Earnings Call Transcript
TotalEnergies SE (TTE)
Earnings Call Transcript - TTE Q1 2022
Patrick Pouyanné, CEO
Good morning, and hello to everyone. Welcome to this conference call for the first quarter of 2022. Given the geopolitical turmoil and the market volatility, I am joining the call to talk about how we are navigating this environment and to answer your questions from the perspective of management and the Board. I am today with Jean-Pierre, and he will present you the results after my initial remarks and then the Q&A. So to that point, it was a month ago on February 24 that Russia invaded Ukraine, triggering violence and destruction that have killed thousands and displaced millions. So TotalEnergies condemns this military aggression. In response, we outlined on March 22 our principles of conduct to manage our Russian-related activities, including our full support for current and future sanctions, whatever the consequences on our assets may be. Going beyond the sanctions, we have also announced our decision to stop the flow of capital to new projects in Russia, initiated a gradual suspension of our activities there while ensuring the safety of our staff. In doing so, we are exercising our duty of vigilance in line with our corporate responsibility. We have begun to end our activities related to Russian oil and petroleum products. We stopped spot trading transactions linked to Russian oil or natural gas. On March 22, we announced that given the uncertainty created by the technological and financial sanctions on the ability to carry out the Arctic LNG 2 project, which is currently under construction, and the probable tightening with the worsening conflict, we decided to no longer book reserves for this project. Since then, on April 8th, new sanctions have effectively been adopted by European authorities, notably prohibiting exports from European Union countries of goods and technologies for use in LNG benefiting a Russian company. This new provision constitutes additional risk for the execution of the Arctic LNG 2 project. As a result, we decided to record in the accounts of TotalEnergies SE as of March 31, 2022, an impairment of $4.1 billion, particularly concerning Arctic LNG 2. Our activity related to Russia is, essentially, centered around LNG supply from Yamal LNG, which the EU has deemed necessary until now. Therefore, until there is a change through possible sanctions, we'll continue to honor our contractual obligations and protect the company from potential significant volatility. For Russia, we also apply our principle of transparency. On March 24, we communicated the 2021 results and cash related to our Russian businesses. And today, you probably noticed in our press release that we have added a special table related to results and cash flows of our upstream assets as well as to capital employed in Russia. Russia is material in terms of volume but represents only a very limited part of the generation of revenues and cash flows. In the first quarter, the Russian upstream asset accounted for $300 million or about 2.5% of our cash flow, mainly from Yamal LNG, as there was no dividend from Novatek, and $1 billion or about 10% of our net operating income. Capital employed is now less than $10 billion after the impairment out of more than $140 billion from the company. The consequences of Russia's actions go beyond the Russian-related businesses and will have a significant impact on the global economy, potentially more serious than the COVID pandemic and related shutdowns. The immediate impact, of course, has been the significant disruptions to energy markets that pushed oil prices above $100 per barrel and gas prices in Europe and Asia to more than $30 per million BTU. Oil prices could remain high, particularly if additional production capacity from OPEC or the U.S. and conventional sources fail to compensate for the potential loss of 2 million to 3 million barrels of oil per day of Russian crude production, plus a drop in refining capacities from Russia for petroleum products. Gas prices are likely to remain high and volatile as Europe seeks to rebuild inventories and reduce independence on Russian gas, which puts Europe into competition for LNG supplies. But the most important part is the need for Europe to diversify its energy supply, which will be a massive effort over many years. This situation has created new opportunities for our North Sea natural gas businesses as well as for our LNG business and our transition to electricity and renewables. To respond to this new situation, during this quarter, TotalEnergies mobilized its full capacities and leveraged its integrated midstream LNG business to saturate all our European regas capacities with a record 4.7 million tons of spot LNG purchases. In addition, we are mobilizing additional investments to support short-term gas production in the North Sea; two rigs have been mobilized in Denmark for infield wells and well stimulation. I remind you that Tyra redevelopment start-up is planned by mid-'23. We have also debottlenecked our facilities by 10%. We are drilling infill wells on Alwyn and are taking actions to boost the production of westbound shipments by 10% by lowering pressures in some pipelines. Of course, we are supporting actions launched by Equinor in Norway. It's important, however, to recognize that oil and gas prices started to move higher in the second half of last year before the invasion of Ukraine. The post-COVID rebound in energy demand made it clear that the supply-demand balance was already tight, even with China partially locked down, and inventories were low. Years of underinvestment in new supply of oil and gas production and storage have helped to create this situation, and there is no quick and easy fix for it. The industry needs to invest more, but I'm convinced that our industry will avoid triggering the runaway cost inflation that marked the last commodity super cycle as we will keep this lesson in mind. At TotalEnergies, we continue to invest with discipline. We just acquired deep offshore oil production in Brazil. We signed the Atapu and Sepia contracts yesterday, and production will flow from today into our accounts. I remember we acquired them last December on a very reasonable price deck of assumptions. We have made promising discoveries in Surinam and Namibia. Plus, of course, we are moving forward with partners in North America to further expand our LNG business. Energy is a commodity, and commodity markets tend to move cyclically in and out of balance, usually combined