Earnings Call Transcript - TTE Q4 2022

Operator, Operator

Good morning. Welcome, and thank you for joining the TotalEnergies 2022 Results and 2023 Objectives Webcast. At this time, I would like to turn the conference over to Mr. Patrick Pouyanne, TotalEnergies Chairman and Chief Executive Officer; and Jean-Pierre Sbraire, TotalEnergies Chief Financial Officer. Please go ahead, sir.

Renaud Lions, Host

Good morning, good afternoon, wherever you are. Welcome to TotalEnergies 2022 results and 2023 objectives. We are presenting from Paris in all virtual mode. Our program today, we will start with a safety moment with Thierry Pflimlin, our President, Marketing & Services. And then Patrick and Jean-Pierre will drive us through the results of last year and the objectives set for 2023. And then we'll have a Q&A session. But for now, a safety moment with Thierry.

Thierry Pflimlin, President, Marketing & Services

Good morning. I've chosen a safety moment to speak about the fatal accident, which happened during rebranding work at a service station in Burkina Faso last year, but let's start with a description of the sad accident. On April 27, in our service station in Ouagadougou, two operators from a contracted company moved the mobile scaffolding between the totem and the station canopy in proximity to a 15,000 volts overhead power line. The third operator, who was the sole victim, helped them, but his leg hit a security barrier at the same time, and it became a conductor of the current when the electrical arc occurred. This third operator collapsed due to electrocution. He died on the spot, despite the cardiac massages performed. Kader was 26 years old. The in-depth inquiry made following this dramatic accident showed that the work procedures were inspected before the start of the work, including pre-visit and risk analysis, pointing out the nearby presence of overhead power lines and the need to move the scaffolding in an unmounted position. On the day of the accident, the specific work permit had been signed. So what went wrong? The investigation of the accident identified two key non-compliances with the work statement: inappropriate decision by the operator to reduce the height of the scaffolding rather than dismantle it in order to go safely under the power line; and failing supervision at the moment of the accident because the person in charge of this supervision was distracted in a phone conversation. How did we react? We immediately suspended rebranding work worldwide on sites with the presence of overhead power lines. A written notice was issued and explained to define the conditions for restarting the works with four main points. First, the obligation to always consider, as a priority, isolation by the electrical network company. Second, the guarantee of minimum lateral safety distances with specific surveillance. Third, strict control with competent supervisors. And last but not least, which is probably the most important, no scaffolding under live power lines. However, this fatal accident showed that we must push further the appropriation in the field of our safety rules and programs. And this has to be applied to our teams and to our partner companies. I'm convinced that we must pursue this way to improve our safety culture. Thank you for your attention.

