Wednesday, 30 September 2020 | 05:59
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Total demonstrates resilience and maintains dividend in exceptionally weak second quarter environment

Thursday, 30 July 2020 | 23:00

Total's Board of Directors met on July 29, 2020, under the chairmanship of CEO Patrick Pouyanné to approve the Group's second quarter 2020 financial statements. On this occasion, Patrick Pouyanné said:

« During the second quarter, the Group faced exceptional circumstances: the COVID-19 health crisis with its impact on the global economy and the oil market crisis with Brent falling sharply to 30 $/b on average, gas prices dropping to historic lows and refining margins collapsing due to weak demand.

OPEC+ production restraint, however, has contributed to the market recovery since June, with an average Brent price above 40 $/b. The discipline with which the countries implemented the quotas reduced the Group's production by close to 100 kboe/d in the second quarter to 2.85 Mboe/d, and the Group now anticipates full – year production in the range of 2.9-2.95 Mboe/d in 2020.

Due to the significant slowdown of the European economy during the lockdown, the Group's retail networks observed an average decrease in petroleum products demand on the order of 30% during the quarter, and the utilization rate at its European refineries fell to around 60%. However, June saw a rebound of activity in Europe to 90% of pre-crisis levels for the retail networks and 97% for its gas and electricity marketing business.

In this historically difficult context, the Group demonstrates its resilience, reporting $3.6 billion of cash flow, positive adjusted net income and a level of gearing under control. These results are driven in particular by the outperformance of trading activities, once again demonstrating the relevance of Total's integrated model, and by the effectiveness of the action plan put in place from the start of the crisis, notably the discipline on spend.

Taking into account this resilience, the Board of Directors maintains the second interim dividend at €0.66 per share and reaffirms its sustainability in a 40 $/b Brent environment.

This quarter shows once again the quality of the Group's portfolio with a breakeven below 25 $/b, benefiting from the strategy to focus on assets with low production costs, notably in the Middle East. Active portfolio management continues with the sale of non-operated assets in Gabon and the Lindsey refinery in the United Kingdom.

In the midst of these short-term challenges, the Group is resolutely implementing its new climate ambition, announced on May 5, 2020 with the entry into a giant offshore wind project in the North Sea as well as the acquisition in Spain of a portfolio of 2.5 million residential gas and electricity customers plus electricity generation capacity. Investments in low-carbon electricity will be close to 2 B$ and account for nearly 15% of Capex in 2020. In line with this ambition, the Group reviewed the assets that could have been qualified as “stranded assets”. The only assets concerned are the Canadian oil sands projects and the Board of Directors has decided to impair these assets in Canada for $7 billion2.»

Highlights
• New Climate Ambition to achieve carbon neutrality by 2050
• Joined the “Coalition for the Energy of the Future” with 10 major partners to accelerate the energy transition of transportation and logistics
• Joined the “Getting to Zero Coalition” to contribute to the shipping industry's decarbonization
• Investment decision for the Northern Lights project in Norway for the transport and storage of CO2
• Signed the external financing agreement for the Mozambique LNG project for $14.9 billion, the largest project financing in Africa
• Extension of the LNG supply contract with Sonatrach for 2 Mt/y
• Agreement with SSE Renewables to acquire a 51% stake in the 1,140 MW offshore wind project in the Scottish North Sea
• Acquisition of EDP's portfolio of 2.5 million residential customers and two natural gas-fired combined-cycle power plants, with a combined capacity of nearly 850 megawatts
• Started up the second FPSO on the deep-offshore Iara field in Brazil
• Discovery of Bashrush gas field in Egypt on North El Hammad permit
• Third discovery (Kwaskwasi) on block 58 in Surinam
• Sale of the portfolio of mature and non-operated assets in Gabon
• Sale of the Lindsey refinery in the United Kingdom
• Creation of a 50:50 JV with IndianOil to manufacture and market high-quality bitumen derivatives
• Adoption by the Group of statutes to become a European Company

Key figures of environment and Group production

The average LNG sales price fell by 30% in the second quarter 2020 compared to the previous quarter. The share of volumes sold at spot prices increased in the second quarter 2020 compared to the first quarter of 2020 due to deferrals of LNG liftings by long-term contract buyers, while the average selling price of long-term LNG contracts LNG terms decreased by only 16% due to the delayed impact of lower oil prices.