with periods of uncertainty and high volatility. So the current geopolitical turmoil and market volatility illustrate the challenge we describe as the energy triangle: we must seek to balance security of supply with affordability to the customer and impact on climate. Climate is an imperative, but overemphasizing any one of these three factors typically comes at the expense of the two others. In our case, oil and gas will continue to be a significant source of cash for the company. We continue to fund our growth in low-carbon energies, which we will provide to our customers so that they have access to cleaner, more reliable, and affordable energy. At this point in the commodity cycle, high oil and gas prices are flowing into the company, generating strong results and cash flows, which is a complete reversal of the situation from just two years ago. In the first quarter, we generated free cash flow after investments, dividends, and buybacks of $5.8 billion, and we were able to reduce our net debt, so that the gearing fell to 12.5%. Jean-Pierre will return with the results in detail. Given the strong cash flow generation and the strong balance sheet, the Board reviewed our cash flow allocation principles and clearly affirmed its willingness to prioritize accelerating the company's transformation through countercyclical opportunities. It is, however, a matter of patience. The Board confirms a 5% increase in the first interim dividend for '22 to EUR 0.69 per share. It authorized the company to buy back up to EUR 3 billion of its shares in the first half, an increase of EUR 1 billion compared to the guidance for this first half which was given last February. $2 billion will be bought back in the second quarter, which is twice more than in the first quarter. We will maintain capital discipline as we look for opportunities to profitably grow the company, mainly in LNG and renewables and power. We may, at the same time, move countercyclically to divest some non-strategic oil in this favorable environment, particularly production that has high carbon intensity, to further rebalance our energy mix. In particular, we will put our 10% interest in the old licenses of SPDC Onshore Nigeria up for sale, as disruptions by local communities are a source of great concern, not only for the operator but also for us as a non-operator. However, we will keep the onshore gas licenses of SPDC Onshore Nigeria, as they are critical to feeding an LNG expansion. Expanding our integrated LNG activities, along with our renewables and electric business, is central to our strategy, and we plan to play an important role in Europe's plan to diversify its energy supply away from Russian gas. We have announced the expansion of our partnership with Sempra in North America. First, we launched last month a feed for the Cameron LNG extension, which represents 6.5 million tons of additional capacity. Second, we extended our partnership to a new potential project in Mexico called Vista Pacifico. Third, we will develop, together with Sempra, some onshore renewables and offshore wind in California. TotalEnergies is investing about 25% of its CapEx to develop renewables and electricity, with a similar amount going to grow LNG and what we call the new molecules, both critical to the energy transition. In these uncertain times, we remain confident that disciplined investment to support our multi-energy strategy will create long-term shareholder value. In 2022, this might be close to $15 billion inside the previous guidance of $14 billion to $15 billion. A last word, before I give the floor to Jean-Pierre, about the preparation of our annual shareholders' meeting on May 25. You probably noticed that we had a constructive dialogue with some shareholders, particularly after our sustainability and climate progress report for '22 issued on March 24. In line with our principle of transparency, we have taken some new commitments to extend the scope of our reporting to enable investors to fully assess the company's energy transition strategy. In particular, this report will be published each year and submitted to a yearly advisory vote. The Board has decided not to accept the resolution submitted that it contravenes French legal rules, setting the prerogatives of the company's governance bodies. The Board is in charge of the strategy, not the AGM, but invited those supporting the proposed resolution to express their views either through available or written questions, which will be addressed as a matter of priority at our next Annual Shareholder Meeting. We are open to a transparent and constructive dialogue with all our shareholders. And now I will turn it over to Jean-Pierre for a review of the results, and we will come back to join you for the Q&A.
Jean-Pierre Sbraire, CFO
Thank you, Patrick. So reported IFRS net income for the first quarter of '22 was $4.9 million, which takes into account the EUR 4.1 billion impairment related to our Russian exposure. So adjusted net income was $9 billion for this quarter, the highest quarterly result in the history of the company, up 32% from the previous quarter, mainly due to the 24% increase in our average realized oil price as well as an 8% increase in our average realized gas price and strong results from our midstream and downstream activities. Adjusted earnings per share was $2.40 in the first quarter, a one-third increase from the fourth quarter. Debt-adjusted cash flow was $12 billion, up 23% from the previous quarter, ahead of expectations. Patrick explained to you how we will allocate the strong cash flow. Going now through the results by segment. The integrated Gas, Renewables & Power segment reported adjusted net operating income of more than $3 billion in the first quarter, up 11% from the previous quarter, and a threefold increase from a year ago. Thanks to its ability to capture higher LNG prices and leverage strong performance from gas, LNG, and electricity trading activities, operating cash flow before working capital changes was $2.6 billion, up 6% from the previous quarter, and 2.4 times higher than the first quarter last year. Cash flow from operations was $315 million, reflecting the increase in working capital linked to seasonality and to the price effect on receivables for the gas and power supply business. LNG sales were 13.3 million tons in the first quarter, up 15% from the previous quarter and more than 30% from a year ago. LNG sales from our equity production were stable at 4.4 million tons. The main driver was record-level third-party volumes sold