Earnings Call Transcript - TTE Q1 2020

Operator, Operator

Ladies and gentlemen, thank you for joining us for the Total Q1 2020 Results Conference Call. Currently, all participants are in listen-only mode. There will be two presentations today: Total's first quarter results and an update on the 2020 action plan, followed by a question-and-answer session. This will be followed by a presentation on Total's climate ambition and another question-and-answer session. I must inform you that this conference is being recorded. I will now hand the conference over to Mr. Patrick Pouyanne, Chairman and CEO of Total. Please proceed, sir.

Patrick Pouyanne, CEO

Good afternoon, everybody. Welcome to our Q1 conference call, and let me start by saying that I hope that all of you and your families are safe in the face of this pandemic, which is COVID-19, and that you are coping well in these extraordinary times. I really think that the word 'extraordinary' is the right term to literally sense, as none of us thought we could experience such a macro environment, such an oil price crisis at the same time. So we have a lot of ground to cover this afternoon for this call. That is why I joined Jean-Pierre to cover the virus crisis that we are facing. We are prioritizing the health of all our people and the continuity of our operations. I would like to pay tribute to all the efforts and commitment of all our teams around the world. We are working together to ensure the continuity of our operations during the crisis, and they are doing a great job. Thank you to them all. The second crisis is the oil price crisis; it is unprecedented. I had in my speech that I always say there is volatility, and we experienced volatility; it is difficult. I know that the oil industry would like to see a stable world. I think we are absolutely unable in this industry to stabilize anything. We will come back on it, and it has, of course, some consequences that affect the financial framework of our company, and we will come back on it with the update of the action plan. I just want to tell you that for the past five years, we have strengthened our balance sheet, we have high-graded our asset base, and we have lowered our breakeven. Fundamentally, we consider that Total is very well positioned to weather this storm. I would add that by myself, I become a veteran of tough times. I took my position in 2014, just before the first downturn began. So we begin to have some good wishes to face this situation and fundamentally, we believe that priority should be given to self-help. This is the sense of all the plans we will present to you. We are also preparing for the medium and long term with cash flow, but we have immediate and short-term challenges, which means the evolution of the energy landscape and climate policy. It's clear that we have to work together. Today, I think it's a good symbol; we speak about immediate challenges and action plans and also medium and long-term. We have issued a renewed climate policy, which is a result of much work with the Board of Directors, including engagement with some investors from the Climate Action 100-plus coalition. I will come back on it. To avoid mixing the Q&A, we proposed to have two Q&A sessions: one after Jean-Pierre has introduced the Q1 results and myself with the update on the action plan and then we'll go to the medium and long term. I'm afraid if we mix both, all the questions will be more about the short term than the medium and long term. But I think it's also important to have some time, so I prefer to dedicate around one hour and 50 minutes for the first part and 45 minutes for the second part. So now I will leave the floor to - before there was P2, now it's JP2, so I’m P1 and JP2; I need to give him a nickname as well. So JP2 will give you all the Q1 results.