Production*

Hydrocarbon production was 2,846 thousand barrels of oil equivalent per day (kboe/d) in the second quarter 2020, a decrease of 4% year-on-year, comprised of:
• -5% due to OPEC+ quotas, notably in the United Arab Emirates, Nigeria, Angola and Kazakhstan, as well as voluntary reductions in Canada and disruptions in Libya.
• -1% due to gas demand in the context of the pandemic.
• +1% due to lower prices.
• +4% due to the start-up and ramp-up of new projects, notably Culzean in the United Kingdom, Johan Sverdrup in Norway, Iara in Brazil and Tempa Rossa in Italy.
• -3% due to the natural decline of fields.

Analysis of business segments

Integrated Gas, Renewables & Power (iGRP)

> Liquefied natural gas (LNG) production and sales and low carbon electricity

Hydrocarbon production for LNG was stable in the first half compared to last year.

Total LNG sales increased by 22% in the second quarter compared to last year, notably due to an increase in trading activities. For the first half, total sales increased by 24% year-on-year for the same reason and thanks to the ramp-up of Yamal LNG and Ichthys plus the start-up of the first two Cameron LNG trains in the US.

Gross installed renewable power generation capacity rose to 5.1 GW in the second quarter, a strong 97% increase year-on-year, notably thanks to the acquisition in India of 50% of a portfolio of more than 2 GW from the Adani Group.

The Group continues to implement its strategy to integrate along the gas and electricity chain in Europe and has seen the number of its gas and electricity customers grow during the quarter to 5.9 million, a 7% increase compared to a year ago. Sales of gas and electricity decreased by 3%, impacted by lower demand linked to the lockdown in Europe.

> Results

Adjusted net operating income for the iGRP segment was $326 million in the second quarter 2020, down 24% year-on-year and operating cash flow before working capital changes decreased by 36% in the same period to
$555 million. The results are mainly due to the sharp drop in gas prices compared to the second quarter 2019.

In the first half 2020, adjusted net operating income for the iGRP segment was $1,239 million, an increase of 21% compared to last year, notably due to the strong 24% growth in LNG sales.

Exploration & Production

Exploration & Production adjusted net operating loss was $209 million in the second quarter compared to adjusted net operating income of $2,022 million a year ago due to the sharp drop in oil and gas prices and lower production. Operating cash flow before working capital changes was $1,810 million in the second quarter compared to $4,882 million a year earlier for the same reasons.

Exploration & Production adjusted net operating income fell to $494 million in the first half 2020 from $3,744 million in the first half 2019 due to the sharp drop in oil and gas prices. Operating cash flow before working capital changes was $4,386 million compared to $9,128 million in the first half 2019.
Downstream (Refining & Chemicals and Marketing & Services)

Refinery throughput volumes decreased by 22% in the second quarter and in the first half of 2020 year-on-year, mainly due to prolonging the planned shutdown at Feyzin in France, the decision to not restart Grandpuits after a major turnaround given the drop in demand and the shutdown of the distillation unit at the Normandy platform following an incident at the end of 2019.

Monomer production was:
> Up by a strong 40% in the second quarter compared to a year ago. In the second quarter 2019, it was 993 kt due to planned maintenance on the steamcrackers at Daesan in South Korea and Port Arthur in the United States.
> Up 16% in the first half for the same reasons.

Polymer production was:
> Up 6% in the second quarter 2020 compared to a year ago. It was 1,127 kt in the second quarter 2019 due to planned maintenance of the steamcracker upstream of the polymer units at Daesan in South Korea.
> Stable in the first half for the same reasons and taking into account the closure of the polystyrene site at El Prat in Spain and the planned maintenance at the Qatofin platform in Qatar in the first quarter 2020.

Refining & Chemicals adjusted net operating income decreased by 20% to $575 million in the second quarter 2020 compared to a year ago. The decrease was notably due to an even more severely degraded refining margin environment in the second quarter and low plant utilization of 59%, partially offset by resilient petrochemical margins and outperformance of the trading activities.

Operating cash flow before working capital changes was $996 million in the second quarter of 2020, up 24% year- on-year for the reasons above as well as the receipt in the second quarter of the dividend from HTC.

In the first half 2020, Refining & Chemicals adjusted net operating income was $1 billion, down 35% compared to a year ago, and operating cash flow before working capital changes decreased by 13% to $1.7 billion. This decrease was notably linked to the degraded refining margin environment in the first half and to the weak plant utilization rate of 64%, partially offset by resilient petrochemical margins and very good performance of the trading activities.

Marketing & Services

Petroleum product sales volumes fell by 30% in the quarter and by 20% in the first half year-on-year notably due to the impact of the lockdown on demand.

Adjusted net operating income was $129 million in the second quarter 2020, a drop of 70% due to the decrease in volumes. It decreased by 44% in the first half compared to last year for the same reason.

Operating cash flow before working capital changes was $492 million in the second quarter 2020 and $882 million in the first half.