on the spot markets, notably in Europe, as Patrick mentioned. Our average price for LNG in the first quarter remained strong at $13.6 per million BTU, and we anticipate that it will be above $14 per million BTU in the second quarter. Our ability to execute and deliver along the entire gas value chain, including our midstream and trading activities, has continued to outperform expectations. The integrated Gas Renewables & Power segment increased gross renewable power generation to 10.7 gigawatts at the end of the first quarter, up 400 million watts from the previous quarter, thanks in part to start-ups in India. Gross power generation capacity under development increased to nearly 25 gigawatts, mainly due to the award of concessions for offshore wind farms, including 3 gigawatts on the coasts of New York and New Jersey, and 2 gigawatts on the coast of Scotland. Net electricity generation grew to 7.6 terawatt hours in the first quarter, up 61% year-on-year, thanks to higher utilization from our feasibility power plants in a strong margin environment as well as continued growth in electricity generation from renewable sources. EBITDA from the renewable electricity business was $175 million in the first quarter in the context of power price volatilities and the mechanism for setting the regulated electricity sales tariff in France. The E&P segment reported adjusted net operating income of $5 billion, up 42% from the previous quarter and 2.5 times higher than the same quarter last year, far above the increase in oil and gas prices, demonstrating strong leverage to the environment. Operating cash flow before working capital changes was $7.3 billion in the first quarter, up 28% from the previous quarter and nearly double the same quarter last year, reflecting the higher commodity price environment. Operationally, the E&P segment's oil and gas production grew by 3% compared to the previous quarter and was stable compared to the year ago. Start-ups and ramp-ups of projects, mainly in Angola and Brazil, plus an increase in OPEC production quotas offset the natural decline, the price effect, and other negative impacts including the 25,000 barrels per day equivalent decrease in Nigeria related to security concerns about SPDC, which we are considering for divestments, as Patrick explained. Looking ahead, including the startup of Mero 1 and our entry in Atapu and Sepia, we expect production in Brazil to grow by 30,000 barrels per day in the second quarter and then by 60,000 barrels per day in the fourth quarter. Our downstream activities generated $1.4 billion of adjusted net operating income in the first quarter, up 35% from the previous quarter and 2.6 times higher than the same quarter a year ago. Operating cash flow before working capital changes was $1.9 billion, up 22% from the previous quarter and more than 2 times higher than renewable. The strong downstream performance was mainly due to higher distillate margins in Europe in the context of reduced imports of Russian petroleum products, as well as outperformance of around $400 million compared to standard results in the quarter by our crude and product trading activities. Refinery throughput increased to 1.1 million barrels per day in the first quarter, reflecting demand recovery, particularly in the U.S. and in Europe, and the restart of the distillation unit at the normal refinery. Petrochemical production volumes were stable. Petroleum product sales were 1.4 million barrels per day equivalent in the first quarter, stable compared to the year ago, as the demand recovery in aviation was offset by lower sales in Asia due to pandemic lockdowns. At the company level, operating cash flow before working capital changes was $11.6 billion in the first quarter. This was a working capital build of $3.5 billion in the first quarter, mainly due to price effects on inventory, an increase in inventory levels to ensure the security of supply for refineries, and the seasonality of the gas and electricity business. This was partially offset by a $0.9 billion release of margin growth and $1.9 billion of receivable payable valuation, including an increase in tax payables. Net investments were $2.9 billion in the first quarter, including $900 million for renewable and equity, in line with the '22 targets of 25% of our CapEx for the full year. We are maintaining capital discipline, and full year CapEx may trend toward $15 billion, still inside the previous guidance of $14 billion to $15 billion, as Patrick mentioned. Including the mobilization of additional investment to support short-term gas production in the North Sea and additional opportunities that may arise in line with our strategy of transformation. We reduced net debt by $3.7 million, which lowered the gearing ratio to 12.5% at the end of the first quarter. We bought back $1 million of our shares during the quarter. We reaffirmed the company's priority in terms of cash flow allocation in this context of higher oil and gas prices, investing in profitable projects to implement the strategy to transform TotalEnergies into a sustainable multi-energy company, linking dividend growth to structural cash flow growth, maintaining a strong balance sheet and a long-term debt rating with a minimum A level by permanently anchoring gear below 20%, and allocating a share of the surplus cash flow from high hydrocarbon prices to share buybacks. Let me conclude my remarks, and we are ready with Patrick to begin the Q&A.
Operator, Operator
The first question comes from Irene Himona at Societe Generale.
Irene Himona, Analyst
Congratulations on these exceptional results. I have two questions, please. Firstly, on the actual results, Refining & Chemicals benefited from a rather low adjusted tax rate this quarter compared with last year. Was this a one-off, and do you expect it to move back up again over the rest of the year? And then secondly, the balance sheet deleveraging obviously continues. And arguably at the top of the cycle, this is quite normal to enable you to then withstand the eventual price downturn. But as you stated, Patrick, prices may well remain elevated for a bit longer. Do you see this rapid deleveraging as creating options for you for large-scale M&A, particularly in new energies and low carbon?
Jean-Pierre Sbraire, CFO
So I will take the first question in regards to the tax rate. So globally, that's true that the group benefited from a lower tax rate due to the higher contribution from LNG. And I mentioned to you the overperformance of the trading is part of the explanation.
