TotalEnergies SE (NYSE:TTE) Q4 2022 Earnings Call Transcript

TotalEnergies SE (NYSE:TTE) Q4 2022 Earnings Call Transcript February 8, 2023

Operator: Good morning. Welcome, and thank you for joining the TotalEnergies 2022 Results and 2023 Objectives Webcast. At this time, I would like to turn the conference over to Mr. Patrick Pouyanne, TotalEnergies Chairman and Chief Executive Officer; and Jean-Pierre Sbraire, TotalEnergies Chief Financial Officer. Please go ahead, sir.

Renaud Lions: Good morning, good afternoon, wherever you are. Welcome to TotalEnergies 2022 results and 2023 objectives. We are presenting from Paris in all virtual mode. Our program today, we will start with a safety moment with Thierry Pflimlin, our President, Marketing & Services. And then Patrick and Jean-Pierre will drive us through the results of last year and the objectives set for 2023. And then we’ll have a Q&A session. But for now, a safety moment with Thierry.

Thierry Pflimlin: Good morning. I’ve chosen a safety moment to speak about the fatal accident, which happened during rebranding work at service station in Burkina Faso last year, but let’s start with a description of the sad accident. On April 27, in our service station in Ouagadougou, 2 operators from a contracted company moved the mobile scaffolding between the totem and the station canopy in proximity of a 15,000 volts overhead power line. The third operator, who was the sole victim, helped them, but his leg hit a security barrier at the same time, and it became a conductor of the current when the electrical arch occurred. This third operator collapsed due to electrocution. He died on the spot, despite the cardiac massages performed.

Kader was 26 years old. The in-depth inquiry made following this dramatic accident showed that the work procedure was — were inspected before the start of the work, including previsit and risk analysis, pointing on the nearby presence of overhead power lines and the need to move the scaffolding in unmounted position. On the day of the accident, the specific work permit had been signed. So what went wrong? The investigation of the accident identified 2 key noncompliances with the work statement: inappropriate decision by the operator to reduce the height of the scaffolding rather than dismantle it in order to go safely under the power line; and failing supervision at the moment of the accident because the person in charge of this supervision was distracted in a phone conversation.

How did we react? We immediately suspended rebranding work worldwide on the site with presence of overhead power lines. A written was issued and explained to define the conditions for restarting the works with 4 main points. First, the obligation to always consider, as a priority, isolation by the electrical network company. Second, the guarantee of minimum lateral safety distances with specific surveillance. Third, the strict control with competent supervisors. And the last one, which most probably is the most important one, no scaffolding under live power lines. However, this fatal accident showed that we must push further the appropriation in the field of our safety rules and programs. And this has to be applied to our teams and to our partner companies.

I’m convinced that we must pursue in this way to improve our safety culture. Thank you for your attention.

Patrick Pouyanne: Thank you, Thierry, for this safety moment. I will come back, obviously, on safety. But before, just to introduce this presentation this morning about our results in 2022 and the objectives for ’23, I just would like to underline that, in fact, this year 2022 has demonstrated once again the consistency of the multi-energy strategy that we are following consistently within TotalEnergies for many years. On oil, we continue to invest in oil in order to maintain our production to capture opportunities like the one in Brazil. We are of course driven by the fundamental objective for many years to keep or breakeven under $25 per barrel. It was $24. And at $100 per barrel, like it was the price last year, we had the full benefit.

On LNG and gas, we embarked in a bold strategy in order to become a very large player. We have, by the way, in 2022, managed 48 million tonnes of LNG, which is more than 10% of the market, which was 400 million tonnes, 12% exactly, with strong positions in Europe. And this strategy is delivering. Of course, this integrated strategy is integrated, of course, results in an exceptionally high gas price environment, which was around $200 per barrel. Integration is about also refining , exceptional refining margins, but the high utilization rate, 82%, and the benefit is there. And last but not least, electricity, which I’ve demonstrated, there is room for price increase in these markets as well in which we are investing for the future. Consistency, resiliency, integrations are the key of our strategy.

And today, in order to continue to demonstrate that we are transparent and with profitability we want to deliver to all our investors, we are announcing that you will have from this beginning of ’23 a clear transparency on 2 segments, which are the pillars of our growth, integrated LNG on one side, integrated power on the other side. I would like to underline also in this introduction the, I would say, superior results that TotalEnergies is delivering. We’ll come back on it, but you will notice that we have the strongest net cash flow per share increase among all the majors and by far. And we have the strongest return on average capital employed of more than 28%, which demonstrates that we can combine profitability — strong profitability and transition to new energies.

I would also say that this year is giving us — we’ll come back on it, but a strong guarantee for the future by the deleveraging of the balance sheet, which allow us to express a very clear framework of return to shareholders in last September, which is a clear framework of return to shareholders through the cycles. We announced 35%, 40%. We delivered 37% of cash payout to shareholders in 2022. Thanks to policy, which is clear and which we — the Board of Directors has decided to even reinforce. First, a support to the ordinary dividend through the cycles, thanks to the buybacks we execute, but also to the underlying cash flow growth. And we have announced that we will increase by more than — by 7.25% the residual — the final dividend quarter and the next quarterly dividends in ’23, but also continuing our buyback program with $2 billion.

