Earnings Call Transcript
TotalEnergies SE (TTE)
Earnings Call Transcript - TTE Q4 2020
Operator, Operator
Good morning or good afternoon to you all, and thank you for joining us today. Our program today will start with a presentation of 2020 results and outlook by Patrick Pouyanné, Helle Kristoffersen and Jean-Pierre. And this presentation will be followed by a Q&A session. Then we'll come to presentations on how we progress our climate roadmap. Arnaud Breuillac will drive you through how Total reduces carbon emissions from operations. And then Adrien Henry, Vice President, Nature-Based Solutions will explain how such solutions will contribute to net zero emissions. And this session will also be followed by a Q&A session. So before we start, I'd like to share with you a safety moment. As you know, safety is a core value for Total, and we start all our meetings with a safety moment.
Patrick Pouyanné, CEO
Good morning, good afternoon, or good evening to everyone in Asia. I appreciate you joining us for our 2020 results and outlook presentation. I’m pleased to be here with my colleagues from the Executive Committee, including Jean-Pierre, Helle, and Arnaud, who will present during this session. Alexis, Bernard, Namita, and Philippe are also here to answer your questions. 2020 is a year we will collectively remember as significant, filled with unexpected challenges that brought about major changes. Our lives will now be marked as before and after COVID. The pandemic has impacted many, with over 100 million cases reported and more than 2 million lives lost globally. The resultant lockdowns significantly disrupted the economy, devastating businesses and livelihoods on an unprecedented scale. Looking back at 2020, we recognize it as a difficult year for our industry, grappling with health and safety concerns tied to COVID-19 while striving to maintain operations. The price of Brent oil fell below $20 per barrel, testing our resolve. However, despite these short-term challenges, Total showcased its resilience. Moreover, 2020 also served as a pivotal year in raising global awareness about our planet's vulnerabilities. Over the past 20 to 30 years, we have created a tightly knit global community that has improved billions of lives, yet we now confront shared challenges like pandemics, climate change, and biodiversity loss. We acknowledge that the landscape has changed dramatically, and there is no turning back—only a forward path lies ahead. Digitalization, for instance, has accelerated, transforming our business operations to become more efficient. Europe is progressing with its green deal, and other major markets like the U.S., China, Japan, Korea, and India are moving toward similar goals. This underlines the need for long-term thinking. Thus, amidst the global crisis of 2020, Total introduced an ambitious strategy aimed at transitioning into a comprehensive energy company, with a goal of achieving net zero emissions by 2050 or sooner alongside society. The advancements in science and technology have facilitated the identification of the COVID-19 virus, the development of new variants, and the launch of global vaccination campaigns in just one year. We possess similar optimism in our ability to address climate challenges. For Total and the broader energy sector, the energy transition represents a dual task: meeting the growing global demand for energy while simultaneously reducing emissions and carbon output. This presents us with a thrilling challenge at a time where we must become a more robust company, playing a constructive role in a changing society. Meanwhile, we remain steadfast in our four key priorities: health, safety, and environment (HSE), operational excellence, cost reduction, and cash flow generation. As we transform, we will uphold strict financial discipline, ensuring our breakeven point is low and our balance sheet stays strong. Diversifying our operations will enhance our resilience, allowing us to endure the trials of 2020. Jean-Pierre will delve into our strong 2020 performance, which stands out among our industry peers, affirming that Total is on the right path and that we are unified and prepared for transformation. Thanks to this resilience and our commitment to our shareholders, we have upheld our dividend policy throughout this cycle. This dividend illustrates the growing concerns surrounding the future of major oil and gas companies. I firmly believe that Total provides a compelling investment opportunity, with the dividend playing a central role in that proposition. Nevertheless, uncertainty about the long-term viability of oil and gas firms is exerting pressure on valuations. I am optimistic that our transformational journey will address these uncertainties as we align ourselves with the evolving needs of global society. As Helle will discuss, the shift toward clean, low-carbon energy is inevitable. In 2020, global energy demand decreased by 5% due to the economic fallout. Oil demand saw a decline of 9%, whereas demand for LNG and renewable energy sources actually witnessed growth. Our strategy for profitable growth emphasizes these two