no year-over-year change mentioned.

Cash Flow (Integrated Power) $600 million, no year-over-year change mentioned.

Adjusted Net Operating Income (Downstream) $0.5 billion, no year-over-year change mentioned.

Cash Flow (Downstream) $1.1 billion, impacted by weak refined margins and operational issues.

Net Investment $4.9 billion, reiterating full year guidance of $17 billion to $17.5 billion.

Working Capital Build $4.4 billion, less than $6 billion reported in Q1 2024.

Gearing Ratio 14.3%, normalized gearing would be 11% excluding seasonal impact.

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Operating Highlights

Electricity Production Growth: TotalEnergies reported an 18% year-on-year growth in electricity production.

New Power Contracts: Signed a premium threesome power contract with SLB electronics of 1.5 terawatt hour over 15 years.

Battery Storage Projects: Launched six new battery storage projects developed by Kyon, acquired last year.

LNG Selling Price Forecast: TotalEnergies anticipates its average LNG selling price will be between $9 and $9.5 per MBtu in Q2 2025.

Production Growth Guidance: Reiterated full year 2025 production growth guidance of more than 3% compared to 2024.

Operating Costs: Maintained operating costs at $4.9 per barrel equivalent during Q1 2025.

Refining Utilization Rate: Global refining utilization rate increased to 87% in Q1 2025 from 82%.

Share Buybacks: Announced share buybacks of up to €2 billion for Q2 2025.

Dividend Increase: Confirmed first interim dividend of €0.85 per share, a 7.6% increase compared to 2024.

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Risk or Challenges

Macroeconomic and Geopolitical Uncertainty: The company is facing heightened macroeconomic and geopolitical uncertainty, particularly due to fragile negotiations regarding the Ukraine-Russia conflict and the fluid tariff policy enacted by the U.S.

Oil Demand and Market Volatility: There are uncertainties regarding oil demand and volatility in oil markets, which have been oriented on the downside in recent weeks.

Cost Impacts from Tariff Changes: The new tariff impacts are creating uncertainties regarding costs for new projects in the U.S.

Weak Refining Margins: The European refining margin remained weak, averaging $29 per tonne, which poses challenges for profitability.

Operational Issues at Refineries: Operational issues at the Donges refinery and productive refinery negatively impacted cash flow by about $200 million.

Declining Petrochemical and Biofuel Margins: The downstream segment is experiencing declining margins in petrochemicals and biofuels, which are lower than planning cases.

Seasonal Working Capital Build: The company reported a seasonal working capital build of $4.4 billion, which is less than the previous year but still significant.

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Guidance & Outlook

Production Growth: TotalEnergies reported a robust year-on-year production growth of nearly 4% in Oil & Gas and 18% in Electricity, leading to a total production growth of close to 5%.

CapEx Management: The company has maintained control over its CapEx, with most projects based on lump sum EPC contracts, securing the level of CapEx.

Shareholder Returns: The Board confirmed a first interim dividend of €0.85 per share, a 7.6% increase compared to 2024, and announced share buybacks of up to €2 billion for Q2 2025.

Integrated Power Initiatives: TotalEnergies signed a premium power contract with SLB electronics for 1.5 terawatt hours over 15 years and launched six new battery storage projects in Germany.

Production Guidance: For Q2 2025, production is expected to grow 2% to 3% year-on-year, with a full-year 2025 production growth guidance of more than 3% compared to 2024.

CapEx Guidance: TotalEnergies reiterated its full-year 2025 CapEx guidance in the range of $17 billion to $17.5 billion.

LNG Price Expectations: The average LNG selling price is anticipated to be between $9 and $9.5 per MBtu in Q2 2025.

Financial Performance Outlook: The company expects to achieve its annual cash flow guidance and anticipates additional cash flow accretion from new production projects.

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Shareholder Return Plan

First Interim Dividend: €0.85 per share, a 7.6% increase compared to 2024.

Dividend Growth: Expected to maintain and grow the dividend in future years.

Share Buyback Program: €2 billion for the second quarter, following €2 billion executed in Q1.

Buyback Monitoring: The Board will continue to monitor buybacks on a quarterly basis.

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Key Q&A

Q:How do you think about sustaining the 40% payout share buyback? Is there a limit where the buyback would become under question?

A:The 40% cash flow for buyback is not at all into question. It's a clear strong guidance. We'll be above 40% by the end of the year. The Board monitors the macroeconomic conditions and will adapt as necessary, but we are committed to maintaining the buyback.

Q:What would it take for you to consider a spending reduction on your net capital guidance?

A:We have a plan with some flexibility, but we are not looking to activate that now. We are confident in maintaining our guidance on CapEx unless we see a significant drop in oil prices.

Q:Could tariffs impact some of the Oil & Gas projects and LNG vessels globally?

A:Tariffs could impact new projects that have not been sanctioned yet, but we do not expect any impact on existing projects. We are monitoring the situation closely.

Q:What is your view on the Iberian power systems and any structural changes needed?

A:We need to invest in the grid and flexible assets to adapt to the increasing share of renewables. The lessons from Germany's experience in February highlight the need for a backup system.

Q:Could you give us an idea of the difference in CapEx needed to keep the business flat versus delivering growth?

A:We have some good projects delivering accretive value. If I need to cut CapEx, I will do it, but not at the expense of future cash flow growth.

Q:How should we think about deploying the balance sheet for acquisitions?

A:We are currently focused on buybacks, but we will consider acquisitions if they are accretive and create value for shareholders.

Q:What is the latest situation in Mozambique?

A:Financing is back on track, and we are working with contractors to ensure security in the area. We aim to relaunch the project by mid-year.

Q:Is there a level for normalized gearing where the Board would feel the need to revisit the buyback?

A:We are comfortable with gearing around 12-14%. If it goes below that, we would revisit the buyback.

Q:What is the timeline for the Namibia project?

A:We are working to find common ground with the authorities. The project is feasible, but we need to ensure it meets our return targets.

Q:What is your outlook for the integrated power business?

A:We are committed to maintaining our growth in integrated power, but we need to monitor the impact of tariffs and market conditions.

Q:What is your view on the competitive environment in the low-carbon space?

A:We are focused on delivering growth in renewables and integrated power, and we see opportunities as competitors face pressure.

Q:What is the impact of the strengthening euro on dollar-reported debt?

A:The strengthening euro lowers the burden of dividends expressed in euros, but overall, the impact on cash flows is neutral.

Q:What should we expect for the net associate contribution for the year?

A:We expect to see dividends from our equity investments, but the timing may vary based on the performance of the underlying assets.

Q:What is your outlook for refining margins?

A:Refining margins are under pressure, and we are restructuring our petrochemical assets to adapt to the changing market.

Q:What is your appetite for more renewable growth?

A:We are focused on integrated power and renewables, and we see opportunities as competitors face pressure.

Q:How do you see your interests in Russia if a peace deal is reached?

A:It depends on the conditions of the peace deal, but we have strong assets in Russia that we continue to work on.

Q:Review of Unclear Management Responses

A:Management appeared to avoid giving a direct answer to questions regarding specific impacts of tariffs on existing Oil & Gas projects and LNG vessels globally, as well as the exact timeline and conditions for the Namibia project. Their responses lacked clarity on the potential for acquisitions and the specific contribution of the SapuraOMV acquisition to earnings.

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Earnings Word Cloud

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

TTE Transcript

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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.

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TotalEnergies SE (TTE) Q1 2025 Earnings Call Transcript

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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.

TTE Report

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