As previously quarter, no decrease despite a lower environment. And final, last but not least, room for special dividend, like we’ve done in ’22, if we have super — I would say, super profits like before said. So no zigzag in our strategy, consistency and that’s the key for, I would say, the future results and profitability, and this is what we will demonstrate today together with Jean-Pierre. So if I move over at first on safety after the safety moment. Of course, at TotalEnergies, we repeat this message very often. Safety is a core value and comes first because safety requires discipline, and discipline is at the core of operational excellence. So that’s this continuum that we insist on. I would say that on the one hand, we can be proud of implementing for the company our safety culture, which has led to a significant decrease in the accident rate, as measured and shown here by the — what we call the total recordable injury rate, and we are today managed in the last decade to become among the best in the major, if not the best, but, there is a big but.

However, on the other hand, we report with deep regret that there were 3 fatalities in 2022, which I consider unacceptable, and that see as a — and we see as a sign that we must do more to strengthen our safety culture. But to be sure that this culture is really embedded all over the world in all our operations, wherever they are, whatever they are. We purposely show on this slide the details of the 3 fatalities as well as the steps we are taking on a continuous basis to address and mitigate these ever present risks. We will talk today about our strong 2022 results. It’s a fact, but understand that we carry the knowledge of this facility like the weight on our shoulders. And therefore, we as a company, and I as a leader, cannot be completely satisfied, but we were as successful last year as we should have been.

2022 is definitely a year, as I said, where we have managed to get the most out of our assets in different businesses. Of course, first, this year was a year of LNG, I would say, which become a star in many — around the world because, suddenly, because of invasion of Ukraine by Russia and the impact on the European gas. We — European markets needs more gas. We were in a strong position, the first U.S. exporter, the first Europe regas order. And we have used a lot with regasification capacities in Europe, 86%. And we have increased our LNG sales by 15%, 48 million tonnes. Integrated, the other success, as I said, is a very strong utilization rate of our refining system, more than 80%, 82% in the market, which was really quite high, thanks in particular to distillate.

We managed to capture a very high refining margin and our downstream business as — which showed record cash flow generation. But we have also been able to consolidate these assets through some smart M&A like the one we’ve done in Brazil at the end of ’21, where in a year after, it generated more than $700 million of cash flow. Throughout ’22, success is also to prepare the future in all these operations. Preparing the future is, yes, of course, and you will not see in this presentation the word Russia. Russia is behind us, but we have been able to build the future in LNG through the successes of becoming the largest international player in North Field East and North Field South Qatar projects. We also, I would say, underline the success that we had in exploration — oil exploration.

We’ll come back on it in Namibia and Suriname. So that’s also part of our future and future profits. And last but not least, smart M&A to consolidate on — our integrated power businesses. Why is this smart M&A? Because both are characterized by the fact that it’s direct negotiations to obtain attractive conditions, strong position in the U.S. on the one side with Clearway Energy in Brazil with other site. All these successes is about growing our production, growing our energies. It’s — also, we keep in mind that we have, at the same time, to lower our emissions. And you will see the results knowing that we’ll come back end of March with our sustainability climate report deeply in details of our, I would say, net 0 ambition. So at the end, this is a slide we introduced in September, but which is, for me, the results and give me again the strong comfort for the future is that, yes, we had a record cash generation, but what is important to me is that we compare the ’22 cash generation to 10 years ago, 2012, with even a higher oil price, we have increased our cash generation by more than 50%, thanks to the strong decrease of the breakeven.

And the challenge now is to maintain this breakeven under $25 per barrel by the selection of assets, by the action on cost, despite some inflationary environment, and we’ll manage it. And of course, thanks to these cash flows, we allocate quite a lot, like Jean-Pierre will tell you, to deleverage the company, and that’s the best guarantee for the future. I will then leave the floor to Jean-Pierre to describe in detail these ’22 results.

Jean-Pierre Sbraire: Thank you, Patrick. So I will concentrate my comments on 2022, a year when we established new records, thanks to perfect match between, on one side, our well-positioned assets. And with no surprise, we’ll talk about gas and energy. And on the other side, very favorable markets, which have set new records in 2022. The 2022 environment provided favorable tailwinds for all our activities. Normally, there is a mix of positive and negative. It was not obviously the case in 2022. And so we were able to fully leverage the strength of our global integrated portfolio. Patrick will cover the macro later on, so I will not come back on the rationale. Our oil price sensitivity is sometimes underestimated. But clearly, in 2022, we benefited strongly for the rise in oil prices, thanks to our low breakeven low-cost portfolio, which allow us to capture this price increase.

Please note, as Patrick already mentioned, that in 2022, we had the strongest increase of net cash flow per shares among major. I will show you the data later on. Refining margins are linked to oil, but we saw in 2022 massive supply disruption, particularly affecting middle distillates related to sanction in Russia and, more recently, to the European embargoes on both crude and oil products. For gas and LNG, it is a similar story. The Russia-Ukraine war drove gas and LNG prices to never before seen levels, as Europe scrambled to cut, to decouple from Russian pipe gas by importing additional 50 million tonnes of LNG last year. This represents more than 10% of the market. So clearly, across all our business in 2022, markets were favorable. Here you see the list of key metrics demonstrating that for 2022, we talk the talk, we walk the walk.

A slight miss on production mainly due to security issues in Nigeria and Libya, some delays in projects and the price effect on our . Better-than-expected performance for refining, you see 82% utilization rate in 2022. LNG sales were 4 million-ton targets — 4 million tonnes above targets because of intense LNG spot business in Europe, and we maximized the value of our regas capacities and, of course, renewable as well while, at the same time, meeting our Scope 1 plus 2 emission reductions, despite high utilization of CCGTs in Europe. As announced in July, investment came in above ’22 objective at $16.3 billion. This reflects increased short-cycle activity to benefit from the strong price environment, higher net acquisitions mainly for in Brazil and renewable in the U.S., but no meaningful impact from inflation.