pillars—LNG and renewable energy—while striving to meet our climate goals and create value. As mentioned in September, we are entering a transformative decade, and this transition will require time. During the presentation, we will discuss four new initiatives that support our transformation strategy. We have upgraded our climate roadmap by setting new goals for scope 1 and 2 emissions by 2030. We aim to enhance transparency regarding our burgeoning renewable segment to meet your expectations. Additionally, we are integrating our climate ambitions into our financing policies, with all future bond issuances now linked to climate performance metrics. Finally, we are proposing to cement this new strategy with a name change to TotalEnergies, reflecting our commitment as a broad energy company dedicated to providing increasingly affordable, reliable, and clean energy solutions. This name aligns with our social values and our goal of achieving net zero emissions by 2050 or sooner in collaboration with society. More broadly, we aspire to strengthen our company while making meaningful contributions to an evolving society, placing sustainability at the core of our mission. I envision TotalEnergies as a symbol of more energy with fewer emissions—a representation of our purpose and the challenge we intend to face head-on. In this presentation, which diverges from our traditional focus on results and outlook, I want to address the sustainability agenda we are pursuing at Total. To reiterate, the strategies I introduced previously in September are consistent, and we are reinforcing them with several additional elements. The commitment to sustainability starts with safety, which is a core value for us. We have made significant strides in safety, as reflected in our recordable rates compared to our peers since 2015, decreasing from 1.1 to 0.74. Our efforts are the result of the hard work of our teams and partners across all our sites. Although we have achieved positive outcomes, we must acknowledge that we experienced one incident last year, which we consider one too many—an operation in the Gulf of Mexico. 2020 was also unprecedented in terms of health, safety, and environmental challenges as we worked to protect our employees and partners during the pandemic. Total demonstrated its ability to respond to crises by mobilizing teams, providing millions of masks and gloves, and even producing hydroalcoholic gel in six countries, while maintaining operational continuity with minimal lost man-hours. As we continue our sustainability journey, we aim to transform Total into TotalEnergies, focusing on delivering diverse energy products, including gases, renewables, electricity, and liquids, while also investing in carbon capture technologies. This strategic roadmap includes expanding our LNG business and renewable gas production, accelerating investments in low-carbon electricity, and integrating the electricity supply chain. We will continue to emphasize low-cost oil production and develop our renewable fuels business, while adapting our downstream capacities to align with demand, particularly in Europe. To address the need for carbon neutrality, we are committed to expanding our carbon sink investments. Our goal is to increase production and capture our share of growing global energy demand, aiming to grow our output from 3 million barrels equivalent per day to over 4 million over the next decade. Our two pillars—LNG and Renewables & Electricity—will be crucial in this endeavor. As we adapt sales to meet evolving demands, our sales pattern is expected to shift significantly by 2030, reducing oil and gas representation while increasing the share of renewables and electricity. While some may view this transition as slow, it is a substantial transformation that we aim to achieve by 2030. We have made a strong commitment to reducing scope three emissions for our customers globally by 2030, aiming for lower levels than those reported in 2015; in Europe, we are targeting a 30% reduction. Although we are currently reporting decreases in scope three emissions due to reduced activities stemming from COVID, we acknowledge the challenge ahead to meet our 30% goal. Today, we are also augmenting our climate roadmap by establishing new targets for scope one and two emissions by 2030. Our objective is a 40% decrease in net emissions from our operated oil and gas facilities compared to 2015 levels. Previously, we aimed for less than 40 million tons in absolute terms by 2025, which already presents a significant challenge due to the increase in our operational base over that time. Arnaud Breuillac will further detail how we plan to achieve emissions reduction to meet these targets, integrating nature-based solutions. This year marks another significant target as we strive for carbon neutrality by 2050. To summarize our global roadmap initiated in May 2020, we envision several key milestones to reach net zero by 2050 in unity with society. We have a substantial commitment to reducing scope one and two emissions by 15% as of 2020, while scope three emissions have seen a decrease of 12%, holding us