Jean-Pierre Sbraire, CFO

Thank you, Patrick. So, as you know, the first quarter environment was marked by a 30% drop in oil and gas prices, a 20% decrease in European refining margins, and a collapse in project demand in line with the COVID-19 crisis. In this context, Total nonetheless reported resilient results. The debt-adjusted cash flow was $4.5 billion, down 31% year-on-year, and the adjusted net income was $1.8 billion, a decrease of 35% year-on-year. Let's move to the production. So the Upstream production was 3.1 million barrels of oil equivalent per day during the first quarter, an increase of 5% compared to a year ago and stable compared to the previous quarter. We continue to benefit from ramp-ups, mainly from the major offshore fields in the North Sea, Culzean, and Johan Sverdrup and Egina in Nigeria, as well as our LNG giant fields like Yamal and Ichthys. The contribution of these ramp-ups was partially offset by the security situation in Libya, the redevelopment of the Tyra Field in Denmark, and natural decline of around 3% per year. Our Integrated Gas, Renewables, and Power segment reported again strong first-quarter results. Adjusted net operating income was $0.9 billion, an increase of more than 50% year-on-year. In addition to higher volumes, strong results reflect the resilient pricing of LNG in our portfolio, notably for contract sales. It reflects as well the value of global integration, including the increased use of European regas capacity and the strong performance of LNG trading. Renewable activities also increased their contribution during this quarter. We are committed to procuring high-quality growth for this IGRP segment, which is key to the energy transition and to further diversifying our integrated model, notably into low-carbon electricity. The stability and sustainability of the IGRP contribution strengthens our performance, particularly since the low-carbon electricity business is outside of the oil price cycle. In the first quarter, we continued to expand IGRP along the entire integrated gas and low-carbon electricity chain. LNG sales increased by 27% year-on-year, close to 10 million tons in the first quarter, thanks to the ramp-ups of Yamal and Ichthys, as well as the startup of the first two Cameron LNG trains in the U.S. Growth in installed renewable power generation innovation capacity increased by almost 70%, low-carbon electricity generation increased by 10%, and we continue to grow our customer base rapidly at 9% in the quarter with almost 6 gigawatts for a few projects. Let's move to the E&P segment. So this segment generated adjusted net operating income of $0.7 billion in the first quarter, down from $1.7 billion a year ago. How can we explain this $1 billion decrease? It is mainly due to the price environment, of course, and the deterioration of the oil and gas prices that had a negative impact of about $1.2 billion. These effects were partially compensated by the increase in volume, mainly from the ramp-up I mentioned already. Important to point out that E&P maintained continuity of normal operations throughout the quarter. We had no virus-related stoppages and significant supply chain issues. We are making progress on the major projects under construction, and we announced two discoveries in Suriname, plus one in the U.K., North Sea. Refining and Chemicals generated $0.4 billion of adjusted net operating income, down 50% compared to the same quarter last year. R&C was impacted by the 20% decrease in refining margins reflecting weak product demand and by the reduction in refinery utilization to 69%. The Feyzin refinery in France and the Satorp refinery in Saudi Arabia were both shutdown for plant maintenance in the first quarter. The deterioration unit at Normandy we mentioned was down following the fire incident that occurred last December. Petrochemicals performed better than refining, benefiting from the lower feedstock costs. Steam-cracker utilization was above 80%. Marketing & Services generated $0.3 billion of adjusted net operating income, a decrease of 12% compared to the first quarter 2019. M&S was also affected by low project demand, notably in China and in France during the quarter. Sales were down 10% year-on-year, driven mainly by an 11% decrease in Europe. For the Group, the first quarter adjusted net income was $1.8 billion compared to $2.8 billion in the same quarter last year, and as already explained, this reflects the impact of lower oil prices, lower refining margins, and lower demand. The Group debt-adjusted cash flow was $4.5 billion compared to $6.4 billion in the same quarter last year. This $2 billion decrease was driven mainly by the drop in the oil and gas prices, more or less $1.5 billion effect, and the decrease in downstream cash flow for an effect of $0.6 billion. In addition, dividends from equity affiliates were lower year-on-year due to environmental and timing effects. Let's move to investments. So net investments during the first quarter were at $3.7 billion, organic CapEx at $2.5 billion, down 12% compared to the first quarter 2019, and net acquisitions were $1.2 billion in the first quarter, including $1.6 billion of acquisitions mainly for Adani Gas Limited in India and the second tranche on Arctic LNG 2 in Russia, alongside asset sales for $0.5 billion, mainly for Block CA1 in Brunei that we sold to Shell and the interest in the Fos Cavaou regas terminal in France. Since the start of 2019, we sold $2.5 billion of assets, and we announced a further $0.7 billion which are still to be closed. But given the less favorable context of asset sales, particularly for upstream assets, we are re-classifying the asset sales program to infrastructure and real estate. The balance sheet remains strong with a gearing of 21% at the end of the first quarter. Gearing was negatively impacted by the working capital builds in the first quarter of $2.7 billion. This working capital build is mainly due to seasonal or temporary effects, and I will give you three elements that contributed to this working capital builds during the first quarter. First, our gas and electricity B2C business generates more receivables from our customers in the winter when consumption is higher. The second element of this explanation is directly linked to the environment; the tax liability of our subsidiaries, particularly in the Marketing & Services segment, were reduced in Q1. On top of that, we had our trading entities building stocks to benefit from the contango in the markets to prepare for the future, and we hope that this will, of course, result in additional sales in the future. Having said that, as the working capital is a critical element for the Group's cash flow, we have put together an action plan focusing on working capital release, and we made the decision to incentivize our managers based on their performance regarding working capital. By year-end, in a $30 per barrel environment, we anticipate a $1 billion working capital release. Let's move to our net liquidity. So this net liquidity at the end of the first quarter was $21 billion, which includes $9.5 billion of net treasury, meaning the cash minus the debt that has a maturity less than 12 months, plus $11 billion of undrawn credit lines. In April, we reinforced this liquidity by adding, sorry, $10 billion of additional funds. We issued more than $3 billion of long-term loans on the market at competitive terms, and we drew $6 billion out of a newly negotiated arrangement with our clients. Summarizing the first quarter results, our business segments were resilient in a weaker environment, and the strong balance sheet with the low cash flow breakeven puts us in a favorable position to cope with the challenges ahead. I leave the floor to Patrick to outline the way forward.