Patrick Pouyanné, CEO
The trading benefits from a lower tax rate compared to traditional activities. We no longer have one-time costs associated with refining and petrochemicals. Regarding your second question, I want to emphasize that we've communicated clearly with the Board. This could be an opportunity to accelerate our transition by exploring some countercyclical businesses. I mentioned before that we need to be patient, and we've shown over the last six or seven years that we can seize these kinds of opportunities. If we decide to proceed, it will mainly focus on LNG and/or electricity and renewables. I'm not keen on very large-scale mergers and acquisitions; the key issue is integration. In the past seven years, we have achieved well with amounts around $8 billion to $10 billion in investments like Maersk Oil or Mozambique and Anadarko assets. We'll see what happens next. I want to clarify that we don’t have anything specific in mind right now; we're just open to using part of our exceptional cash flows to advance our strategy as previously outlined. However, in the renewable sector, there is currently a significant bubble, so patience will be crucial to create value—it’s about value, not volume for us. We recently announced a deal in the U.S. with Core Solar, and we expect more announcements in the coming months. Please be patient.
Operator, Operator
Next question comes from the line of Christyan Malek from JPMorgan.
Christyan Malek, Analyst
Two questions, please. First, regarding the exposure to Russia and the impact of your industrial strategy to grow LNG. Sorry, so maybe slight sensitive, in a worst-case scenario where you have to exit altogether. Could you frame the impact to sort of just think, just qualitatively, the ability to grow your energy business? What would be the second and third-order impacts in your transition in light of this being a very important cash machine as well as an enabler to deliver more renewables? And for example, would you need to raise more investments elsewhere? The second question, and I realize the way you framed the energy triangle of access, climate security, Patrick. It's interesting you can frame oil and gas investment as a key enabler in order to deliver on the other two and in a similar conclusion we came to in our energy study. But it does seem these three variables have different weightings depending on the stakeholders involved. So assuming there is a super cycle that takes hold in the decade, should we expect you to raise CapEx in oil in order to take advantage and underwrite, obviously, the diversification across energy in the other parts of your business?
Patrick Pouyanné, CEO
Our current exposure to LNG in Russia is limited to Yamal LNG, which constitutes about 20% of our portfolio, translating to approximately 4 to 5 million tons of LNG. We believe it will be challenging to proceed with the Arctic LNG 2 project due to sanctions, and we will not be investing further in it. We are looking for other opportunities to offset these volumes and already have assets in development, including our partnerships at Cameron LNG, Papua New Guinea, and Mozambique. We expect to have updates in the next two weeks regarding our plans to support growth in LNG. I don’t anticipate a disruption in our LNG growth profile, even with a potential full exit from Russia, which is a possible scenario, but not immediate. The main impact would be on our gas production, particularly from Novatek, which does not hold significant value for us. Our transition strategy is primarily centered around LNG rather than domestic gas. Regarding the energy triangle, it's essential to remember that climate considerations are critical for our strategy; we can't overlook them even if there are fluctuations in oil and gas prices. Our approach is tied to long-term energy market dynamics aimed at decarbonization, with a focus on electricity and new energy sources. Looking ahead to 2020 through 2030, we’ve committed to stable oil production, which requires investments to offset natural declines. We've made substantial investments in Brazil and anticipate benefiting from rising oil prices there. We are also advancing our projects in Uganda and have secured a deal in Iraq that incorporates gas, renewables, and oil. To maintain stable production over the long term despite declines, we must seek new projects, and I’m encouraged by our exploration teams’ progress in Surinam and Namibia. The discovery in Namibia is promising, though still early, and we're moving quickly to conduct further appraisal well tests. If we can independently generate these oil discoveries, it aligns with our strategy and we will move forward with their development. In terms of capital expenditure increases, my answer is no; any increases will relate to the opportunities we identify.
Christyan Malek, Analyst
Just to be clear, Patrick, you're not going to raise all CapEx beyond what you planned. I just want to make sure I understand. It's essentially part of the budget, but there's no plan to raise it.
Patrick Pouyanné, CEO
CapEx accounts for 50% of the total, as I recall, and I believe that's the appropriate measure. We need to remain alert, particularly regarding the risk of inflation. I want to avoid repeating the mistakes we made during past super cycles, where rising inflation costs led us to drill indiscriminately, thinking any barrel would be profitable. We should concentrate on short-cycle projects and adhere to our strategy of targeting low-cost barrels. I see potential opportunities, and if they arise, we will take advantage of them. Additionally, as mentioned earlier, this is also a chance for us to refine our oil portfolio by eliminating the remaining high-cost and higher carbon intensity barrels that exist in mature fields. When operating counter-cyclically, we need to sell when prices are high and buy when prices are low.
Operator, Operator
Next question comes from the line of Oswald Clint from Bernstein.
Oswald Clint, Analyst
Just two as well, please. Firstly, just on LNG again. As I think about Cameron LNG, obviously, we know it's one of the cheapest built plants in the last decade. So you're going into feed, you're going to engage with the EPC contractors. There's going to be a scramble for LNG. You spoke just about inflation in the last cycle. So is there a rough sort of unit CapEx number you're thinking about here for this project? But also the feedstock assumptions; clearly, Henry Hub is a lot higher than it has been over the last 5 or 6 years. So any description you could talk about would actually be interesting. Then secondly, we're waiting for peace in Ukraine, but it feels like the ceasefire in Yemen is actually holding up here. I know you've protected the plant pretty well in the last 7 years during that particular war. But is there a probability you could place on a scenario where that plant Yamal LNG starts up in the next 12 to 24 months?