Patrick Pouyanne, Chairman and CEO

Thank you, Thierry, for the safety moment. I will return to discuss safety, but first, I want to introduce our presentation about our 2022 results and our goals for 2023. This year has once again highlighted the strength of TotalEnergies' multi-energy strategy, which we have consistently followed for many years. In oil, we continue to invest to maintain our production and seize opportunities, such as in Brazil. Our long-standing goal remains to keep our breakeven below $25 per barrel, and last year it was $24. With oil prices reaching $100 per barrel last year, we benefited fully from this strategy. In LNG and gas, we have implemented an ambitious strategy to position ourselves as a major player. In 2022, we managed 48 million tonnes of LNG, accounting for over 10% of the 400 million tonnes market, with strong positions in Europe. This strategy is proving effective. The integrated approach has also led to exceptionally high gas prices, around $200 per barrel. Our integration extends to refining, where we achieved high utilization rates at 82%, contributing to strong refining margins. Furthermore, our investments in electricity show potential for price increases in future markets. Consistency, resilience, and integration are central to our strategy. To reinforce our commitment to transparency and profitability for our investors, we are announcing that starting in 2023, we will provide clear insights into two key segments: integrated LNG and integrated power. I also want to highlight the impressive results we've achieved. Notably, we have the largest increase in net cash flow per share among all major players, and our return on average capital employed exceeds 28%, underscoring our ability to balance strong profitability with a transition to new energy sources. This year has set a solid foundation for the future by reducing our debt, which supports a clear framework for returning capital to shareholders, as outlined last September. We committed to a cash payout range of 35% to 40% and delivered a 37% payout to shareholders in 2022. Our policy, which the Board of Directors has decided to strengthen, includes consistent support for ordinary dividends through cycles, supported by our buybacks and underlying cash flow growth. We will also increase the final dividend by over 7.25% and maintain our buyback program at $2 billion, with no reductions despite a lower environment. Additionally, we may consider a special dividend in line with our past practices if we achieve exceptional profits. We remain focused on a consistent strategy that is critical for our future results and profitability, and we aim to demonstrate this today alongside Jean-Pierre. Moving on to safety after the safety moment, at TotalEnergies, we emphasize frequently that safety is a fundamental value and must always come first. Safety requires discipline, which is essential for operational excellence. We are proud of the safety culture we have cultivated, leading to a significant reduction in the accident rate as indicated by our total recordable injury rate. Over the last decade, we have excelled among the majors, if not the best. However, we regret to report three fatalities in 2022, which I find unacceptable, highlighting the need to reinforce our safety culture further. Ensuring this culture is deeply embedded across all our global operations is crucial. We present the details of these fatalities and the ongoing measures we are implementing to address and mitigate risks. While we will discuss our solid results from 2022, we carry the responsibility of these incidents as a heavy burden. Therefore, as a company and as a leader, I cannot be fully satisfied with last year’s success. 2022 was certainly a year where we maximized our assets across various businesses. This year, LNG emerged as a key focus globally due to the invasion of Ukraine by Russia, which increased the demand for gas in European markets. We positioned ourselves as the leading U.S. exporter and executed the first European regasification order, resulting in a 15% increase in LNG sales to 48 million tonnes. Additionally, our refining system demonstrated a high utilization rate of over 80%, reaching 82% in the market, largely driven by distillate, which allowed us to achieve significant refining margins and record cash flow in our downstream business. We also strategically consolidated our assets through smart mergers and acquisitions, such as our investment in Brazil at the end of 2021, which generated over $700 million in cash flow within a year. Throughout 2022, we focused on preparing for the future of our operations, emphasizing that Russia is now behind us. We've made strides in LNG through the North Field East and North Field South projects in Qatar and have had successes in oil exploration, particularly in Namibia and Suriname, which will contribute to our future profits. Furthermore, our strategic mergers and acquisitions have strengthened our integrated power businesses through direct negotiations that secured favorable terms, establishing strong positions in both the U.S. and Brazil. These successes reflect our commitment to increasing production and energy while being mindful of reducing emissions. We will provide further details about our net-zero ambition in our upcoming sustainability climate report at the end of March. It's important to note our record cash generation in 2022, which we compare to ten years ago, demonstrating a more than 50% increase despite higher oil prices in 2012, achieved by significantly lowering our breakeven point. Our current challenge is to keep this breakeven below $25 per barrel by carefully selecting assets and managing costs, even in an inflationary environment. Thanks to these cash flows, we are allocating significant resources, as Jean-Pierre will discuss, towards deleveraging the company, which serves as the best safeguard for our future. I will now turn it over to Jean-Pierre for a detailed overview of our 2022 results.