Patrick Pouyanne, CEO

Okay, thank you, JP2. We are pleased with the results, which were quite resilient in this difficult environment. However, let me be clear, the Q1 results may be the best of the year, and we don't know where we go from here, but I can anticipate that the Q2 results will be much lower because the impact of COVID-19 was mainly on our businesses in China and M&S during the first two months. I would say since March 6, the rest of the Group has been impacted, especially with some inventory effects by the end of the quarter. Q2 will be more complex, and that is why we made an unusual decision to give you more guidance today. All we can see for the year ahead is not a straightforward exercise given the extraordinary circumstances characterized by uncertainty regarding the way economies exit from this confinement period in Europe and the U.S. A lot of question marks. But I think it was good to give you more guidance and to correct a number of anticipations compared to what we shared in February. The first slide I will present is to tell you that we are, with the teams of the Group around the world, facing the COVID-19 challenge, and the number one priority is, of course, the health of all our people and the continuity of our operations in a safe way. A lot of people, including our employees, are working from home, and it works quite well. The IT systems of the Group are also resilient. There are over 20,000 people working remotely, and it’s working well. We have implemented measures to ensure availability and safety, including protective equipment, mandatory masks, temperature checks, and sanitizers. We also organized our offices and other sites to keep social distance requirements set by health authorities. Our operations are functioning, and we have implemented business continuity plans to ensure production without disruption. Our retail network is operating at 95%, which is quite high. However, we have unfortunately observed declines; for instance, in France, we have lost almost 70% of business in marketing, and in Germany, it's around 35% to 40%. Yet we continue to supply gas and electricity and take care of our communities as much as we can. We have provided masks in some countries and organized programs to provide free gasoline to healthcare professionals, which has been appreciated. So that's the COVID-19 situation. Everyone is engaged, and we are on the front lines of this battle. Regarding the oil market, we are undeniably facing a clear overproduction issue, and our industry has struggled to adjust production capacities to meet demand. In March, we had rising supply in the market despite the prevailing situation. It makes little sense to produce oil at such a loss, hence the OPEC+ has made decisions to implement quotas. However, it’s evident that managing inventories will take a significant amount of time. As a result, by looking at the OPEC+ decisions made on April 10 regarding production cuts, we have a negative vision of oil prices. Today's market doesn't provide much comfort, and we need to reinforce our action plan as it seems that the upcoming situation may get worse. On the subject of production, in February, we anticipated a 2-4% production increase linked to our Anadarko asset acquisition. However, we are reevaluating this guidance amid the current state of affairs with the OPEC+ decisions impacting our output and production levels. We foresee a production capacity reduction of around 50,000 barrels per day if conditions do not change. In terms of downstream cash flow, we see a notable reduction but believe our trading capabilities will enable us to offset some of these losses. The overall guideline for the downstream cash flow for the year is around $5 billion to $6 billion. The first quarter results were, of course, resilient in a weaker environment, and our balance sheet remains solid. In terms of capital strategy, we decided to reduce investments further by an additional billion and will focus on projects with high returns. Our capital allocation remains a priority, especially considering the impact on our production guide and the current liquidity. By maintaining our commitment to low-carbon investments, we benefit from new opportunities that arise, but we need to be prudent in our economic outlook moving forward with a cautious and structured approach. However, we are focused on ensuring that we stay within our investment capacity. We have a strong sense of priority in partnering and adapting our business to demand while maintaining environmentally friendly practices. We regard our operations and diversification of energy needs as a strategic necessity, not only for our profits but also for our overall sustainability plans moving into the future. Finally, as we look toward the future, we will undoubtedly continue to revise our strategies to adapt to changing market conditions while reinforcing our commitment to providing value to shareholders, reflecting an ongoing commitment to excellence and resilience as the foundation of our function. I want to emphasize that we are working to grow our renewable sector alongside our oil and gas operations. It's fundamental for our transitional business model to flourish in both sectors. Our investments remain focused on areas where they can achieve the highest returns and meet our transition targets, which must be integral to our business decisions. Our climate policy and emission goals dictate that we have a vocal responsibility to engage and audit our investments thoroughly. Transitioning is not a simple task; however, our focus remains on striking an optimal balance between maintaining strong fundamentals within fossil fuel sectors while expanding clean energy output and solutions to achieve our climate objectives in the most efficient way possible.