Patrick Pouyanné, CEO
Thank you for the second question. I omitted it from my speech because I know we've been waiting a long time for the ceasefire in Yemen, and we aren't involved in the political discussions there. However, the plant remains intact, and I want to clarify that it's a 7 million-ton plant. Based on our assumptions, restarting the plant could take about six months to fully remobilize. So, these 7 million tons could potentially be available fairly quickly, but that depends on the ceasefire. When we lost cash flow from Yemen in 2015, it was around $1 billion per year, and we were able to replace part of that from Russia fairly easily. This is one of our advantages; we have a diverse portfolio. Regarding Cameron LNG, it is indeed an interesting project due to its brownfield nature. There are no additional logistics, joint ventures, or storage tanks needed, as everything is already in place; it’s just a matter of building a new train. Currently, there is more competition in the U.S. LNG market, so inflation might occur, but the fundamentals are strong. We will also expand the first three trains, giving us an additional profitability boost. As for your second question, it relates to our integration strategy. Our production in the Barnett shale is beneficial because it helps cover some of the gas we use in our LNG plants. While it isn't the exact same type of gas, it still makes economic sense. I have always believed in this integration strategy; even if prices are high now, in the medium term, as we develop more LNG in the U.S., we will need to access gas from shale. This will be a crucial aspect of our strategy to integrate the LNG supply chain economically, and that addresses your question. I won't disclose specific assumptions but want to provide a way to manage the volatility of U.S. gas prices.
Operator, Operator
Next question comes from the line of Michele Della Vigna from Goldman Sachs.
Michele Della Vigna, Analyst
Patrick, Jean-Pierre, congratulations. I wanted to ask two questions on your view on future returns in some of the renewable investments. Because we're seeing strong conflicting forces. On one side, tremendous cost inflation, in some cases, up to 30%. But on the other side, we're seeing higher power prices and also much higher volatility. I was wondering, compared with your view one year ago, do you see higher or lower return investment opportunities in that space? Has this changed your view of what's the right balance between PPAs and merchant on power? Then staying on low carbon hydrogen; it's really at the forefront of repower EU major upgrades to 2030 targets. Huge support. But I was wondering, is this really coming through a more attractive set of incentives? Do you see large-scale green hydrogen development in Europe actually showing improved profitability and support for the coming years?
Patrick Pouyanné, CEO
First, it's a great question. During the March 24 presentation, we indicated that we believe power prices are set to structurally rise due to factors like intermittency and the cost of ensuring firm power. This isn't just about rising costs in renewable energy. We've decided to keep 30% of our renewable assets available to the market in order to manage volatility, and our balance sheet can support this strategy. This approach could enhance the long-term profitability of these assets, distinguishing us from competitors. A few years ago, we entered this space with a focus on securing our position, but now we have a clearer understanding of the situation. This approach requires integration across the value chain since renewable energy is just one part of the equation. To create value from such a commodity, effective storage, trading, and supply management are necessary. I'm not seeing the inflation in costs as negative; in fact, it might lead to a more balanced market by discouraging some players who are aggressively bidding low, a competition we chose not to engage in. For instance, we've only succeeded in one tender in Qatar out of several opportunities in the Middle East because many anticipated declining costs due to new technologies. With inflation now, I believe this sector is stabilizing, and I'm optimistic about future returns. We are sanctioning projects with a return on equity above 10%, considering keeping rather than selling some high-performing assets. Regarding green hydrogen, I have reservations about its viability in Europe, where the current incentives are insufficient. We have one project that we've expanded to around 150 megawatts, but that's still relatively small. To significantly reduce green hydrogen costs, substantial investments in larger-scale operations are necessary. We will soon reveal a large-scale project, but it won't be in Europe because we believe that the economics of green hydrogen depend on low-cost electricity production. We are actively seeking locations with the potential for very large-scale facilities that can achieve low electricity costs in the long run.
Operator, Operator
Next question comes from the line of Lydia Rainforth from Barclays.
Lydia Rainforth, Analyst
Two questions, if I could. The first one, Patrick, can you just talk us through the thinking of the Board in terms of the share repurchase level and how that changed versus February? Just any thoughts around what happens for the second half? And then secondly, on Russia and the impairment, is that sort of a retreat from Russia? Effectively, what would it take now in terms of Yamal to say actually this isn't working for Total anymore? And also, one final one if I could. Just a comment on the diesel market, just given how tight those markets seem to be, and we've seen tracked move up very quickly.