And I think a great bottom line for shareholders, plus $1 billion of underlying cash flow growth, a key element, as you know, supporting dividend growth, and $47 billion of debt-adjusted cash flow in 2022. So let’s move to iGRP results. So iGRP adjusted net operating income was $12 billion in 2022, almost doubling compared to 2021, thanks, again, to fully integrated LNG, which position us to maximize the capture of the high price environment, but also thanks to strong growth in integrated power generation. Cash flow globally at the level of iGRP was $11 billion, up 76% year-on-year. You have here a very important message on that slide to provide a better understanding of the growth strategy of LNG on one side and electricity renewable on the other side.

The Board has decided to split iGRP into 2 new segments from the first quarter ’23. That means that from that date, we will report separately integrated LNG and integrated power. So integrated LNG is comprised of our LNG assets, gas and energy trading, plus biogas and hydrogen. And integrated power is comprised of renewable and flexible power generation, power trading, plus power and gas marketing. We provide you here with some metrics for these 2 segments, ’22 versus ’21. For iLNG, sales were up 15% to 48 million tonnes in 2022, thanks to our #1 position in European regas, which allowed increased spot purchases and sales in the context of record LNG demand in Europe. Cash flow increased to $10 billion, up nearly 80%. And adjusted net operating income was $11 million, doubling the contribution compared to ’21.

iPower generated $1 billion of cash flow and earnings over 2022. Production was 33 terawatt hour, up 57%, thanks to higher utilization rate of CCGTs in Europe and a 53% increase in power generation from renewables. At year-end 2022, we had 17 gigawatts of renewable capacity installed. A lot of you have been asking for the split to better understand our 2 fastest growing activity, LNG and integrated power. We are happy to do it from 2023. In nearly everywhere, 2022 was a record-setting year for TotalEnergies, benefiting from the favorable environment, the increase in LNG sales, plus 15%. And thanks to our unique position in Europe, TotalEnergies generated a very positive adjusted income at $36.2 billion in 2022. Including nearly $15 billion of impairment related to our Russian upstream assets, our reported IFRS net income was $20.5 billion in 2022.

Return on equity was 32%. And ROCE, return on capital employed, 28% in 2022. This demonstrating again the quality of our portfolio and the capacity of TotalEnergies to benefit from price increase. Along with record earnings, TotalEnergies generated $46 billion of cash flow in 2022, an all-time high shown on the left side of the slide, split by segment. All segments made stronger cash flow contribution in 2022; $26 million from E&P, up 39% on higher oil and gas prices and despite the U.K. windfall tax profit, which represents — which has represented in 2022, $1 billion. $10 billion from LNG, a record high that we covered on the previous slides. $10 billion from downstream driven by the contribution from refining of close to $8 billion, more than 2.5x contribution in 2021, thanks to higher refining utilization rates that allow us to capture high margins.

And $1 billion, an important milestone for integrated power. On the right, we show the cash flow allocations, which was pretty evenly divided among shareholders, investments and debt reduction. $17 billion return to shareholders, representing 37.2% payouts, delivering on our 35%, 40% commitments, comprised of $7.3 billion for the ordinary dividends, plus $7 billion of buybacks and $2.7 billion of special dividends that was paid in December. $16.3 billion for investments, but I will cover that in the next slide. And $14.5 billion of net debt reduction, which cuts our gearing by more than half, 7% end of 2022 compared to 15.3% end of 2021. The 2022 environment allowed us for all our segments to demonstrate their strong underlying potential. Typically, with an integrated model, we count on strength in one activity to offset possible market challenges in .

But in 2022, each segment had a chance to shine. Capital investments came in at $16.3 billion in 2022, above the guidance, $14 billion to $15 billion, mainly due to an acceleration of short-cycle projects in West African countries, but also in the North Sea in order to benefit in 2023, 2024 from a good environment; and $5.9 billion of smart acquisition, notably in Brazil, for oil and in the U.S. for integrated power. Also included here are divestment for $1.4 billion mainly from ongoing farm-down activities, which is key to the profitability of integrated power. For example, in that figure, you have the farm down of 50% of 30 — 230 megawatts portfolio of renewable in France, but also partial sales of our CCGT Landivisiau, also in France. In that figure, you have also the sales of some E&P mature assets, notably our interest in Block 14 in Angola, but also the Sarsang field in Iraq.

Important to note that inflation did not have meaningful impact on 2022 increase in CapEx. We remain disciplined on capital with strict criteria for sanctioning projects. I will give you more about that on the next slide. But important to say that we determined last year, particularly in light of the rapid strengthening of our balance sheet, that passing on the opportunities noted here will not serve our shareholders’ best interest. To the right, we split 2022 investments by type of activity. Oil generated most of our cash flow, and we allocated about 60% of CapEx to it, split — with the split between 60%, 40% between maintenance and growth. And a big piece, $2.8 billion, of that growth was for Sepia and Atapu, the deep offshore field in Brazil.