Operator, Operator

And your first question comes from Michele Della Vigna of Goldman Sachs. Please go ahead. Your line is open.

Michele Della Vigna, Analyst

Thank you very much and congratulations on the resilient results in such a difficult environment. I had two questions, if I may. The first one is about LNG. We are seeing a clear divergence between LNG prices and Henry Hub, which are leading to legacy margins at least to some. I was wondering if some of these movements perhaps have made you more wary in terms of increasing the exposure to U.S. LNG and have made other projects, like the one you're developing in Mozambique, actually more resilient and less risky from a basis perspective? And then the second question I wanted to ask you is, if possible, to break down organic versus inorganic in the $14 billion budget and to clarify on the Occidental Africa acquisition if effectively the second part of the transaction with Algeria and Ghana have been canceled or just delayed at this point in time? Thank you.

Patrick Pouyanne, CEO

Okay, thank you, Michele for your questions. Always interesting and challenging. I would take the first one on LNG first: you have noticed that our LNG activity has been quite resilient. By the way, the second quarter from this perspective will be quite resilient as well because in fact on long-term price, we have a sort of six months of delay between the oil price and the LNG formulas. In the second half of the year, we should see more impact of the lower oil price. It is clear that we face today; people talk a lot about the oil market, but the gas markets are suffering a lot. We have exposure to the area but clear. We will probably cancel some LNG tankers during the summer to limit some losses. We have projects; we are working still on one project, the ECA projects in Mexico, because it's on the Pacific Coast and together we see a lot of value. You save more than $1 per million BTU by the trip to Asia. So, we should move forward coming months with that one. On the other projects, the answer is no; I mean, I’m not very - we are not prioritizing to invest more in merchant projects in the U.S. So clearly, we have the extension in Cameron, we’ll see what we can do with Sempra regarding this matter. The greenfield project options we have with Tellurian, there is no reason to move forward with that one either, so that’s true as well, like you said from this perspective, the acquisition of the Mozambique LNG project is quite beneficial because we had long-term contracts linked, most of them to oil prices. That is the big interest for us on the Mozambique project, not only the size of the resource, which can stay for many developments, but also the quality of the portfolio of values, so that’s what we are learning about the LNG market. The status of Oxy, let me be clear that nothing is canceled regarding the Algeria assets; they cannot deliver because of the position of Algerian authorities. We want to keep the operator as it is today. Oxy will remain the operator. So, they did not get approval for the change of control of Anadarko. They have approved it under the condition not to sell it. So that means Algeria will not be done unless Oxy finds a way to revert to us according to the contract. Regarding the Ghana project, things are always moving, and I will not elaborate further on it. It’s between the two companies that we will have to decide to move forward. So, regarding the organic versus inorganic part of the $14 billion, I would say in the budget, probably something like 10 to 11 organic and 3 to 4 inorganic. Yes.