Patrick Pouyanné, CEO
First, regarding the share buyback, we remain committed to sharing the benefits of higher hydrocarbon prices with our shareholders. Our cash flow from operations has increased significantly to $11.6 billion, compared to $9 billion in the last quarter. The $2 billion buyback plan for the first half wasn’t based solely on the $11.6 billion figure. The $1 billion portion is 40% of the additional $2.5 billion cash flow compared to the previous quarter, which reflects our board’s decision-making process. We will monitor this situation regularly at the board level without making major announcements, as we aim to manage all stakeholders appropriately. However, the board continues to prioritize accelerating the company’s transformation. Concerning our activities in Russia, I want to clarify that we haven't said we will exit Russia; we've mentioned we would not exit outright. We are evaluating the implications of sanctions step by step, particularly in relation to Arctic LNG 2, while also suspending our lubricant operations by the end of the month due to a shortage of additives. Regarding Novatek and Yamal, we are bound by contracts that involve significant financial commitments, and we will fulfill these contracts as long as sanctions permit. Our board's approach considers the need to protect shareholder value amid the evolving situation in Russia. We acknowledge the necessity for impairment as developments unfold. As for the diesel market, we've seen prices surge to around $200 per ton, influenced by sanctions on Russian petroleum products, which are crucial for Europe. The refining infrastructure in Europe has been more oriented towards gasoline than diesel, a situation that predates recent events. Our refineries, which had been halted, are now resuming operations and will soon be running at full capacity in the second quarter, which is a positive development for the company.
Operator, Operator
Next question comes from the line of Christopher Kuplent from Bank of America.
Christopher Kuplent, Analyst
Two quick questions for me as well, Patrick. Can you go a little bit more into detail and tell us what the missing parts are that are delaying Arctic 2 and your assessment of how long it would take to source these parts circumventing sanctions that are now imposed? The second question is a bit of a wider question. You used $70 Brent and $20 for your gas price assumption when you gave us a 2022 cash flow outlook earlier this year. It looks like the $20 per BTU, at least to me, has now become more of a floor than anything else, whereas at the time you said that might be a little bullish here relative to $70 Brent. Can you give us a little summary of your assessment following your introductory remarks around the price of energy security, particularly gas security that Europe, you think, will have to pay in order to redirect volumes over the coming years as contracts with Gazprom expire?
Patrick Pouyanné, CEO
On Arctic LNG 2, the current situation is as follows. There is a list of LNG technologies and critical elements that have been identified. Technip and other contractors are assessing this list to pinpoint any missing critical elements. These sanctions will take effect from May 27. In the meantime, Novatek is working with its contractors to secure as much equipment as possible and to transfer teams if feasible to achieve, ideally, the first GBS one. We will see if that happens; this is more a question for Novatek and the contractors, particularly Technip Energy and Baker Hughes. We have opted for a cautious approach in our accounting practices and will impair the value of Arctic 2. Regarding economic assumptions, I am not completely convinced that $20 per million BTU will hold. That price raises some competition concerns between Europe and other markets. In the first quarter, I noticed that demand for LNG from China dropped significantly, over 10%, largely due to high prices. There is a considerable risk of demand restructuring, particularly in Asia. The demand dynamics are foundationally changing. The current situation is exceptional, and I wouldn't consider $20 a reliable long-term price in our economic assumptions. We are more inclined to the $8 to $10 range per million BTU, though I might be overly cautious. For this year, it is evident that we could end up around $20, especially if Russia curtails gas supplies through pipelines, requiring LNG to flow to refill gas storage for next winter. This could lead to competition for LNG prices globally. This summer will serve as a critical test since last year experienced a spike in Asian gas prices due to high demand from air conditioning needs and economic recovery. I am uncertain about the current situation in China, with many uncertainties surrounding COVID lockdowns. We’ll see if China returns to the market needing LNG like last year. Prices will not decrease and will likely remain high. In the long term, it’s crucial to consider that high LNG prices could reduce demand in Asia and potentially slow gas usage in Europe. The European manufacturing sector benefited from Russian gas, and it may struggle to cope with $20 per million BTU prices. Some industries may start to electrify their supply chains to access cheaper energy through long-term contracts. I cannot see maintaining $20 as a long-term price since customers will not accept such high costs. This is why we have instructed internally to use $8 for project outlooks. Nonetheless, this price can still help restart some North Sea gas projects, which used to be profitable at $5 but are now looking at $8 to $10. We have a good example in our portfolio with the 0.9 blowdown gas cap, a 1 TCF gas project, which is being revitalized now. I've directed our teams to explore these opportunities so we can bring them online. We don’t require $20 for these types of projects. That answers your question.
Christopher Kuplent, Analyst
Very clear, Patrick. I think $8 to $10 is already, as you say, enough and would simply be a very important message to recapture all gas prices to Brent equivalent levels.
Patrick Pouyanné, CEO
I fully agree. By the way, in our commercial part of LNG sales, we have given instruction to our LNG people not to try to go back to the famous 16%, but to be reasonable because for me, today, the priority is to maintain a demand, and it's an opportunity for us to sign long-term contracts. Of course, offering acceptable long-term prices helps, by the way, to launch additional LNG projects with these types of contracts.
Operator, Operator
Next question comes from Bertrand Hodee from Kepler Cheuvreux.
Bertrand Hodee, Analyst
Yes, congratulations again for this very strong set of results and your transparency on the Russia contribution this quarter. I have two questions, if I may. The first one is related to Namibia. There are external industry reports that suggest that your Venus discovery could potentially exceed 10 billion of recoverable oil reserves, making it the largest ever deep offshore discovery. I know it is early stage and you referred to it in your earlier remarks, but can you elaborate a bit more on this potential massive find and share with us your initial thoughts on this discovery and any color on a potential fast track development? That was the first question. And second question on Russia; do you expect any dividend from Novatek in 2022?