Integrated power and low carbon energy including, of course, the Clearway acquisition was $4 billion, representing 25% globally of the CapEx in 2022. Integrated LNG represented the balance of roughly $2 billion, reflecting the timing of FX , as Qatar NFE and Qatar NFS was not recording in 2022. It will be the case in the first quarter of 2023. When prices increase, cost might follow. However, 2022 cost inflation was not so severe in our key regions and activities, except, of course, energy costs, but we benefited of price increases. There are some upward pressure shown on the right in that slide, but we effectively controlled it in 2022. Using ASC 932 OpEx as a benchmark, TotalEnergies continues to be the low-cost — the lowest cost producer among the major at about $5.5 per barrel equivalent.

On an ongoing basis, we benefit from a high-quality global portfolio that allow us to leverage on purchases power, to negotiate favorable contracts with suppliers and service companies. On deep offshore rates, we signed medium-duration contracts that largely insulates us from inflation in 2022. But nearly, all of our rates are set at about the same level for 2023, with option taking us into ’24 at good prices. For new projects, we adhere to strict selection criteria, shown on the right, to maintain the high quality of the portfolio in terms of average cost, but also in terms of emission per barrel as well. Important to note that our criteria on emission per barrel will be more severe in the future as the portfolio average has lowered to 19 kilograms CO2 per barrel equipment.

In terms of the constant progress of high grading the portfolio, for example, adding low-cost barrels in Brazil last year at Atapu and Sepia, implementing the spinoff of our E&P subsidiaries in Canada with higher cost barrels this year will reduce our overall cost per barrel in the future. To conclude the 2022 result presentation, what you have here are the benchmark of performance of TotalEnergies versus the other 4 super majors. In terms of growing net cash flow per share, you see here the data, we were the strongest by far, doubling in to almost $13 per share. Similarly, TotalEnergies was best-in-class for profitability with 28% return on capital employed. For the 3 years’ return to shareholders, we outperformed our European peers by maintaining the dividend in 2020.

We haven’t cut the dividend in the middle of the COVID crisis and ended up trailing our U.S. peers. And to conclude, based on the Sustainalytics ranking, TotalEnergies has the highest ESG rating among the super majors. We consider that this continues to be an important factor in terms of ESG leadership through this period of growth and transformation. In summary, a historic year for the company, a big step-up in terms of financial strength and flexibility, in large part due to the strategies that position us to fully benefit from the 2022 favorable market environment. And with that, I leave the floor to Patrick. Thank you.

Patrick Pouyanne: Yes. And this slide demonstrates that you can really deliver, at the same time, superior results and sustainability. There is no opposition between both of us. So executive strategy, of course, will be the motto for 2023. And just some words about the environment. Of course, the price today of oil is no more — at $100, but more around $80. But I would say, when we look to the trends of the old markets, for me, there are — there is some uncertainty on the demand, in particular, because there is a feeling — even this feeling maybe is disappearing a little of the risk of what we call recession, global economy slowdown. But again, this feeling today is a little erased because of what we observed in China. And of course, on the energy markets, either oil or gas, the Chinese recovery — economy recovery will be fundamental, easing of lockdown restrictions.

What is clear, by the way, and I know that in our world of oil and gas, there is a new bible, which is a net zero scenario of IEA, which is supposed to decrease the demand every year and to increase the supply is that for 2023, all experts, including IEA, are announcing a higher demand for oil, around 102 million barrel of oil per day, which will be a record year. So the reality of our world is that the oil demand continue to grow, and that we need to face, in fact, we have the supply. On the supply side, we don’t see a lot of, I would say, margin. We see we are entering into this year with very low inventories of products, in particular, very low compared to the last 10 years. We have the impact of the sanctions on Russian crude and refined products.

The crude oil — Russian crude oil is finding its place in the market, China, India. But the refined products of Russia, it’s less obvious where the diesel will go, Africa, South America, that’s a mystery. And by the way, we have also, of course, the supply side is clearly supported by the OPEC discipline, with the cut which happened, and the OPEC countries wants to maintain the oil above $80 per barrel, we’ll take actions. And the other, we could have expected more supply from the U.S. shale, but as it was the case, previous to COVID, but it’s no more the case. Shareholders want some returns and today are more speaking about returns than growth. So that means that when you look to this landscape, I think, from our perspective, there is more support to, I would say, a higher price than $80 and a lower one.

And so looking to — we’d not be surprised to see $100 per barrel coming back. By the way, the oil market, and this is very important to understand, is also for me, today, there is no more a world oil market, in fact, and that’s for a big lesson of what’s happening. We are splitting the market between Europe, which . There are some cap on the prices. So we have today several markets, which does not help, obviously, to ease the price. And I think we did not have seen all the consequences of the growing gray markets and — for these — the supply of this — of oil. On the gas side, this slide is a little complex, but just today, we can have a better vision, better view and maybe even draw some lessons for what could happen in ’23. In Europe, as obviously, the European gas is driving the LNG and power markets for Europe.

So you have on this slide what happened in ’22 compared to ’21. First, production in ’21 and supply-demand was around 380 million tonnes. It grows to 400 million tonnes by end ’22, so plus 20 million tonnes. But at the same time, the European demand for LNG has grown by $50 million. You can see on the graph on the right corner — bottom corner that the demand of gas, and we have all translated in this slide in of LNG. The demand for — in 2021 for gas in Europe was the equivalent of 170 million tonnes. In fact, 100 million tonnes was delivered by pipe gas. It is a famous one, the 130 Bcm from Russia. But we had already importing 67 million tonnes in ’21. For ’22, the Russian gas has been divided by more than 2. We received the equivalent of 44 million tonnes of LNG.