accountable as demand recovers. Emphasizing that sustainability extends beyond climate, we are committed to ensuring it plays a central role in Total’s transformation journey. We recognize biodiversity and social responsibility as critical components of our approach. Despite the current crisis, we have not enacted layoffs, maintaining our workforce stability while managing costs effectively. We aim for a 30% representation of women in all management bodies within Total by 2025—a commitment that reinforces diversity as a vital aspect of our collective intelligence. Our governance also integrates sustainability considerations into decision-making regarding capital allocations. We are dedicated to transparency about our sustainability efforts, understanding that our stakeholders are increasingly interested in our ESG performance. In 2020, we published our first SASB report and will expand our ESG-linked reporting this year. Our aim is to achieve top evaluations in the ESG domain, and I am proud to affirm that Total currently holds a leading position within the gas sector among various evaluating agencies. Lastly, we are integrating our climate and sustainability ambitions into our financing policies, ensuring that all new bond issuances will be linked to climate KPIs, which distinguishes Total as a pioneer in incorporating these principles into our financing strategy. With this and further investment, we invite you to support our transformation. I now turn the floor over to Helle and Jean-Pierre to discuss the market, our results, and our resilience before we delve into our outlook.
Helle Kristoffersen, CFO
Thank you, Patrick. And so now just a few words. As you all know, 2020 was a year of a global economic recession, except in China, due to the shock of the pandemic, the energy demand due to repeated periods of more or less severe lockdowns. And 2020 was a year of extreme volatility in commodity prices due to supply and demand imbalances. Against that backdrop, the chart here shows you the contrasted evolution of various energy markets, as Patrick just mentioned earlier. Global energy demand was down by 5%, more or less in line with GDP. Oil markets, on the other hand, were down 9% because mobility is a key contributor to oil demand. What's striking on the chart is that LNG demand and wind and solar power generation did remarkably well, growing, respectively, 3% and 13%. This confirms the role of these 2 markets in the ongoing transformation of our energy systems and as key growth pillars for Total. Then I also think that this market picture underscores the benefit of being a broad-based energy company, TotalEnergies. Regarding oil markets, demand, in the end, proved very resilient last year, but the key question right now is, of course, how fast global demand will rebound and to what levels. The jury is out on that. We need the vaccines, obviously, and we need the implementation of the massive economic recovery packages that have been decided around the world. What's clear on the other hand is that there is a risk of supply crunch in the mid-term, and that's the message of this chart. We've seen in 2020 how OPEC managed to bring back market discipline. We've seen the cracks in the U.S. shale model, and we've seen continued underinvestments in the oil industry as a whole. Given that the natural declines in existing oilfields that are shown here, the message is simple. We need new oil projects. And that's true even if you take a very cautious view on short-term demand recovery and on future demand levels. What's shown here is a cautious outlook out to 2025. But the 10 million-barrel per day gap in supply between now and 2025, that's a massive shortfall of supply to cover in just a very few number of years. On LNG, once again, demand was very dynamic in 2020, considering the economic downturn. Worldwide, LNG demand was up by some 3% while global gas demand was down by around 2%. This big disconnect is due to the fact that the LNG market is much smaller than the global gas market. But also to the fact that it's much more flexible, more reactive and actually tailored to the needs of the customers. And with the lower prices that characterized the first quarters of 2020, the first 3 quarters, demand elasticity proved remarkably high. Imports were up by 11%, 12% in China and by 15%, 16% in India, those are the latest numbers. On the supply side, there were only 2 FIDs, and Total was part of those actually, as other less competitive projects were either canceled altogether or pushed out. There were several outages in existing liquefaction trains, which contributed to tensions in the LNG supply chain, especially in the second half of the year. And with the cold winter in Asia, prices soared to record levels at the very end of 2020. Going forward, we continue to see strong support for LNG. It's been a high-growth market every year since 2015, and as Patrick said, this trend is now being amplified by a number of announcements and net 0 climate goals by key customers such as, for instance, China, Japan, and Korea. And with that, I now hand the floor over to Jean-Pierre.
