TotalEnergies SE (NYSE:TTE) Q4 2023 Earnings Call Transcript

TotalEnergies SE (NYSE:TTE) Q4 2023 Earnings Call Transcript February 7, 2024

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).

Renaud Lions: Good morning. Welcome to TotalEnergies 2023 Results and 2024 Objectives Presentation. We are today in London from the Tate Modern Art Museum. Thanks for coming today and I hope that you will enjoy the view on the city and sample. You can also follow us live on our website, totalenergies.com. We will start today with a safety sequence with Bernard Pinatel, who is our President Refining & Chemicals and then we will have the presentation from Jean-Pierre and Patrick for around 1 hour. And then we’ll move to the Q&A session, we should be finished around 11:30, 11:45. [Operator Instructions] But without further delay, I invite Bernard to come on stage to launch the meeting with the safety sequence. Bernard?

Bernard Pinatel: Thank you, Renaud. Good morning. Last year, I had to deploy two fatalities. As you know, in these two tragic events remind us that our first duty, of course, is to make sure that everyone returns home safe everyday. One fatality occurred in France in a retail station, where a contractor is either passed away when performing some acceleration work. The safety moment I’ve chosen this morning is about the second fatality, the one which occurred in the Silane refinery in the Netherlands, of course, not to describe – just to describe what happened, but most importantly, to share with you what we learned from this tragic event to improve our operations. On February 3, a contractor passed away while he was performing a catalyst and loading operation inside the reactor.

His name was Torsten. He was 50 years old. Changing a catalyst is a very sensitive operation as the catalyst is flammable in the presence of oxygen of air. So you must first inert the reactor with nitrogen before the intervention. The catalyst and loading operation is performed, as you see on the slide, by a team of 3 people led by a supervisor. First, there is a diver who is the one entering into the reactor, fully equipped, of course, including with a lifeline to be pulled out in case of emergency. The second one is the second diver who is ready to dive in case of emergency and there is also a controller who monitors the level of nitrogen of air and keeps constant contact by radio and by video. And before entering into the reactor, of course, there is a video inspection to make sure that the situation is safe.

At 11:15 on that day, the alarm was given by the personnel and we learned that the diver was trapped by the collapse of some catalysts. Of course, the risk team reinforced by additional members fully equipped tried in turn to pull him out of the reactor, which you may guess from the slide is 30-meter high. When the body went out, the team found that the diver passed away. One thing is clear. We couldn’t keep operating this way with a human entry into an inert atmosphere, even if it is the industry standard practice. So, immediately to free actions, of course, we immediately stopped worldwide, all similar operations in the company. Secondly, with our contractors, HSE specialists, technical experts, we reviewed alternative operating modes to avoid any entry, human entry inside reactors for that kind of operation.

And eventually, we identified and selected an alternative operating mode where you change the catalyst by water flooding. What does that mean? It means that you fill the reactor with water and then you emptied together with a catalyst. Of course, this is more costly, because you cannot recover the catalyst to recycle it. And you have to dispose of the waste water, but you will understand this is not really what is at stake. From February 2023, all replacements were performed without any injury. We carried out 21 replacement using water in 2023 and we will have another 14 on the first year of 2024. We also keep working on further improvements in terms of vessel modification, because you will understand that this vessel has now to support the additional weight of water.

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Q&A Session

And of course, we are looking at the utilization of robots. And naturally, we have shared these new operating modes with our peers. So, let me now switch to – after the safety moment to the overall company safety performance. At TotalEnergy, we keep repeating this message. Safety is more than a priority. It’s a value. It’s a core value. Of course, safety is a matter of culture. It’s a matter of leadership. It’s also a matter of permanent improvement. And to track it, we measure several leading indicators that you see on the slide in terms of occupational safety and in terms of prevention of technological risks. So on the left hand side, in terms of occupational safety, you see that we track the total recordable injury rate and that this rate at 0.63 has been reduced over the last 5 years consistently and that represents a reduction of close to 30%.

Having an injury rate well below 1 is not a given, believe me, notably, when you see the industry trend since 2020. So we have been able to consolidate our position as a frontrunner on this indicator in our industry. How did we do it? Some key initiatives, I would like to highlight one which is our ability to engage our contractors with our teams to promote shared safety values. We have done it notably through what we call a program of joint safety tools between TotalEnergies management and contractor partners. These two are coming of course in addition to the daily visits we do with our local team on the field. In 2023, we recorded 10,000 of such joint safety tools across the company. Regarding the prevention of major accident and accident pollution on the right hand side, we are also progressing.