And so we had, to add on it, 1 more LNG, and there is an increase of up to 115 million tonnes of LNG. You can see, by the way, that the bar of ’22 is a little lower than the bar of ’21 because there was a decrease of demand, around 15%, because of the high prices. So to do that, we have done it at the expense of other regions, I would say. And as you can see, there was a sort of supply gaps. So to attract this 50 million tonnes to Europe, we had, in fact, taken out 15 million tonnes, 16 million tonnes exactly, from China. China probably has — because there was a slowdown in the Chinese economy, which went down from 80 million tonnes to 65 million tonnes, more or less, but also from other countries like Bangladesh . So in fact, the supplies of Europe has been possible because we took all the LNG out of other countries, which, by the way, have shifted to coal.

So yes, the security of supply of Europe has been secured, but at the expense somewhere of the emissions of other countries. Of course, we have done that with a very higher price in order to attract this LNG. So what is the perspective for ’23? I might be wrong, but there are some fundamentals. First fundamental is that we expect the Russian gas to be lower in ’23 than ’22 because, in fact, we have been supplied by Russian gas and Nord Stream pipelines up until middle of the year in ’22, and these pipelines are down today. So we expect, I would say, half, maybe up to 20 BCM only mainly by the Ukrainian pipeline. And so if — even if there is a potential again destruction of demand, we expect more LNG being required by Europe than in ’23 than ’22, 15 million, 25 million tonnes are our expectations, depending on demand.

The increase of supply in ’23 compared to ’22 is only 10 million tonnes, 410 million tonnes. So this 15 million tonnes to 25 million tonnes, we see it’s more than what will be supplied worldwide. And we could expect as well, against the same question mark, a recovery by China and an acceleration of the economy in China, recovering part of all of the 15 million tonnes that we acquired last week. We derived — we extracted from China. So the supply gap is there again. And so it’s why we think there will be some tension. Of course, on the gas, there is one element which is different, which is a small note on the bottom right corner, which is the storage level. So storage level were 54% last year by end of January. Today, they are 85% in Europe.

We cannot store more because there is a limited capacity of storage in Europe. This Is why today the prices are lower. But again, we will consume this gas. And so we think that some tensions will appear by middle of the year between the different markets for LNG. So ’23, our activity in front of this environment, we’ll continue to deploy our strategy. We have already announced, of course, on the LNG side, we are adding some regas capacity in Europe. The one in Germany has been opened. It’s operational. We have put FSRU in Lubmin, which is the point where the Nord Stream is landing, which is a perfect access to the German market. So our LNG traders are quite happy with this infrastructure. We have booked half of the infrastructure for our own business.

We are adding another one in France where we intend also to book half of it. So that’s LNG. And there we continue, of course, to chase opportunities in LNG. As you know, we have ambition in the U.S., and we’ll come back to you later. The second part of deploying our strategy, and it’s important, Refining & Chemicals, where we have Bernard and its team have worked hard during years to consolidate this Jubail platform, the SATORP platforms. Our strategy is expanding fundamentally in an integrated way. We have been happy to make — to take the FID of the Amiral project, which is $11 billion world-class petrochemical integrated complex, which will come on stream in 2027. It will consolidate the profitability of our integrated downstream business.

And last but not least, integrated power, which is the other pillar of the growth, will benefit in ’23 from the acquisition of 70% remaining shares of Total Eren. We have exercised our options. It was, as you know, a transaction where the negotiation took place in 2016, at a time where the multiples were — on renewable assets were reasonable. So that’s already there. So it gives some work to our teams, but there is more to come. Of course, we’ll not just sleep during the year, but we’ll continue to find smart developments in all our projects. We’re lowering, of course, our emissions. It’s always — our motto is more energy, less emissions. So growing our energies for sure, and our delivery for energy, lowering our emissions. In particular, we have announced in September that we have launched a worldwide energy saving plan in the company.

The teams have been super reactive. So the $1 billion has been distributed at an average, by the way, cost of $50 per ton. It will — it begins to be spent in ’23 for $400 million spread over the 2 years. And it will allow us, by the way, to lower our targets on Scope 1 and 2 emissions by 2 million tonnes for 2025. We’ll come back on that in March. Second point of ’23, and I think it’s important for all the investors, is our cash allocation priorities. There is a scheme now that has been put in place. I remind you that we want to deliver 35%, 40% of cash payout for the cycles, 37.2% in ’22. So we have taken some first decisions with the Board of Directors on this first dividend that we begin to call ordinary dividend to differentiate it from the special dividend.

We want it to be sustainable. And this, of course, the increase of 7.25%. We have announced yesterday for the ’22 final dividend and the ’23 interim dividends is at EUR 74 per share, is supported by both the share buybacks, which we have done last year, which we are representing almost 5% of capital. So of course, this 5% is a return to shareholders only if we translate that in an increase of dividend, which we’ll do. And we do more, we go up because there is also an increase of the underlying cash flow growth. So this is the reason why we’ve done this increase, which is a larger one than the one we have decided for the full year 2022, 6.5%. I would like to remind to all of you that the difference of some of the peers, we didn’t cut the dividend in 2020.

And so we have — maybe, we have less room to increase this year, but we increased the dividend year after year, ’22, 6.5%. So basis was more than 7% in ’23. And so that’s our commitment. So CapEx, I will come back on it. We gave you a range of 14%, 18% in September. It will be 16%, 18% in high part, of course, $5 billion in low-carbon energies. So balance sheet, difficult to express a target for the gearing. It’s down to 7%. So it will be strange to you to say minus, I don’t know what. So we express our ambition in another way, which is to continue to strengthen the balance sheet because it’s a guarantee for the future. Today, we are A+. I think we want to target better AA credit rating. It’s an ambition for — it’s the objective of my CFO.