Jean-Pierre Sbraire, CFO

Thank you, Patrick. So I will concentrate my comments on 2022, a year when we established new records, thanks to the perfect match between, on one side, our well-positioned assets, and on the other side, very favorable markets, which have set new records in 2022. The 2022 environment provided favorable tailwinds for all our activities. Normally, there is a mix of positive and negative. It was not obviously the case in 2022. We were able to fully leverage the strength of our global integrated portfolio. Patrick will cover the macro later on, so I will not come back on the rationale. Our oil price sensitivity is sometimes underestimated, but clearly, in 2022, we benefited strongly from the rise in oil prices, thanks to our low-cost portfolio, which allows us to capture this price increase. Please note, as Patrick already mentioned, that in 2022, we had the strongest increase in net cash flow per share among the majors. I will show you the data later on. Refining margins are linked to oil, but we saw in 2022 massive supply disruptions, particularly affecting middle distillates related to sanctions on Russia and, more recently, to the European embargoes on both crude and oil products. For gas and LNG, it is a similar story. The Russia-Ukraine war drove gas and LNG prices to levels never before seen, as Europe scrambled to cut, to decouple from Russian pipe gas by importing an additional 50 million tonnes of LNG last year. This represents more than 10% of the market. Clearly, across all our businesses in 2022, markets were favorable. Here you see the list of key metrics demonstrating that for 2022, we talk the talk, we walk the walk. A slight miss on production was primarily due to security issues in Nigeria and Libya, some delays in projects, and the price effect on our different projects. Better-than-expected performance for refining, with an 82% utilization rate in 2022. LNG sales were 4 million tonnes above targets due to intense LNG spot business in Europe, and we maximized the value of our regas capacities while, at the same time, meeting our Scope 1 plus 2 emission reductions, despite the high utilization of CCGTs in Europe. As announced in July, investment came in above the '22 objective at $16.3 billion. This reflects increased short-cycle activity to benefit from the strong price environment, higher net acquisitions, mainly in Brazil and renewable in the U.S., but no meaningful impact from inflation. A great bottom line for shareholders: an additional $1 billion of underlying cash flow growth, a key element, as you know, supporting dividend growth, and $47 billion of debt-adjusted cash flow in 2022. So let's move to iGRP results. iGRP adjusted net operating income was $12 billion in 2022, almost doubling compared to 2021, thanks again to fully integrated LNG, which positioned us to maximize the capture of the high price environment, but also thanks to strong growth in integrated power generation. Cash flow globally at the level of iGRP was $11 billion, up 76% year-on-year. You have here a very important message on that slide to provide a better understanding of the growth strategy of LNG on one side and electricity renewables on the other side. The Board has decided to split iGRP into two new segments from the first quarter of 2023. From that date, we will report separately integrated LNG and integrated power. Integrated LNG comprises our LNG assets, gas and energy trading, plus biogas and hydrogen. Integrated power is comprised of renewable and flexible power generation, power trading, plus power and gas marketing. We provide you here with some metrics for these two segments, '22 versus '21. For iLNG, sales were up 15% to 48 million tonnes in 2022, thanks to our number one position in European regas, which allowed increased spot purchases and sales in the context of record LNG demand in Europe. Cash flow increased to $10 billion, up nearly 80%. Adjusted net operating income was $11 billion, doubling the contribution compared to '21. iPower generated $1 billion of cash flow and earnings over 2022 with production was 33 terawatt hours, up 57%, thanks to higher utilization rates of CCGTs in Europe and a 53% increase in power generation from renewables. At year-end 2022, we had 17 gigawatts of renewable capacity installed. Many of you have been asking for the split to better understand our two fastest-growing activities, LNG and integrated power. We are happy to do this from 2023. In nearly every place, 2022 was a record-setting year for TotalEnergies, benefiting from the favorable environment, the increase in LNG sales by 15%. Thanks to our unique position in Europe, TotalEnergies generated a very positive adjusted income of $36.2 billion in 2022. Including nearly $15 billion of impairment related to our Russian upstream assets, our reported IFRS net income was $20.5 billion in 2022. Return on equity was 32%, and ROCE, return on capital employed, was 28% in 2022. This demonstrates again the quality of our portfolio and the capacity of TotalEnergies to benefit from price increases. Along with record earnings, TotalEnergies generated $46 billion of cash flow in 2022, an all-time high shown in the left side of the slide, split by segment. All segments made stronger cash flow contributions in 2022: $26 million from E&P, up 39% on higher oil and gas prices and despite the U.K. windfall tax profit, which represented in 2022, $1 billion; $10 billion from LNG, a record high that we covered on the previous slides; $10 billion from downstream driven by the contribution from refining of close to $8 billion, more than 2.5 times the contribution in 2021, thanks to higher refining utilization rates that allowed us to capture high margins; and $1 billion, an important milestone for integrated power. On the right, we show the cash flow allocations, which were pretty evenly divided among shareholders, investments, and debt reduction. $17 billion was returned to shareholders, representing 37.2% payouts, delivering on our 35% to 40% commitments, comprised of $7.3 billion for the ordinary dividends, plus $7 billion of buybacks and $2.7 billion of special dividends that was paid in December. $16.3 billion for investments, but I will cover that in the next slide. And $14.5 billion of net debt reduction, which cut our gearing by more than half, 7% at the end of 2022 compared to 15.3% at the end of 2021. The 2022 environment allowed all our segments to demonstrate their strong underlying potential. Typically, with an integrated model, we count on strength in one activity to offset possible market challenges. But in 2022, each segment had a chance to shine. Capital investments came in at $16.3 billion in 2022, above the guidance of $14 billion to $15 billion, mainly due to an acceleration of short-cycle projects in West African countries, but also in the North Sea in order to benefit from a good environment; and $5.9 billion of smart acquisition, notably in Brazil for oil and in the U.S. for integrated power. Also included here are divestments for $1.4 billion mainly from ongoing farm-down activities, key to the profitability of integrated power. For example, in that figure, you have the farm down of 50% of 230 megawatts portfolio of renewable in France, but also partial sales of our CCGT in Landivisiau, also in France. In that figure, you have the sales of some E&P mature assets, notably our interest in Block 14 in Angola, but also the Sarsang field in Iraq. It is important to note that inflation did not have a meaningful impact on the 2022 increase in CapEx. We remain disciplined on capital with strict criteria for sanctioning projects. I will give you more about that on the next slide. But it is important to say that we determined last year, particularly in light of the rapid strengthening of our balance sheet, that passing on the opportunities noted here will not serve our shareholders' best interest. To the right, we split 2022 investments by type of activity. Oil generated most of our cash flow, and we allocated about 60% of CapEx to it, split 60% to 40% between maintenance and growth. And a big piece, $2.8 billion, of that growth was for Sepia and Atapu, the deep offshore fields in Brazil. Integrated power and low-carbon energy, including, of course, the Clearway acquisition, was $4 billion, representing 25% of the global CapEx in 2022. Integrated LNG represented the balance of roughly $2 billion, reflecting the timing of FX, as Qatar NFE and Qatar NFS were not recorded in 2022. It will be the case in the first quarter of 2023. When prices increase, costs might follow. However, 2022 cost inflation was not so severe in our key regions and activities, except, of course, energy costs, but we benefited from price increases. There is some upward pressure shown on the right in that slide, but we effectively controlled it in 2022. Using ASC 932 OpEx as a benchmark, TotalEnergies continues to be the lowest-cost producer among the majors at about $5.5 per barrel equivalent. On an ongoing basis, we benefit from a high-quality global portfolio that allows us to leverage purchasing power, to negotiate favorable contracts with suppliers and service companies. On deep offshore rates, we signed medium-duration contracts that insulate us largely from inflation in 2022. But nearly, all our rates are set at about the same level for 2023, with options taking us into 2024 at good prices. For new projects, we adhere to strict selection criteria to maintain the high quality of the portfolio in terms of average cost, but also in terms of emissions per barrel as well. It is important to note that our criteria on emissions per barrel will be more severe in the future, as the portfolio average has lowered to 19 kilograms CO2 per barrel equivalent. In terms of the constant progress of high grading the portfolio, for example, adding low-cost barrels in Brazil last year at Atapu and Sepia, implementing the spinoff of our E&P subsidiaries in Canada with higher-cost barrels this year will reduce our overall cost per barrel in the future. To conclude the 2022 result presentation, what you have here are benchmarks of performance of TotalEnergies versus the other four supermajors. In terms of growing net cash flow per share, we were the strongest by far, doubling it to almost $13 per share. Similarly, TotalEnergies was best-in-class for profitability with a 28% return on capital employed. For the three years of return to shareholders, we outperformed our European peers by maintaining the dividend in 2020. We haven't cut the dividend during the COVID crisis and ended up trailing our U.S. peers. To conclude, based on the Sustainalytics ranking, TotalEnergies has the highest ESG rating among the supermajors. We consider that this continues to be an important factor in terms of ESG leadership through this period of growth and transformation. In summary, a historic year for the company, a big step-up in terms of financial strength and flexibility, largely due to the strategies that position us to fully benefit from the 2022 favorable market environment. And with that, I leave the floor to Patrick. Thank you.

