TotalEnergies’ profit hit by downturn in oil & gas prices but multi-energy model saves the day

France-headquartered energy giant TotalEnergies has disclosed strong results for the second quarter and first half of 2023, thanks to its multi-energy strategy, which paid off in the softening energy price environment. The decrease in the firm’s profit reflects the impact of lower oil and gas prices, albeit to a lesser extent than it was felt by some of its peers.

With soaring energy prices on full display, oil and gas players experienced a profit bonanza in 2022. However, these favourable energy market conditions are no longer in evidence, as oil and gas prices have taken a downward turn, plunging down significantly from the all-time highs recorded during the previous year.

As a result, energy players are reporting considerably lower profits than last year, which is hammered home by Equinor and Shell. These two energy giants recently revealed that their profits were cut by more than half year-on-year in 2Q and 1H 2023.

While TotalEnergies also felt the bite of the change in the oil and gas prices, the French player still recorded a net income of $4.09 billion in the second quarter of 2023, compared to a net income of $5.56 billion in the first quarter of 2023 and $5.69 billion in the second quarter of 2022. The net income was $9.65 billion in 1H 2023 compared to $10.64 billion in 1H 2022.

The French giant’s adjusted net operating income was $5 billion in 2Q 2023, compared to $6.5 billion in 1Q 2023 and $9.8 billion in 2Q 2022, mainly due to lower gas prices and refining margins. On the other hand, the adjusted net operating income in 1H 2023 was $11.5 billion compared to $18.8 billion in 1H 2022.

Adjustments to net income were a loss of $868 million in the second quarter of 2023, consisting mainly of a loss of $0.5 billion related to impairments, notably on upstream assets in Kenya and the Yunlin offshore wind project in Taiwan; and a loss of $0.4 billion of inventory effect.

Furthermore, TotalEnergies’ average tax rate was 37.3 per cent in the second quarter of 2023 versus 41.4 per cent in the first quarter of 2023, mainly as a result of the lower tax rate for Exploration & Production related to lower oil and gas prices. The average tax rate was 39.7 per cent in the first half of 2023 versus 39 per cent in the first half of 2022, mainly as a result of the higher tax rate for Exploration & Production linked to the Energy Profits Levy in the UK.

The company’s adjusted net operating income from business segments was $5.6 billion in the second quarter of 2023, compared to $7 billion in the first quarter of 2023 and $10.5 billion in 2Q 2022, due to lower gas prices and refining margins. The adjusted net operating income was $12.6 billion in the first half of 2023, compared to $19.96 billion in the first half of 2022 for the same reasons.

The French energy giant posted an adjusted EBITDA of $11.1 billion for the second quarter of 2023, compared to $14.17 billion for the first quarter of 2023 and $18.74 billion for the second quarter of 2022. The company’s cash flow from operations was $9.9 billion in 2Q 2023, compared with $5.14 billion in 1Q 2023 and $16.3 billion in 2Q 2022.

Patrick Pouyanné, CEO of TotalEnergies, commented: “In a favourable but softening oil & gas environment TotalEnergies once again delivered this quarter robust results, strong cash flow, and attractive shareholder distribution.”

The company’s hydrocarbon production was 2,471 thousand barrels of oil equivalent per day (kboe/d) in the second quarter of 2023, up 2 per cent year-on-year – excluding Novatek – mainly due to planned maintenance operations in North Sea, the end of the Bongkot operating licenses in Thailand, partially offset by the full effect of entry into the producing fields of SARB Umm Lulu in the United Arab Emirates and the ramp-up of Johan Sverdrup Phase 2 in Norway.

Moreover, the French player’s hydrocarbon production for LNG was up 8 per cent year-on-year in the second quarter of 2023 and the first half of 2023, due to the increased supply of NLNG following improved security conditions in Nigeria and the restart of Snøhvit in Norway during the second quarter 2022. However, LNG sales decreased year-on-year due to lower demand in Europe and are stable quarter-on-quarter, beneficiating from the restart of Freeport LNG.

Within TotalEnergies’ Integrated Power segment, net power production was 8.2 TWh in the second quarter of 2023, up 8 per cent year-on-year, as growing electricity generation from renewables is partially offset by lower generation from flexible capacity in a context of lower demand; and 16.6 TWh in the first half 2023, up 9 per cent year-on-year, for the same reasons.

The company further explains that its gross installed renewable power generation capacity was 19 GW at the end of the second quarter of 2023, up by more than 1 GW quarter-on-quarter, including 0.5 GW installed in the U.S. and the connection of 0.3 GW from the Seagreen offshore wind project in the UK.

Pouyanné further elaborated: “The Integrated LNG segment posted cash flow of $1.8 billion, benefiting from the high margins captured in 2022. Adjusted net operating income was $1.3 billion reflecting lower LNG prices (averaging 10 $/Mbtu in the second quarter) and softer trading results in less volatile markets.

“Integrated Power’s adjusted net operating income and cash flow increased to $450 million and $491 million respectively in the second quarter, building its track record as an integrated and profitable player in the electricity markets with a ROACE of 10.1 per cent. Integrated Power cash flow so reached close to $1 billion on the first six months of 2023, more than the cash flow performed on the whole year 2022.”