Operator, Operator

And your next question comes from the line of Jon Rigby of UBS. Please go ahead. Your line is open.

Jon Rigby, Analyst

Yes, just a follow-up on those two questions. Is it possible - there's obviously a lot of moving parts in iGRP and results held up very well in 1Q. Assuming everything else is held flat, what would you estimate would be the effect on 3Q or 4Q results from the fall in oil prices in 1Q, I guess as a way of you being able to make that estimate just arithmetically? And then also just to follow up on the comments you made about Ghana, is that deal still alive even with you not being able to complete on Algeria and particularly, I guess, with all the other things that are going out and they were not conceived of in the original contract, it would seem to me is that what you're attempting to call what Oxy will be attempting to complete on is a very different transactions, the one that you thought you were getting into a little over a year ago? Thank you.

Patrick Pouyanne, CEO

Okay. On iGRP, I mean, the part of the result linked to the LNG assets is around, of the $900s, it is around $400 more or less. So this part will be impacted, and you can imagine that if the oil price divided by two, it will be impacted in a way that has to be evaluated for more proportionately. I don't have exactly the figures; I will come back to you, but it's more or less in the order of magnitude. It's not so big in fact, but there will be an impact on the results of the LNG assets in the second half of the year. On Ghana, I think I just answered you again. A lot of things have changed, including the new environment. So we are working with Oxy on it. And as I said before, all that is also linked to the position of the Ghana authorities and also linked to the environment. You knew and you know very well that the main attraction of Ghana was not on the same level as the other assets because it’s non-operated assets, and so we have less appetite for this one than we had for the other one.

Operator, Operator

And your next question comes from the line of Irene Himona of Société Générale. Please go ahead. Your line is open.

Irene Himona, Analyst

I had two questions, Patrick. Firstly, if oil were to average not $30, but around $25 for the rest of the year, and given the lack of visibility and if you needed environment today, another $2 billion or $3 billion, what would be the process of introducing a further dividend scrip? Would you call an extraordinary meeting? And why not get authorization now given the uncertainties just in case it is needed? And then my second question, just in terms of short-term guidance in the second quarter, what can we anticipate for the Group tax rate in Q2, in the current environment compared with the 30% you had in Q1 please? Thank you.

Patrick Pouyanne, CEO

Okay, I will leave the tax rate question to my CFO, who is the expert in tax matters. For the first one, let me be clear; we know the negative impact of the scrip. We know that dilution is not welcomed among our institutional investors. We used it from 2015 to 2017. We may have, by the way, overused it too long. I know you’ve taken some lessons from the past. And by the way, today, when the share price is around EUR42 or EUR40 per share, the dilution effect is even larger. So I mean, it’s not for us the right tool. So to be clear, the decision is that we will not convene any extraordinary AGM to introduce the scrip. So that’s why it has been made very clear in the board-level discussions. For the tax rates, I would assume, Jean-Pierre?