So he told me it’s aspirational. I told him, “No, it’s a real objective for you and your team.” So — and I think it’s true — it’s because, again, for me, that is the best answer to ensure you that all our strategy in CapEx and return to shareholders will be delivered through the cycles. And the surplus cash flows are, of course, allocated part of it first to buybacks. And last year, we were at an average of a little bit less than $2 billion. It was $1.75 billion. We increased it to $2 billion than in the last quarter for this 2023 in an environment of $80, which is lower than the one of last year at $100 per barrel. So I think it’s a commitment to this buyback. And the special dividend, it’s only in case of super profits. We will come back on it, even if — as I will explain you, there will be — the shareholders of TotalEnergies will be rewarded with a special dividend in kind, as we will organize the spin-off of our Canada upstream assets.

I will come back on it. So I think this is a full program, which demonstrates the real way we think to the future. When you look to, in fact, the column 1 and 4 are for the shareholders. Column 2 and 3 are for the company. And we think to that. Of course, we have to — we’ll come back to the other stakeholders. So the capital investment of ’23 will support the transition, $16 billion, $18 billion, at which — out of which, $5 billion for low-carbon energies, let’s say, quarter 4 for integrated power and more than before on the new molecules because we grow our ambition in the various segments. In particular, in carbon capture storage, we have been awarded new projects in Denmark. So we have Norway, Denmark, Netherlands. So we build, I would say, our position in this business.

Also included in this part is energy savings, let me say, the negative emissions that we can do. And you can see that we have also new projects, of course, coming into our hydrocarbon businesses, oil and gas. In gas, it’s growing because it’s a Qatari project. There is no Russian LNG, no — and more in our spending, but which was — of course, it was less investments in ’22. But the Qatar projects are there. We’ll have the Cameron project. We have the PNG projects. PNG is targeting FID by the end of the year. Cameron is targeting FID by September. So there is a lot of work on LNG but, of course, on oil as well because we have some new projects on which we work. Like in particular, in Brazil, we have — Mero 2 will come on stream. We will have Atapu 2 and Sepia 2 to sanction this year.

We have also Uganda. So we have new projects coming. You can see that, by the way, we have as much new projects on both sides, a little less nitro carbons and low-carbon energies. And we have the rest of the CapEx is maintenance, and we need to invest, more or less, $7 billion to $8 billion each year to maintain, I would say, the whole system. So the ’23 production will grow more energy, will grow mainly coming from LNG. Again, there is no new project coming onstream as last year we had some, I would say, not a full utilization of Snøhvit, which came back on stream by middle of the year. And from — it is because there were some big overhaul in Ichthys, so 9% more of production of LNG and pipe gas to Europe. Oil will benefit from the full year of Brazil, plus 5%, so it’s good in this environment.

So production will grow only by 2% because, at the same time, we have some perimeter effect on domestic gas. We have exited from Myanmar. We have exited from Termokarstovoye. We have — and we will exit from Thailand. Honestly, these are domestic gas. They don’t have — there is no — why did we differentiate them from the rest of the gas is that there is no upside on this type of gas or limited upside linked to the gas price — international gas price or international oil price. So it’s — in terms of economic impacts, we don’t have the volume, but the upside is more limited. So at the end, so what is more important for me, what we do in LNG and pipe gas to Europe because there, you see the upside of this market, plus the oil. Startups in Oman, Block 10 has started; Mero 2, Brazil, middle of the year; and Absheron in Azerbaijan for gas.

Just to mention that we are quite — in our company, we don’t speak about decrease of oil or decrease of gas. We speak about stabilizing, growing, continuing to supply the market, being a key player of energy supply and taking our role, even if we are not a very large player, but we do our role, which means that we continue to focus as well on reserve replacement. You can see by the ’22 reserve replacement ratio in the year are quite good. 108% at the same price, 85% with the price effect, around 100%. There are not so many major companies, which have been able in these last years to maintain their replacement rate at 100%, and we are one of them. Without Russia, which was, of course, for us a source of reserves, but we can do it — without it as it has been done in 2022.

So let’s continue. Integrated LNG portfolio, the ambition, as I just mentioned, more production. So it helps — it will help our colleagues of the downstream LNG to sell more. Of course, there is a spot uncertainty. But our position, as I said before, is strong in regas in Europe. We are increasing our regas capacity in Europe, thanks to the Lubmin and the le Havre FSRUs. So we have more than 20 million tonnes of LNG regas capacity, which is good, which is strong. It will help us to continue to monetize these capacities. As we can see the split on this slide, which is important, we split it into, I would say, 3 pockets according to the margins. There is a pocket of, I would say, long-term Asia, Latin America portfolio, which is fundamentally giving us results and cash.

It’s a difference between Brent and the cost of production. That’s the idea. Then we have the European and flexible markets where we, in fact, we supply the le Havre gas LNG from the U.S. to the spot index. So where the profit will be, I would say, spot minus in le Havre. So today, it’s $20 more or less per million BTU, minus 3 or little less than 3. So you can see the margin. And then you have the spot ones where, in fact, gives some sense of margins, but this activity help us, of course, to, by the way, absorb the cost of the regas and to contribute to security of supply. We have put at the top Yamal because there is always — today, Yamal, by the way, to be clear, we have only — we have stopped — we have all the volume, the 4 million tonnes of volume of the long-term contract on which we are committed, but we are strictly only these volumes, as all the activity which was linked to spot extra volumes, we don’t take them anymore as per our commitment vis-a-vis the Russia business.