Patrick Pouyanné, CEO
I already addressed the first question. Regarding the idea of stopping reading newspapers, I believe it's more beneficial to just listen to me. Your experience in the oil and gas sector has shown that discovering 10 billion barrels is unlikely. Let's be realistic; that notion seems far-fetched. I do view it as a promising discovery. We should drill the appraisal well and test the two wells before making further assessments. If we were to find such quantities, which I doubt, both we and our shareholders would be pleased. However, I believe this estimate pertains more to the Namibia region than our specific license. Let's be patient; it is indeed a promising discovery. Now, concerning the Russia dividend, Novatek has improved its position. The shareholders' general assembly approved the dividend last week, and as shareholders, we will receive these dividends. The timeline for when they will be available in rubles isn't clear. There is also the question of whether we can transfer them to TotalEnergies, which is contingent upon various factors, including counter-sanctions from Russia. Just as European sanctions are uncertain, so too are the counter-sanctions. To be candid, the dividend amount won't be significant; it's around $250 million for TotalEnergies and won't dramatically impact our overall picture. TotalEnergies aims for transparency, but access to funds or maintaining rubles in a Russian account remains uncertain.
Operator, Operator
Next question comes from the line of Alastair Syme from Citi.
Alastair Syme, Analyst
Patrick, Jean-Pierre, a couple of questions just on the state of markets and negotiations. You have already touched on U.S. LNG. I'm just intrigued to know whether economics are changing. It used to be kind of Henry Hub processes. Clearly, LNG developers see the same opportunity as you do out here. I am just wondering if those negotiations are getting tougher. Then secondly, could you just sort of explain how the market for acquisitions in renewables works? I mean, you touched on the Core Solar deal. I am just trying to understand if that's a competitive option and sort of how competitive these options are.
Patrick Pouyanné, CEO
As you know, for the second question, I'd be clear, Core Solar was a deal that was a direct negotiation. I have a very strong view on this market, and I say to our team, stop looking and stop spending your time or losing your time on competitive opportunities because you are always in front of you, I would say, financial investors, who obviously do not have all the same views on these assets. They have money with negative returns, so they are accepting retail that is too low. We are not in that field. The only way for us to continue to build the portfolio, but the Core Solar is an excellent example, is to have a direct negotiation. You need to be able to convince, I would say, the promoter that partnering with TotalEnergies will give you more added value. That's why we compete. We have over, I would say, opportunities in our portfolio in which we work. And there again, be patient; you will really understand what I just said in the coming weeks on which we work in different countries. As for the first one, I don't know which opportunities you are thinking of. If it's a matter of taking, no. So your question is slightly mysterious for me because if you have maybe topping in mind. On the contrary, I would say, on Cameron Energy, it helped to accelerate the decision process with all Chinese and Japanese partners. On this step as difficult, it's more of a matter of a closer relationship. I don't know which opportunity you refer to that might be impacted by the energy economy changing.
Operator, Operator
Next question comes from the line of Peter Low from Redburn.
Peter Low, Analyst
The first question was just a clarification on the cash flow from Russia in 1Q that, I guess, relates to Yamal. Can you confirm that that has been repatriated from Russia? I appreciate it can change, just to understand the current situation. And then secondly, you talked about your willingness to explore counter-cyclical opportunities to accelerate the transformation. Can you clarify, would that be aside from the $13 billion to $15 billion net investment range you have previously given to 2025, or would you stick with that range and try to make disposals alongside any larger acquisitions you are to make?
Patrick Pouyanné, CEO
On the first one, it's clear; in fact, you have the figure. Most of the cash we received this year is linked to Yamal. So it's the access revenue from Yamal.
Jean-Pierre Sbraire, CFO
Yes. It's getting back to TotalEnergies. So the figures we get, I have those in my desk.
Patrick Pouyanné, CEO
Yes, if we receive the cash. The war was declared in the latter part of the quarter. The Yamal cash system is still operational. Regarding the second question, the range we provided for 2022 is $14 billion to $15 billion. So yes, you are correct. If we accelerate on one end, we may need to divest on the other end, as we will proceed accordingly.
Operator, Operator
Next question comes from the line of Biraj Borkhataria from RBC.
Biraj Borkhataria, Analyst
I have two questions, please. The first one is on the Cameron LNG and the debottlenecking there for the existing trains. Do you have an idea of what timeline that debottlenecking is supposed to be delivered on? And then the second question is just on Mozambique LNG. Do you have an update on activities there, when you expect to restart and your view on start-up and construction there?
Patrick Pouyanné, CEO
Thank you, Biraj. The plan is to ensure you are informed as we prepare for the project next year in 2023. It will take three years to complete the train, which means we anticipate having Cameron LNG's new train ready by 2026. Regarding Mozambique LNG, I know some of your colleagues inquired about this on March 24. There hasn't been much news since then. As I mentioned, there is some activity occurring, but it's being led by the government of Mozambique, which is working to restore security and help the population return to a peaceful and normal life. These are the two conditions we discussed with the Mozambique government. I believe that it will take at least until 2022 for us to proceed, and our intention is to return there once I am able to visit Afungi, Palma, and Mocimboa da Praia. If my security team advises against it, I will not send my personnel or contractors into a risky situation. So, it really depends on the evolving circumstances. While there are good revenue opportunities and security has significantly improved with fewer attacks, the situation is not fully resolved yet. The Mozambique government has indicated that their goal is to restore security by June of this year. However, we do not wish to resume our activities in the midst of refugee camps. We want stability because peace also involves stabilizing the local population and economic activities, which we aim to contribute to alongside others. There are several positive developments for those visiting the area, and I've received reports from some of my senior officers who have been there. It's a matter of patience, and once we believe the situation is truly secure, we can begin to remobilize. We estimate it will take approximately six months to return to a stable construction level. The prospects and progress are encouraging, but ultimately it is contingent on the Mozambique government's actions.