Jean-Pierre Sbraire, CFO
Thank you, Helle. Total has been following a strategy to strengthen the group since the collapse of oil prices in 2015. We started the year 2020 with a gearing below 20%, with a cash breakeven at around $25 per barrel. So to some extent, we were prepared when the crisis began. As the COVID virus spread and markets began to collapse, we reacted quickly. We adapted by implementing an immediate action plan, and you will see we delivered. The group demonstrated in 2020 its resilience during the storm, which allowed us to continue investing in profitable projects, support the dividend, and maintain a strong balance sheet. We were disciplined. We were flexible, and we have not overextended. In 2020, we generated $15.7 billion in cash flow from operations. Relative to the plan we announced in 2019, the most significant change for 2020 was flexing the level of investments, including M&A. 2020 CapEx was $13 billion versus an initial guidance of around $18 billion. I will come back later on this saving. But at the same time, we maintained our commitment to grow renewable energies to support the transformation strategy of the group. We did not overreact to the crisis. And instead, we chose to support the dividend through the cycle, as Patrick mentioned already. Return to shareholders of $7.2 billion includes the cash-saving decision to propose the final 2019 dividend shares as well as the $550 million of buyback in the first quarter. Gearing, excluding leases, increased to 21.7% at the end of 2020. But on the right-hand side of the slide, we show that Total has the strongest financial position amongst the majors with the lowest gearing. That means that we're able, despite the crisis, to preserve our balance sheet strength. We reacted quickly to the crisis. The immediate action plan was taken first in March when the oil price crisis started, and it was reinforced in May when the COVID-19 demand crisis came. The objective was very clear: it was to cut outlays by about $5 billion. The cost culture is part of the group DNA. So the foundation to deliver on the action plan was already there. The action plan was implemented effectively and rapidly while maintaining continuity of operation throughout the crisis. And we delivered more than we promised as the year went on. The reduction of CapEx targeted at least $5 billion ultimately came in at a saving of $5 billion. The reduction in CapEx by more than 25% demonstrated the group's strong discipline on investments as well as its ability to flex the level on spend, particularly short-cycle projects, but also, it reflects the decision we made not to pursue some acquisitions. For example, the Ganion and Algerian parts of the Oxy Anadarko deal. Despite the need to conserve cash, we maintained investments of $2 billion for renewable electricity as it is the foundation of our future profitable growth. On the OpEx side, we began the year with a plan to cut costs by $0.3 billion, and we increased that objective in May to $1 billion. We over-delivered with a $1.1 billion cost reduction by year-end. I will come back with more details on the next slide. Over the past several years, we had high-graded and actively managed the portfolio to reduce organic breakeven, which was $26 per barrel for 2020. This low breakeven, high-quality portfolio of assets is the cornerstone of our resilience. Managing costs is a continuous group-wide effort that is built into our culture. In 2020, we cut more than $1 billion of costs across the group compared to 2019, while the initial budget set was $0.3 billion. The crisis has forced us to adopt new ways of working, most of which are sustainable and contribute to accelerating digitalization in many areas, new operating philosophy in many of our sites. In 2021, our target is to cut an additional $0.5 billion through the generalization of efficient cost-cutting initiatives across affiliates and further optimization that our cost culture will continue to foster through, for example, best practice sharing. Overall, 70% of OpEx saving in 2020 are sustainable. So they came from logistics, in particular, means optimization. They came from supply chain and procurement. We centralized global procurement, delivering more competitive purchasing across the group with leveraging use of digital. They came from structural change, we staff through deployment, reorganization, new practice and more digital usage to reduce our business travel and meeting costs. They came also from