Jean-Pierre Sbraire, CFO

I’ll take the tax rate question, Irene. So at $30 to $35 per barrel, we could expect the Group tax rate around 15%, taking into account E&P tax rates in the range of 25% to 30%.

Patrick Pouyanne, CEO

And just to complement, Irene, you know that in France, when we put a resolution, it’s not an option for the Board; we are obliged to use it. So it’s complex. That’s why we don’t want to be trapped. We keep it for one year, because once it’s voted in France, we cannot decide not to use it. It’s not like some of our colleagues in the U.K. who have the authority as an option, but we don’t have it.

Operator, Operator

And your next question comes from the line of Biraj Borkhataria of RBC. Please go ahead. Your line is open.

Biraj Borkhataria, Analyst

Two, please. The first one is on some of the details you provided. So thanks for all the comments on the levers you’re pulling. One of the big ones is obviously the balance sheet. So you'll be adding to debt over this period. So I was wondering how you think about the upper limit on the balance sheet. I think within your compensation scorecard, there is a 30% ceiling on your net debt ratio, so should we consider that as a hard ceiling? And then the second question is on production volumes. Regarding the shut-ins that you referenced in the near term, can you comment on what this means for your production capacity into 2021 and how much you lose there? Thank you.

Patrick Pouyanne, CEO

Okay, good questions. I mean if the Board puts this, it’s not the right time to change the variable pay of the CEO, to be honest. So these criteria, we have put in place a few years ago when I took my job on the gearing; we incentivize management to pay attention to that level of debt. So 20% maximum, 30% is zero. Again, I’m not – my personal objective is to maintain it lower than that, but we don’t take decisions based solely on this criterion alone. You know, we will leverage our balance sheet in these exceptional circumstances, and we are able to take decisions regardless of our criteria. Regarding production guidance, yes there will be some impacts. When you decide to not drill some short cycle wells, but we don’t have the benefit last year; the impact is around, I think I read around 50,000 barrels per day. But again, we could reactivate them quickly if we want to on short cycle wells.

Operator, Operator

And your next question comes from the line of Lydia Rainforth of Barclays. Please go ahead. Your line is open.

Lydia Rainforth, Analyst

Just one quick question. In terms of the approach that you’re taking around new energy CapEx, and I know we’ll talk about it a little bit later, but also the digital recruitment going. Can you just talk about how you’re seeing that whether that’s changing in terms of the update that you gave this morning? Is the intention still to keep those two businesses largely unimpacted? Thanks.

Patrick Pouyanne, CEO

Again, yes, new energy CapEx, which means what I call low-carbon electricity – it’s fundamentally renewables or marketing B2C or B2B, like the one we’ve invested in India. We have a budget which was announced between $1.5 to $2 billion, and I can give you probably around $2 billion, because we have already done some deals. Certainly organic is also inorganic; we are building a strong business. So we need to be serious about it. I think it’s part of the future of the company. We will keep that, and I will add that it is part of my strategy. We are around $2 billion, as we’ve done already these investments, and the first quarter has been very active regarding what we’ve been able to achieve.

Operator, Operator

And your next question comes from the line of Christyan Malek of JPMorgan. Please go ahead. Your line is open.

Christyan Malek, Analyst

I hope you and JP are staying healthy, especially with the company through this crisis. So, a couple of questions, first, regarding the capital frame, the logic of sustaining dividend at these levels in the context of CFFO. Second question is on the impact of the CapEx cuts in the future oil production. So regarding the level of the dividend, your dividend is substantial if those on the highest appear; it is just under 40%. Regardless of the impact from this current crisis, do you think this is a relatively high level and it limits your ability to spend more on energy transition? Some of your peers have argued that cutting the dividend is a key enabler. The second part is to understand how much oil production has been deferred as a result of the CapEx cuts this year, and if you were to just raise CapEx, flipping it around, if oil moves higher, would you allocate into new energies or oil? Can you give us a sense of how you reallocate that marginal growth in CapEx? I'm trying to understand whether the updated energy transition policy comes at the expense of lower market share and oil over the medium term.