Biraj Borkhataria, Analyst
On the first question, the question I was asking was for the 5% increase in the debottlenecking for the first three trains at Cameron LNG. What timeline do you expect to deliver that one?
Patrick Pouyanné, CEO
I believe it's related to the construction of the trains. It's 25; I think 25 refers to the third debottlenecking. I apologize for missing it, but the first debottlenecking is scheduled for 2025. I apologize again for not catching that.
Operator, Operator
Next question comes from the line of Henri Patricot from UBS.
Henri Patricot, Analyst
Question on trading and a couple on downstream. The first one on trading, very strong performance in the first quarter. We continue to see significant volatility in the second quarter. I was wondering to what extent you think you can replicate the very strong performance of the first quarter and the second quarter in both gas LNG trading and the RC trading? Then secondly, you talked earlier about the risk of demand destruction for gas. It was interesting to draw your views on the risk for oil demand at the current level of prices that we're seeing, and whether you're starting to see some weaker demand in your own network? Finally, can you give us an update on the impact of the discounts of the pump and whether you would expect these to be extended?
Patrick Pouyanné, CEO
Yes, it's truly exceptional. Our traders are consistently motivated to engage in it. In terms of oil trading, this quarter has been quite remarkable, similar to the volatility we saw in the second quarter of 2020. The additional cash flow we mentioned, roughly $500 million, is closely tied to a specific market volatility situation when they're well-positioned. Regarding gas, we see a similar trend, and this marks the second consecutive quarter of strong results. The market volatility is evident, and I believe our teams are better equipped, especially in LNG, which has given us an edge for solid results. We'll see if they can maintain this performance. Additionally, we're also benefiting from robust electricity trading for the second quarter in a row. Overall, trading performance tends to correlate with market volatility. Traders thrive on volatility, but they also need to analyze market trends well, as conditions can change. Currently, in our network, the effects of COVID have been quite different. We've observed impacts from COVID, especially in the first quarter, with some restrictions still in place in Europe and Asia, notably China. However, I cannot link current oil demand to the present oil prices; the statistics for April show no significant recovery. We're approaching levels similar to 2019, with minor increases, particularly outside Europe, but the situation may worsen, recalling the supercycle effect primarily in emerging markets that require governmental subsidies. Given high costs, we are starting to implement measures to enhance productivity. This is not the case with gas. My focus was more on LNG competing with coal. LNG prices are high, and I worry some Asian countries might quickly revert to coal, which is detrimental to the climate. Regarding discounts at the pump, we've voluntarily decided to implement some reductions because it's essential to care for our customers during this time of solidarity. We’ve seen extraordinary results, and I believe in conversing with the German and French governments about acting directly in support of our customers. We've taken similar actions for gas and will extend this to gasoline or other fuel taxes, aligning with this approach. We also plan some initiatives for the summer when travel increases, including thoughts about discounts on motorways, which we need to refine before making any announcements. Ultimately, it's important that we share our profits with our customers.
Operator, Operator
Next question comes from the line of Martin Rats from Morgan Stanley.
Martijn Rats, Analyst
All my questions have been answered. It's been very comprehensive.
Operator, Operator
Next question comes from the line of Jason Gabelman from Cowen.
Jason Gabelman, Analyst
Two quick ones, because I agree; the call has been quite comprehensive. The first on the Brazil payments for Sepia and Atapu. Are there any payments left after whatever you disclosed for 1Q? Because it looks, at least on our numbers, a bit light, and I'm not sure if there's any additional payments coming for those PSCs for the rest of the year beyond what was booked for 1Q. The second question is if you have any update on your views on when the Qatar LNG project can award those contracts? It seems like this is about as good an environment as we'll get to fully sanction the project, so any update there would be helpful.
Patrick Pouyanné, CEO
Yes, that will be beneficial for me as well, but I will allow the authorities to speak on that. It's a competitive process. We are involved, and I have been leading the communication with the Qatar authorities throughout this process, as we have a long-term partnership with them. We have a strong ability to contribute to these projects. Regarding your first question, you are right to ask; the bonus in question is tied to the oil price, but I don't anticipate it will be paid out immediately. It operates on a yearly basis, and the specifics of the mechanism can be explained by our teams if you would like more details. We have actually made the payments; all the initial bonuses amounting to around $2.5 billion were paid yesterday. Although Jean-Pierre's treasury was somewhat reduced yesterday due to concerns about holding too much cash, everything has been addressed, including the bonus to the state and the compensation to Petrobras, which was primarily paid yesterday. In terms of cash flows, the bonus to the state and the compensation was paid recently. We look forward to continuing this process. Thank you all for your questions. We look forward to seeing you for our next quarter results. Thank you.