operations and maintenance, who are increasingly able to monitor operations from the plant platform, remotely with lower costs and increased effectiveness. We are already in the next phase of efficiency improvement and cost reduction. And our digital factory is starting to deliver. Because of this strong culture in terms of cost cutting, Total is already the low-cost producer among our peers in terms of OpEx per barrel. It is a competitive advantage that we are always working on to improve. We have cut our OpEx roughly enough since 2014 to $5.1 per barrel in 2020, best-in-class, once again, among the majors. And we are targeting a further reduction to $5 per barrel in 2021. Digitalization and the new best practices we're adopting will allow us to continue to capture sustainable cost reductions. In 2020, our original budget was at $18 billion for CapEx. The action plan led to a $5 billion CapEx saving versus this original budget with a CapEx at $13 million in 2020. On the right, we show you where the $5 billion of 2020 CapEx saving came from. So it will give you an idea of how we can flex spending. Most of the cuts were made in upstream, including net acquisition. In particular, we exercised our flexibility to delay around $1.5 billion of short-cycle E&P spending essentially choosing to save some projects for better times. We see the 2021 environment as uncertain, so we prefer to approach it prudently and with flexibility. The 2021 CapEx plan was developed using $40 per barrel Brent, maintaining what we control, maintaining discipline with a budget of $12 billion. Continuing to invest in profitable projects to implement the group transformation with a strong signal of commitments with more than 20% of CapEx devoted to renewables and electricity. That means in 2020, that we preserve the flexibility to mobilize short-cycle CapEx should the oil and gas environment strengthen. There is more differentiation among the majors that we have seen for many years. And dividend policies have become contrasted as well. The group fundamentals are strong, high-quality, low breakeven assets that we put together over the last 5 years with more than 30% rotation of the portfolio. Cash breakeven around $25 per barrel, strong base. 2020 was a tough year, but the Board confident in the group's fundamentals, confirmed its policy of supporting the dividend through economic cycles. The three interim dividends for the first three quarters of 2020 have been maintained at EUR 0.66 per share. And a distribution of a final dividend equal to the previous 3 quarters will be proposed to the next Annual General Meeting of Shareholders in May. We respect the relationship we have developed with our shareholders over the years. Paying the dividend is central to our disciplined cash flow allocation to create shareholder value. We believe our shareholders trust us as a major oil company to weather crises and cycles of volatility. You can see on the right-hand side of the slide, our performance in terms of Total shareholder returns in comparison with our peers. And this is, for us, the demonstration that our shareholder supports our strategy in terms of dividend policy. Finally, recurrent side benchmark the 2020 year performance against our peers. The 2020 environment was one of the most challenging years the industry has ever faced. But thanks to our resilience, we posted a $4.1 billion of adjusted net income and a $15.7 billion of cash flow from operations in 2020. Once again, in absolute terms, we are among the best performers of the group despite the fact that we are competing against some much larger peers relative to the size of the production. Consistent with our climate ambitions, we recorded impairments of around $10 billion, mostly taken in mid-year, in June, and concentrated mainly on our Canadian oil sands investments, which are high-cost assets and have reserves extending beyond 30 years. Despite the magnitude of the number, it is the lowest level of impairment among our peers. It demonstrates the high-quality of our assets and reflects a history of using prudent price assumptions. On return on equity, although too low in such context, this return on equity is best-in-class. Total has performed well compared with peers for many years. And as the peer group continues to become more differentiated in strategy and assets, I believe, as Patrick said, we are on the right track. We are well positioned for this positive momentum to continue. And I will leave the floor to Patrick.