Patrick Pouyanne, CEO

I think today, again, we have to as I said in my presentation, we are very comfortable; first, we know that in the oil and gas company, we’ll have some volatility and we have to accept this. At $30 per barrel, there is a certain limit to what we can do. We know that we can leverage our balance sheet to maintain a certain level of returns to shareholders. At the same time, as I said, if barrels at $30 or lower, there is a limit to what we can do, but at $40 per barrel, the cash generation is around $19 billion per year. So $19 billion excludes $7 billion of dividends, leaving $12 billion to invest. I think we are fine with that. We have to make some choices. For the second question, I think $1.5 billion to $2 billion as an average; we are fine to grow steadily. In the climate statement, we said we reached 20% of our capital allocation towards low-carbon electricity by 2030 or sooner. We also believe that we need time to grow it. It will take time for us to execute it soundly, but I don’t think we must be concerned today that the dividend means cutting our energy transition; I think more capital will be allocated to where we have the highest return over time. If we have more cash, I think you agree that priority will be to allocate capital where we have the highest returns on account of our short-term wells in Angola, where we can get an acceptable level.

Operator, Operator

And your next question comes from the line of Martijn Rats of Morgan Stanley. Please go ahead. Your line is open.

Martijn Rats, Analyst

I had two questions as well. I wanted to ask about the Downstream guidance. This figure of cash flow of $5 billion to $6 billion for the year. Last year, I think both of the various Downstream divisions together generated $7 billion, and this year we still have multi-millions of barrels a day of demand destruction. I know 2Q was particularly weak, but across the year it seems like a very small drop for the dramatic events that have just unfolded, which I was hoping you could sort of explain that to us. Why isn’t the Downstream weaker given the level of demand destruction? In 2009, we saw very, very weak Downstream results across the industry, and that was based on just 1 million barrels a day of demand destruction. Honestly, I generally don’t fully understand how that works. So if you can explain that, that would be much appreciated. Secondly, I wanted to ask JP to what his estimate is of the amount of headroom that exists within the current credit rating. That would also be very useful.

Patrick Pouyanne, CEO

On the Downstream, I think the Downstream is a mix of different cash flows, as you know. We have the refining, where clearly we’ll have lower cash flow and lower utilization, which is directly impacted by the lower demand. The M&S business, what we observed in China, is that in the month following the end of the full closure of the country, we had levels of business that were around 80% or 85% back to normal. So if we return to levels like that quickly in Europe, this is why I told you, when I think that we could generate around $2.5 billion of CFFO, we could lose around $600 million. So maybe we will miss around $100 to $200—no more. Petrochemicals could perform better. I mean, we are optimistic about it. We shouldn't forget that refining and the whole downstream business also have trading aspects. The trading business tends to thrive when you have volatility from contango, by the way, which they have borrowed from the Group. Part of the increase in working capital is linked to our traders, who are storing away products. My view is that to give you the full story. I was the one who put $5 billion to $6 billion; my downstream team is a little more optimistic, and they look toward $6 billion to $5 billion, but I feel like it's not getting less than the guidance we present to you.

Jean-Pierre Sbraire, CFO

Regarding the credit rating, as Patrick pointed out, having a good credit rating is very important for us, and maintaining an A credit rating is part of our priorities. What I noticed is that despite the revisions from both S&P and Moody's, we maintain our rating. That was revised in March or in April; we remain solid. It was the same for all our peers. So it’s true that if prices stay at $30 per barrel, we may lose one rating point. However, it is not confirmed by the agencies, and we have to wait and see. Currently, S&P uses a $30 per barrel price projection for 2020. That will carry on to 2021, where we will use a higher price projection.

Operator, Operator

And your next question comes from the line of Oswald Clint of Bernstein. Please go ahead. Your line is open.

