Dip in gas prices takes its toll on profit but multi-energy recipe still comes through for TotalEnergies

As the energy transition intricacies keep spreading their wings over the global decarbonization stage, France’s energy giant TotalEnergies has set its cap on pursuing a balancing act between hydrocarbons and low-carbon and green sources of supply, as hammered home by its performance during the first quarter of 2024. While this endeavor appears to be working for the oil major, as it cushioned the fall in profit driven by the downward trend in gas prices, the firm’s adjusted net profit still experienced a 22% drop year-over-year (y-o-y).

With natural gas prices down nearly 50% from the level witnessed in 2023 at the main European hubs, TotalEnergies’ peers, Eni (€1.58 billion or almost $1.7 billion) and Equinor ($7.53 billion), were not as lucky, since they each recorded a drop of 46% in net profit in 1Q 2024 compared to the figure collected in the same period last year. Both the Italian and Norwegian energy giants, just like the French oil major, still managed to tuck production growth under their belts during the quarter.

TotalEnergies, which celebrated its 100th birthday in March 2024, disclosed a net income of $5.7 billion for the first quarter of 2024, which is 13% higher than a net income of $5.1 billion in the fourth quarter of 2023 and 3% larger than $5.6 billion recorded in the first quarter of 2023. The French giant’s adjusted net income was $5.1 billion in 1Q 2024, representing a 2% fall compared to $5.2 billion in 4Q 2023 and a 22% drop compared to $6.5 billion in 1Q 2023.

The company’s adjusted net operating income from business segments was $5.6 billion in 1Q 2024, which is 2% lower than $5.7 billion in 4Q 2023 and 20% down from $6.99 billion in 1Q 2023. The firm posted an adjusted EBITDA of $11.5 billion for the first quarter of 2024, a 2% drop compared to $11.7 billion for 4Q 2023 and a 19% fall compared to $14.2 billion in 1Q 2023.

Moreover, TotalEnergies’ cash flow from operations excluding working capital (CFFO) was $8.2 billion in 1Q 2024, representing a 4% decrease compared to $8.5 billion in 4Q 2023 and a 15% dip based on $9.6 billion in 1Q 2023. The company’s cash flow from operating activities was $2.2 billion in 1Q 2024, a huge drop of 87% compared with $16.2 billion in 4Q 2023 and a 58% fall compared to $5.1 billion in 1Q 2023.

Patrick Pouyanné, CEO of TotalEnergies, commented: “Celebrating its 100th year anniversary in 2024, TotalEnergies demonstrates once again this quarter the relevance of its balanced transition strategy that is anchored on two pillars, hydrocarbons and power, delivering strong results and an attractive shareholder return. In a context of sustained oil prices and refining margins but softening gas prices, the company announced first quarter 2024 adjusted net income of $5.1 billion and cash flow of $8.2 billion, in line with its ambitious 2024 objectives.

“During the first quarter, oil & gas production was 2.46 Mboe/d, benefiting from 6% quarter-to-quarter production growth in LNG and from start-ups at Mero 2 in Brazil and Akpo West in Nigeria. The company positively appraised the Venus discovery in Namibia and Cronos in Cyprus. Exploration & Production delivered adjusted net operating income of $2.6 billion and cash flow of $4.5 billion, and confirms its leadership as a low-cost operator with upstream production costs below 5 $/boe.”

Furthermore, the hydrocarbon production was 2,461 thousand barrels of oil equivalent per day (kboe/d) in 1Q 2024, stable quarter-to-quarter thanks to production growth in LNG and from start-ups at Mero 2 in Brazil and Akpo West in Nigeria, which were partially compensated by the Canadian oil sands assets disposals that were effective this quarter. As a result, the hydrocarbon production, excluding Canada, was up 1.5%. After considering the Canadian oil sands assets divestment, production was down 2% year-on-year.