According to Pouyanné, four projects were revealed in 2Q 2023 as part of the implementation of its multi-energy strategy. These entail the launch of the multi-energy GGIP project in Iraq and the RGLNG project in Texas – which will boost its LNG export capacity from the U.S. to 15 Mt/y – along with the completion of the acquisition of 100 per cent of Total Eren in renewable electricity, and the award of the EPC contracts for the Amiral petrochemical project in Saudi Arabia.

“These projects demonstrate TotalEnergies’ ability to seize opportunities allowing the company to deploy its multi-energy model based on two pillars: production of low-cost low-emissions hydrocarbons (oil and LNG) and the development of a profitable integrated power business,” says Pouyanné.

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The launch of GGIP in Iraq is expected to enable access to low-cost, low-emission oil from the Ratawi field, gas gathering and treatment for electricity generation, 1 GW solar farm, and sea water treatment in a bid to pursue the sustainable development of natural resources in Basrah area.

TotalEnergies spent $482 million in the second quarter of 2023, mainly related to the acquisition of a 9.375 per cent stake in the NFS LNG project in Qatar, the renewal of the license OML 130 in Nigeria, and the acquisition of a 5.06 per cent stake in NextDecade in line with the launch of RGLNG project in the United States.

The company also spent $3.74 billion in the first half of 2023, primarily related to the aforementioned acquisitions, as well as the acquisition of a 20 per cent interest in the SARB and Umm Lulu concession in the United Arab Emirates, the acquisition of a 6.25 per cent stake in the NFE LNG project in Qatar, and a 34 per cent stake in a joint venture with Casa dos Ventos in Brazil.

TotalEnergies has taken several steps to decarbonise its operations. This encompasses the partnership with TES to develop a large-scale production unit for e-natural gas in the United States; an agreement with VNG to initiate the future supply of green hydrogen to the Leuna refinery, in Germany; doubling SAF production capacity to 285 kt per year at Grandpuits, in France; pursuing biomethane; acquisition of 20 per cent stake in the Finnish start-up Ductor; signature with Saint-Gobain France of a 100 GWh sale agreement over three years; and the construction in Grandpuits, in France, of a production unit with an annual capacity of 80 GWh.

Based on the French giant’s records, its Scope 1+2 emissions from operated installations were down 6 per cent year-on-year in the second quarter of 2023, as a result of the decrease in the use of gas-fired power plants in a context of lower demand in Europe and the continuous decline in flaring on Exploration & Production facilities.

TotalEnergies highlights within its outlook that oil prices have remained buoyant at around $75/b for several months now, supported by OPEC+ actions, thus, demand for petroleum products should be supported as the summer driving season is ongoing and the global recovery for air travel continues.

With European natural gas prices currently around $10/Mbtu due to high inventories in Europe, the oil major underlines that the demand recovery in Asia and tensions regarding supply capacities in Europe support forward prices above $15/Mbtu for the winter of 2023/2024.

Given the evolution of oil and gas prices in recent months and the lag effect on price formulas, the French player anticipates its average LNG selling price to be between $9 and $10/Mbtu in the third quarter of 2023.

The firm also anticipates hydrocarbon production of around 2.5 Mboe/d in 3Q 2023, notably supported by the start-up of the Absheron field in Azerbaijan, and confirms its 2023 guidance of net investments between $16 and $18 billion, including $5 billion in low-carbon energies.

TotalEnergies’ profit is undoubtedly lower than last year, but it still attracted widespread criticism from environmentalists and NGOs, such as Global Witness, which claims that its analysis of records from data firm Kpler shows that this oil major is the biggest non-Russian buyer of Russian LNG, followed by Shell.

The NGO claims that TotalEnergies bought nearly 4.2 million cubic metres of Russian LNG in 2023, which is down compared to last year, but still makes up nearly 20 per cent of the firm’s bought LNG.

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Jonathan Noronha-Gant, Senior Campaigner at Global Witness, stated: “As Total celebrates massive profits, people in France, Ukraine, and across the world cannot forget that the company is still buying Russian gas, sending money to Russia’s war machine. There is no excuse for continuing to buy Russian gas, sending funds to an aggressor that has caused so much misery in Ukraine and threatened Europe’s security.

“Gas sales are no different to oil in that they provide critical funds to Russia’s war machine. After 18 months of conflict, the EU must stop allowing companies like Total from buying Russian gas. Countries like France, where Total is based, and the EU must act by cutting off the demand for Russian LNG whilst the people of Ukraine suffer an immeasurable toll.”

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In response to a request for comment, Global Witness underscores that TotalEnergies condemned Russia’s war in Ukraine and confirmed it was adhering to EU sanctions by not providing capital for Russian projects and continuing to buy Russian LNG for commercial benefit.

Moreover, the French giant underlined its Russian purchases were down this year and all Russian gas spot trading was halted in 2022. However, the firm still needed to buy some LNG because it was locked into long-term contracts it had to pay for in any event.

With this in mind, Global Witness renewed calls on the EU and its member states, including France, to ban imports of and trade in Russian LNG by companies based in their jurisdictions.