Patrick Pouyanné, CEO
Thank you, Jean-Pierre and Helle, for presenting our results and demonstrating our resilience. As you mentioned, we have a strong foundation. I’d like to reiterate the key pillars of this foundation, which revolve around our motto: HSC, delivery, cost, and cash, all of which are performing well. Our teams proved this in 2020. When we asked them to act, they delivered, which is comforting as we embark on our transformation journey. It’s essential that we continue to deliver, especially as our short-term results are strong. We are entitled to pursue a bold transformation strategy that invests part of our oil and gas cash flows into new energies. I understand you're keen for more information about our renewables strategy, and I assure you, you won't be disappointed. Today, we will outline our plans, and you can expect further updates. In the presentation, you'll find extensive details and geographical information regarding our portfolio, although not all will be disclosed for competitive reasons. We aim to assist you in evaluating our renewable business portfolio effectively. The overarching goal of evolving into a comprehensive energy company is to transform the valuation from the lower multiples of oil and gas to those associated with green energy. We aren't aiming for a 25x multiple, but if we can achieve a return of 5% to 10%, we will be satisfied. Regarding immediate delivery, by the end of 2020, we had a 7 gigawatt increase in sold capacity, projected to grow to 10 gigawatts in 2021, representing a gross capital expenditure of $5 billion this year. We funded only 30% of this through equity, which amounts to $1.5 billion. The key takeaway is that all sanctioned projects target over 10% equity IRR. Last September, we set a goal of reaching 35 gigawatts by 2025. We had initially aimed for 25 gigawatts, but we trust our teams and have seen that they have successfully brought our portfolio up to the 35 gigawatts target. The year 2020 has been pivotal for our renewable strategy, showcasing our ability to capture early-stage opportunities at low entry costs. We focus on organic growth through our teams and partnership agreements with development teams that may lack financial capacity but have land and connections. In 2020, we initiated 10 gigawatts of new projects, predominantly in Spain, India, the UK offshore wind sector, and Qatar. As we progressed into 2021, we accelerated efforts to add another 10 gigawatts. A significant step was made in the U.S. with solar utility-scale projects totaling 4 gigawatts. One of the gigawatts will be allocated to powering our downstream plants, refineries, and petrochemical operations. Moreover, we acquired a 20% stake in Adani Green Energy for $2 billion. Our partnership with Adani began two to three years ago concerning gas and LNG ventures, and we have also initiated a joint venture in solar capacity. Adani has ambitious goals, with nearly 20 gigawatts of contracted capacity, and they are a valuable partner as we enter the vast Indian market with hundreds of gigawatts in renewable potential. In the UK, we made strides in offshore wind. We initiated our first project with SSE and recently gained the seabed rights for a 1.5-gigawatt project on the eastern side of the UK. To facilitate the financing of these acquisitions, we issued a hybrid bond that allows us to finance our renewables at a competitive cost of capital. Our top priority remains the development of a utility-scale portfolio across various subsidiaries focused on solar and wind projects both domestically and internationally. In terms of our portfolio's maturity, we currently have 7 gigawatts operational, with most of these revenues covered by PPAs, demonstrating predictable cash flows. We have another 5 gigawatts under construction and 23 gigawatts in development, with the latter already partially secured by PPAs, allowing for a steady influx of cash flow moving forward. We assess our financial model against the backdrop of achieving a 10% return target, despite the vicissitudes of the market. We are maintaining a capital-light investment strategy by de-risking through partnerships when we farm down 50% of assets post-development to stabilize cash flows and mitigate risk. Looking ahead, we expect our net electricity production to grow significantly, with renewables taking precedence by 2030, as indicated in our updated metrics including proportional EBITDA reporting for our electricity business. We also reported 8 million customers across several regions and delivered 50 terawatt-hours of electricity last year with plans to standardize our approach moving forward. Regarding LNG, our performance remains robust, generating $3.2 billion in cash flow despite industry challenges. Notably, we've sustained growth momentum, and we anticipate increases in LNG sales due to ongoing flagship projects in Russia and Mozambique amidst a careful focus on security in Mozambique. In closing, our commitment to growth in renewables, LNG, and maintaining oil operations underpins our strategy. The board recognizes that we must balance investments across sectors while ensuring dividends are sustainable through the cycle. We believe the name change to TotalEnergies aptly reflects our transformation into a broader energy company committed to a sustainable future. Thank you.