Over the last 5 years, we have reduced the number of primary losses of contentment you see on the side by 50%. And here again, we have been focusing on two main areas. Of course, first, this is the management of the technical integrity through our maintenance inspection program but also through the implementation of digital tools to anticipate and prevent potential equipment failures. The second area of focus has been the implementation of what we call the safe operating principle, the SOPs where we constantly train our operators on the basic rules to comply with when they perform very standard operations. So of course, to conclude, I just would like to say that we all know that safety is a daily button, but that we are all committed to do our best to protect our people, the environment and our assets.

And now, I hand over to Jean-Pierre.

Jean-Pierre Sbraire: Thank you, Bernard. So good morning, everyone. This year is a special year for TotalEnergies because TotalEnergies is celebrating in 2024 its 100 years birthday. So the company was founded so 100 years ago in Iraq at that time, the name was [indiscernible]. And since that time, over time, the company has diversified, has adapted itself to deal with the environment, to deal with the society, to deal with the market. And it’s, I think, with the same pioneer spirit that we use at the time in Iraq in oil exploration that we will build the energy system of the future. Indeed, over the last couple of years, we have engaged in balanced energy transition strategy, as you know, incurred on two pillars. So oil and gas on one side and mainly LNG, as you know and on the other side, integrated power.

On the oil and side business, TotalEnergies plans to responsibly grow its oil and gas production by 2% to 3% per year, predominantly from LNG, thanks to its rich low-cost, low-emission portfolio. In the LNG business, we will leverage our top three global LNG integrated portfolio with leading position in Regas in Europe, in U.S. exports to develop a top-tier LNG pipeline. And Patrick will come back on that later. In Integrated Power business, the company is building a world class cost competitive portfolio, combining renewable, so solar, offshore winds with flexible assets, CCGT and storage to deliver clean firm power to our customers and as you know, with the objective to be positive net cash flow by 2028 with ROCE at 12%. So let’s move now to the figures.

So this consistent two-pillar strategy has delivered, I think, strong results in 2023. In a robust environment, but softer price environment compared to the environment we benefited in 2022. We deliver, as you see here, a net – adjusted net income TotalEnergies share above $23 billion and an IFRS net income above $21 billion. In terms of profitability, we had ROCE, return on capital employed at 19% in 2023 and a return on equity, 20%. So that means that once again, TotalEnergies in 2023 was the most profitable major. In terms of cash flow in 2023, we managed to deliver cash flow at $36 million with a strong contribution of all the different business segments. So E&P contributed to more than $18 million, $18.5 billion, integrated Power, 7.3 – integrated energy, sorry, 7.3, integrated power, above $2 billion, $2.2 billion, I will come back on that later, and downstream at $8.2 billion.

On top of that, we benefited last year from a strong working cap release, so cash in coming from our working cap around $5 billion, but to be very transparent with you, some of this capital – working cap variation came includes $2 billion of exceptional fiscal debt variation that will disappear in 2024. So, how this cash has been used? So, this $36 billion plus this $5 billion of working cap has been used. So, $16.8 billion has been devoted to capital investment. I will comment later on this figure. $16.5 billion has been contributed to our shareholder return with cash flow distribution, so payouts above 40%. Indeed, payouts increased from 37% in 2022 to 46% in 2023 and it consisted in 7.1% increase in the ordinary dividend that we paid in 2023 plus $9 billion of buyback.

Out of this $9 billion, I remind you that $1.5 billion are directly linked to the Canadian disposal assets. And the remaining parts of the cash flow we generated last year contributed continue to deleverage the company. We now net debt at $6 billion and leading to gearing end of last year at 5%. So now, the scorecard for 2023, I think it’s clear that we deliver on our objectives. So for upstream production, the production increased, excluding Novatek by 2%, to 2.48 million barrels per oil equivalent, with a strong contribution in terms of LNG production that grew by 9%, in line with the objective we had on that topic. Refining has a slightly better than expected utilization rates at more than 80%. So we guide at 80%. And so the final figure was 81%.