Oswald Clint, Analyst

Yes, obviously, very tricky to call demand recoveries. Let's think about next year, over the next five years, and some of your peers are finding it obviously very tricky, and some of them have a bit more comfort around the path for demand recovery. So I just wanted to know if you, as a team, have, with your experts and people on the ground, formed some view of how demand might recover from here. I mean jet fuel travelling, people flying, people travelling by car and using public transport, et cetera. That’s my first question. And then secondly, obviously, quite impressive to see another countercyclical acquisition here in terms of Uganda; it’s characterized as low-cost barrels. I just wanted to test that assertion. Is it truly low-cost including transportation and pipelines? At least at the forward curve, I seem to be getting around 10% return. I just wonder what I might be doing wrong, or is there some type of expression of oil prices recovering potentially back up to the $50 or $60 level, please. Thank you.

Patrick Pouyanne, CEO

So recovery is, I would love to be able to answer your question, but it's part of the uncertainty. To be honest, I'm more optimistic about cars than jets. If you observe in many countries, what I see with consumer behavior in China is that people are using cars more since they are afraid to use public transport. So I think once people are free to move again, they will use their cars, and I expect retail business to return to levels of normality. However, for jets, I'm more skeptical because I feel that as long as we don't find a vaccine or treatment, governments will prioritize health and maintain some local restrictions. Therefore, I'm more doubtful about the future of jet fuel than gasoline and diesel which is a continental business. Regarding the Uganda acquisition, yes, there is a huge amount of budget and it occupies a unique position in terms of development in terms of pipeline structures in Africa. Today, it's onshore, not very difficult to produce. Yes, there is a pipeline involved, but we believe the trade-offs improve economics at the right moment. If we have done this acquisition, it’s because we expect at least a 10% return, even at a lower average price. So, I think we will keep an eye on movements and track all these adjustments. I will take just the last question decisively, and then we could take some questions, but I would like to move on to the climate aspect. Last question, please.

Operator, Operator

And your next question comes from Thomas Adolff of Credit Suisse. Please go ahead. Your line is open.

Thomas Adolff, Analyst

Sure. Just one clarification on the dividend, I guess the decision on the dividend today, it's not of some of the commentary you made on the call, suggest to me that your view on the macro for the medium and longer term has not changed. So basically, what you’re saying today is, let's wait and see; COVID-19 may not have any structural implication on how oil is consumed and I want to wait until maybe Q3 2020 to see how economies recover and what the outlook may be for 2021 before making a fundamental decision on the dividend. Is that how I should think about the dividend and the dividend decision? And then, secondly, just going back quickly on LNG and Integrated Gas which contributed very strongly again; I wanted to know a little bit more about the U.S. LNG, did they contribute positively in the first quarter and how we should think about the rest of the year? Clearly, when you look at prices today, it’s out of the money. Thank you.

Patrick Pouyanne, CEO

Okay, Thomas, my response to that is certainly clear. We know the negative impact of the scrip; we know that the dilution issue is significant for our institutional investors. We used it from 2015 to 2017, but I think today, it simply doesn’t make sense to take such a measure given the company fundamentals. It's clear that we can remain resilient, especially regarding the fundamentals linked to corporate growth, such as our decision not to implement any long-term changes to the capital framework at present. I believe deeply that the situation will stabilize, and come Q3, we will have better insight to evaluate. With my observation, as stated earlier, we can maintain a solid balance amid the current economic turbulence and uncertainty. As for U.S. LNG and the contribution, I reported in the first quarter has been quite positive; at least it has contributed positively due to trading capabilities and even with respect to years. We continue to maintain good returns and financial capacity while leveraging these projects.

Operator, Operator

This concludes the Q&A session. I will now hand back to Patrick Pouyanne for closing.

Patrick Pouyanne, CEO

Thank you for joining us today. I appreciate your insightful discussions. I would like to reconvene this meeting, and the last remarks will reflect on the importance of collaboration and determination moving forward as we navigate through this crisis together. I look forward to the conversations with all of you and wish everyone success ahead. Take care.