This is comprised of a 2% boost due to project ramp-ups, including Mero 2 in Brazil, Block 10 in Oman, Tommeliten Alpha in Norway, and Absheron in Azerbaijan; a 1% addition due to lower planned maintenance and unplanned shutdowns; and a 1% increase due to portfolio effect related to the entry in the producing fields of SARB Umm Lulu in the United Arab Emirates, partially offset by the end of the Bongkot operating licenses in Thailand. In addition, there is a decrease of 2.5% related to the natural decline of the fields.

Pouyanné explained: “Integrated LNG achieved adjusted net operating income of $1.2 billion and cash flow of $1.3 billion for the quarter in a softening and less volatile price environment. The company strengthened its integration in the LNG value chain with the acquisition of Lewis Energy Group’s upstream natural gas assets in the Eagle Ford Basin in the United States, and with the signature of an LNG sales agreement to Sembcorp in Asia.

“The company further deployed its multi-energy strategy in Oman, launching the fully-electric and very low emissions (3 kg/boe) Marsa LNG project that targets in priority the marine fuels market and developing an 800 MW portfolio of wind and solar projects, including the 300 MW solar project that will supply Marsa LNG.”

TotalEnergies’ hydrocarbon production for LNG was up 6% quarter-to-quarter, which is attributed to higher installation availability, mainly on Ichthys in Australia and QatarEnergy LNG N(2) in Qatar, as well as the increased supply of NLNG in Nigeria. During 1Q 2024, LNG sales decreased by 9% quarter-to-quarter, mainly due to lower demand in Europe as a result of milder winter weather and high inventories. However, these volumes were also impacted by partial downtime at Freeport LNG in the United States.

“During the first quarter, Integrated Power generated sequentially higher adjusted net operating income of $0.6 billion and $0.7 billion of cash flow, with a return on average capital employed reaching 10%, confirming the company’s ability to profitability grow across the electricity value chain. TotalEnergies enhanced its integrated position in Texas through a 1.5 GW flexible gas capacity acquisition that closed this quarter,” added Pouyanné.

The French giant’s net power production was 9.6 TWh in the first quarter of 2024, up 20% quarter-to-quarter while the renewable production is up 10% quarter-to-quarter. According to the company, gas flexible capacities production growth benefited from the 1.5 GW gas flexible capacity acquisition in Texas that closed during the first quarter. The firm’s gross installed renewable power generation capacity reached 23.5 GW at the end of 1Q 2024, up by more than 1 GW quarter-to-quarter, including 0.5 GW installed in the United States – Clearway, Danish Fields – and 0.4 GW in India.

The company’s Scope 1 and 2 emissions from operated installations were up 4% quarter-to-quarter, given the perimeter effect related to the gas-fired capacity acquisition in Texas for 1.5 GW. Nevertheless, these emissions are down 10% year-on-year thanks to the lower gas-fired power plants utilization rate in Europe, the continuous decline in flaring emissions on exploration and production facilities, and carbon footprint reduction initiatives in Refining & Chemicals.

Given strong Brent prices at around $90/b at the start of the second quarter of 2024, supported by elevated geopolitical tensions and by the OPEC+ decision to maintain production quotas through the quarter, TotalEnergies underlines that these elevated prices are impacting refining margins, which had been high since the beginning of the year.

The French heavyweight further highlights that European gas prices have been trading within a range of $8 to $10/Mbtu at the beginning of the second quarter of 2024 despite exiting winter at high gas storage levels. The firm is convinced that recovering Asian LNG demand and limited global LNG capacity additions in 2024 support forward prices above $11/Mbtu for the 2024-2025 winter period.

Thanks to the change in oil and gas prices in recent months and the lag effect on price formulas, the company anticipates that its average LNG selling price should be between $9 and $10/Mbtu in the second quarter of 2024 while its hydrocarbon production is expected to be between 2.4 and 2.45 Mboe/d, impacted by planned maintenance that is partially compensated by ramp-ups of Mero 2 in Brazil and Tyra in Denmark.

The French oil major’s refining utilization rate is anticipated to be above 85% in 2Q 2024, notably as the Donges refinery progressively restarts. TotalEnergies has also confirmed its net investment guidance of $17-$18 billion in 2024, of which $5 billion is dedicated to the Integrated Power segment.