Integrated power, we will continue to grow clear because we — of course, the gigawatt of capacity, as it was said by Jean-Pierre, we have managed more than the 16 gigawatt per — by end of ’22 capacity — growth capacity. We are at 16%, 17% — 16.8%, 17%. By the way, I would like to tell you that there are not so many companies able to grow their renewable business by 7 gigawatt in a year. You can look around. We are among the top. And so, again, when we do things in Total, we are consistent. We do that seriously, and we intend to deliver not only growth, but value because this is why. And this is the fundamental reason why we have decided to anticipate the split of iGRP into 2 reporting segments. By the way, there is no split of organization.

Stephane is leading the whole businesses. Just to be clear, it’s a reporting. We have done it because I think now it’s time not only — it’s not only to speak about volume, but value. And the best way to deliver the value is to report the results and to show it as we will improve it. Of course, we have quite a lot of capital unemployed today, but it will come on stream year after year. So we target an increase of production by around 30% mainly from renewables. We benefit today from a very high rate of user utilization rate of the gas-fired power plant in Europe, but there are also some capture of special taxes in Europe on this gas-fired power plant. Having said that, we expect an increase of our integrated power cash flow from $1 billion to, let’s say, plus 30%, 40%, we’ll see.

But these capacities will move, and we have — we will have to deliver this growth. The year 2023, coming back on oil, and I think it’s important to tell you that we have decided to mobilize most — at least, most 50% of our exploration budget on Namibia. We are maybe today in TotalEnergies, and I hope it’s true, and I don’t have words, but only plastic here, but it’s really — maybe at the helm of — it’s clearly according to, by the way, for Wood Mackenzie, it’s the largest discovery, which has been done in 2022. We are maybe at the helm of a new golden block. So we decided to mobilize 2 rigs and $300 million in TotalEnergies share to, I would say, , return the cards. We have 1, 2, 3 rigs — wells, plus tests and to have dynamic test to really know what we have in our hand.

And with the idea that we — to accelerate the time to market, not to appraise everything and to be — I would say, to know everything. But if we have the chance to really confirm the volumes, which seems to have been discovered, there will be room to make fast track developments like we’ve done on Block 17 25 years ago. And so this is from my perspective, very important, because this could be a new chapter of the oil business in the company. So we mobilize the teams and all E&P teams, and there’s supervision of Nicolas. And also the One Tech teams are on these important projects. At the same time, we will divest some oil, the expensive oil. We know we have clearly set 2 years ago. We made some impairments, but we — not only Canadian assets are not in line with our climate strategy.

But fundamentally, there are high OpEx assets, and we are not fitting with our old strategy and our old portfolio. So we look to various options, and we confirm today that we consider that the best way is to maximize value for shareholders is to introduce this independent Canadian company in the market. The idea is to do it — the objective — the project is to list it on the Toronto Stock Exchange by — in the second half of the year. By the way, you can see the metrics of this independent company of 2022. It was a company which produced 110,000 barrels per day, which delivered more than $1.5 billion of cash flow and — from operations and almost $1.3 billion of free cash flow. So it’s quite interesting metrics. We have appointed a leadership team from a Canadian lady, which was the work — you see working in the company will become CEO of this company and Chairmanship as well by an executive of the company, who knows very well Canada.

The idea after that is that in order to manage, I would say, the backflow in this type of listing operation, we will maintain more or less 30%, not more. It will be for some years in order to stabilize the company. But fundamentally, the idea is it will not be a company controlled by TotalEnergies, not at all. We think we’ll have to take maybe one Director out of it. But it has to be — it will be managed as an independent company. By the way, this is the reason why we just preempted for this company, not for TotalEnergies, I would say, for SpinCo, 6% of Fort Hills. There was a transaction between Suncor and Teck, and we considered that if we were in charge of this independent company, obviously, because these were attractive conditions, we would have to preempt.

So we’ve done it in order to strengthen the company before its listing. So for shareholders of TotalEnergies, they will have to approve this spin-off at the AGM of 2023 in May, and they would receive a distribution in kind, so a special dividend in kind of this new SpinCo company. We will report to you, of course, along the coming months on the progress of this project. Coming back to the 2023 objective, which is important, is the cash flow generation. I’m happy to tell you, with the support of the growth in integrated LNG, in integrated power, but also on the oil production, the underlying cash flow growth will grow by another $1 billion. We have announced 1 billion per year. It is the case. This $1 billion is feeding the growth of the dividend.

You can see that we gave you there on this chart, I would say, an indication of what could be the cash flow from operation expected at $80, $100 per barrel. We are navigating in both. And you can compare to ’22 at $100 per barrel. In the same condition, we expect $1 billion more. If $80 per barrel, you have the sensitivity on the right. It’s $3 billion extra cash for $10 per Brent. It’s a little lower than last year at 3.2% because of the impact of the U.K. taxation. And also because we have consolidated, I would say, Novatek, which part in Yamal so — and because Yamal is linked to Brent, more or less. So — or we keep our shares in Yamal, but we have deconsolidated our accounts all the share of Novatek in Yamal. So that’s why the sensitivity is a little lower.