Group results

> Adjusted net operating income from business segments
Adjusted net operating income from the business segments was:
• $821 million in the second quarter 2020, a decrease of 77% compared to a year ago due to lower Brent prices, natural gas prices and refining margins as well as the impact of the Covid-19 crisis on demand.
• $3,121 million in the first half 2020, a decrease of 55% year-on-year for the same reasons.

> Adjusted net income (Group share)
Adjusted net income (Group share) was:
• $126 million in the second quarter 2020, compared to $2,887 million a year ago due to lower Brent prices, natural gas prices and refining margins as well as the impact of the Covid-19 crisis on demand.
• $1,907 million in the first half 2020 for the same reasons.

Adjusted net income excludes the after-tax inventory effect, special items and the impact of effects of changes in fair value9.

Total net income adjustments10 were -$8,495 million in the second quarter 2020, including -$8,101 million for impairments.

The effective tax rate for the Group was -6.8% in the second quarter 2020, compared to 30% in the previous quarter. The negative rate is explained by the adjusted net operating loss in Exploration & Production, which has a high tax rate, and was not offset by the positive results in the Downstream, which has a lower tax rate.

> Adjusted fully-diluted earnings per share
Adjusted earnings per share was:
• $0.02 in the second quarter 2020, calculated on the basis of a weighted average of 2,598 million fully- diluted shares, compared to $1.05 in the same period last year.
• $0.68 in the first half 2020, calculated on the basis of a weighted average of 2,598 million fully-diluted shares, compared to $2.07 in the same period last year.

The number of fully-diluted shares was 2,605 million on June 30, 2020.

> Acquisitions – asset sales
Acquisitions were:
• $857 million in the second quarter 2020, comprised notably of finalizing the acquisition in India of 50% of a portfolio of installed solar activities from Adani Green Energy Limited as well as the acquisition of interests in Blocks 20 and 21 in Angola.
• $2.5 billion in the first half 2020, comprised of the elements above as well as the finalization of the acquisition of 37.4% of Adani Gas Limited in India and the payment for a second tranche linked to taking the 10% stake in the Arctic LNG 2 project in Russia.

Asset sales were:
• $136 million in the second quarter 2020.
• $678 million in the first half 2020, comprised notably of the sales of Block CA1 in Brunei, the Group's interest in the Fos Cavaou regasification terminal in France, and 50% of a portfolio of solar and wind assets from Total Quadran in France.

> Net cash flow
Net cash flow11 for the Group was:
• $226 million in the second quarter 2020 compared to $3.3 billion a year ago due to the decrease in operating cash flow before working capital changes in the context of sharply lower oil and gas prices. It remains positive thanks to the decrease in net investments.
• $0.6 billion in the first half 2020 compared to $6.2 billion year-on-year due to the decrease in operating cash flow before working capital changes of $5.6 billion in the context of sharply lower oil and gas prices.

Total SE accounts
Net income for Total SE, the parent company, was €4,710 million in the first half 2020 compared to €6,282 million a year ago.

Summary and outlook
Oil prices strengthened since the beginning of June, reaching around 40 $/b, benefiting from strong compliance with the OPEC+ quotas and the decline of hydrocarbon production in the United States and Canada as well as a recovery in demand.
The oil environment, however, remains volatile, given the uncertainty around the extent and speed of the global economic recovery post-Covid-19.
The Group demonstrates discipline in the implementation of its 2020 action plan:
– Net investments below $14 billion,
– Savings of $1 billion on operating costs compared to 2019.

Total will continue to profitably grow in low carbon electricity, particularly in renewables, with close to $2 billion of investments in 2020.
In LNG, Total anticipates significant deferred liftings in the third quarter and expects the decline in oil prices observed in the second quarter to have an impact on long-term LNG contract prices in the second half of the year.
Considering the implementation of the OPEC+ quotas and the situation in Libya, the Group now expects 2020 production to be between 2.9 Mboe/d and 2.95 Mboe/d, with a low point in the third quarter during the summer season. The ramp up of Iara's second FPSO in Brazil will contribute to production growth in the last part of the year. In the Downstream, high inventory levels continue to weigh on refining margins and utilization rates. In Marketing, activity in Europe returned to 90% of its pre-crisis level since June and the Group anticipates that it will remain at a comparable level in the coming months.
The Group's priority is to generate a level of cash flow that allows it to continue to invest in profitable projects , to preserve an attractive shareholder return and to maintain a strong balance sheet. To this end, the Group's teams are focused on the four priorities of HSE, operational excellence, cost reduction and cash flow generation.
Source: Total

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