The $0.4 billion for $2 per million BTU is also lower than last year because of the U.K. taxation fundamentally. And for the margin sensitivity on the refining margin, I would say, it didn’t change. Just to remind you that — and I would like to insist is that there is, obviously, for the TotalEnergies sales quite a good potential for stock rating. Free cash flow yield in ’22 was at 19.4%, and we have enterprise value per DACF ratio of only less than 4 — multiple less than 4. So this, we are expecting. We hope that these strong results will be translated in the value of the company. Finally, I would like to tell you that, of course, the company, I’ve shown you before that we are allocating our cash flow to the company by cap investments and debt reduction in a large way, but also to the shareholders by way of the ordinary dividend, special dividends, buybacks.

We are also thinking to our stakeholder. There is one stakeholder missing on this slide, which are the states. The states are benefiting a lot of the oil and gas profits, and people are complaining from time to time. But for TotalEnergies, we have doubled — more than doubled the taxes and — but we will — we’ll have paid to states around the world $16 billion in 2022, $33 billion in 2023. Of course, they are mainly paid to producing countries. But the countries like the U.K., it’s $3.7 billion, $7 billion, and not to the consuming countries, that’s clear. But this is a strong contribution, I think, to, I would say, the public good for the taxes we deliver. We are also thinking to our customers and to our employees. Our employees are, of course, very — are the engine of all these results.

We should never forget that it’s not only the strategy, what is — our 100,000 worldwide employees, which are delivering the strategy. We are rewarded them via a special 1-month salary bonus. We are taking into account the inflation in each country to increase the salary. So we share the value of those salaries, which are also, by the way, shareholders and which 7% of the capital is the property of our employees. So they are also receiving their part of the dividend. For the customers, we have been probably followed a different route than some of the peers. We have decided to make proactively some sharing profit with our customers in order to, I would say, take part of the pain of these high prices — high energy prices. The 2022 was, in many of our countries, a debate of energy, which was dominated by security of supply, but of course, affordability.

So we have put in place some few rebates program, a massive one, more than EUR 500 million for benefit of customers in France. We’ll have to — in ’23, we have to face some also other energy crisis, like the SMEs customers — or SME customers suffering of very high electricity prices, which were contracts because of the increase of electricity price to the sky in Europe second half of 2022. So we take actions, and we continue to take actions because we consider that it’s part of our social responsibility to take care of all our stakeholders, of course the shareholders, the company, the employees, the states and also our customers. So I will stop there, and thank you for the attention. We’ll be happy to answer to your question.

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Q&A Session

Operator: . The first question is from Oswald Clint of Bernstein.

Oswald Clint: Could I ask, please, Patrick, just on the dividend again? I mean, 7.25% increase, you said you couldn’t do more. That’s understandable. It’s helped by the buyback. We understand that, too. But in the context of the last — the long term where you’ve done, let’s say, 5% or 6% growth for the last 1, 2, 3 decades is if we can sustain the dividend and the commodity view cooperates, as you seem to indicate, could 6% to 7% or 7% to 8% become a new trend line at least for that ordinary dividend is the first question? And then thinking about future profits in Namibia, interesting slide you have. So do you think we could get some proper resource numbers in 2023? And when you talk about fast tracking, if successful, what does that mean in terms of time?

And a linked question. Obviously, Shell’s Jonker well has come in, which might give you confidence on an Easterly extension of , but does also pose some unitization risks further down the line that actually could delay things.

Patrick Pouyanne: Okay. On the dividend, we didn’t tell you we couldn’t do more. We have decided to do it at 7.5%, which is, yes, you are right, a change of the past trends. But I think, again, for me, it’s also the translation of the fact that we have increased the buyback. So as we have bought back almost 5%, it gives some comfort. I think when people speak about return to shareholders through buybacks, if we don’t translate it in a higher increase of dividend, I don’t understand why it’s a return to shareholder. It’s a saving for the company of dividend, for sure. So that’s logic. I think I’ve been very logic with what we declared, and the Board is logic. We’ll — we have — and as long as we can allocate some cash to these buybacks, because we have more cash flows, and we are — again, we continue — we did not decrease the buyback rate.

We maintained it, despite a lower environment. And I’ve seen some of our peers have decreased the buyback program for the first quarter. We don’t do that. We maintain it, and that’s proven. So the answer is — to you, maintaining this buyback program, yes, will help us to support a new normal, which might be 7% to 8% and will — in the future, so that’s in the future years. But again, there are 2 engine to fit the increase of the dividend. On one side, these buybacks. On the other side, it is the underlying cash flow growth. And I am announcing and again that we target $1 billion. By the way, I understand that the Board, among the new criteria for the variable pay of the CEO, has to decide to introduce the underlying cash flow growth. So it’s — we walk the talk in the company.

And so that’s what I can answer to you. And again, don’t forget, and then like you can compare it to companies who have increased by 10%, but these companies are divided by 2 or more in 2020, which we will give more room to maneuver to increase. We didn’t decrease at all. So we are also starting from a much higher point from this perspective. You spoke about Namibia, and let’s keep — Namibia, we have a program. I just tell you, we have 1 well, 1 well. People are super excited. They speak to me about billions of barrels, but we don’t have the data. We have no dynamic data. We all know that as long as we don’t have a test and dynamic test, maybe there is no good permeability. It could be complex. So let’s — I’m — we are excited. It’s clear, as we mobilize and we have decided to mobilize a lot of our exploration resource this year to Namibia, because we want to know what we have.