Patrick Pouyanne, Chairman and CEO

Yes. And this slide demonstrates that you can really deliver, at the same time, superior results and sustainability. There is no opposition between both. So executive strategy, of course, will be the motto for 2023. And just some words about the environment. Of course, the price today of oil is no longer at $100, but more around $80. However, when we look at the trends in the oil markets, for me, there is some uncertainty regarding demand, in particular because of the lingering fear of what we call recession and a global economic slowdown. But again, this feeling today is somewhat dispelled because of what we observed in China. And of course, in the energy markets, whether oil or gas, the Chinese recovery and the easing of lockdown restrictions are fundamental. What is clear, by the way, and I know that in our world of oil and gas, there is a new bible, which is the net zero scenario from IEA, which is supposed to decrease demand every year and increase supply. For 2023, all experts, including IEA, are announcing a higher demand for oil around 102 million barrels of oil per day, which will be a record year. The reality of our world is that oil demand continues to grow, and we need to address the fact that we have supply. On the supply side, we don't see much margin. We are entering this year with very low inventories of products, particularly very low compared to the last 10 years. We have the impact of the sanctions on Russian crude and refined products. The Russian crude oil is finding its place in the market, especially in China and India. However, the refined products from Russia are less obvious in terms of allocation. By the way, we also have OPEC discipline, with the cuts implemented. The OPEC countries want to maintain the oil price above $80 per barrel, and they will take actions to achieve that. We could expect more supply from U.S. shale, but as it was the case prior to COVID, that's not occurring. Shareholders are more focused on returns than growth. Therefore, when we consider this landscape, I think from our perspective, there is more support for a higher price than $80 and a lower one. We would not be surprised to see $100 per barrel making a comeback. By the way, the oil market, and this is very important to understand, is also for me, today, there is no longer a world oil market, in fact. We are splitting the market between Europe, which imposes a cap on prices. So we have today several markets, which, of course, does not help to ease the price. I think we have yet to see all the consequences of the growing gray markets for oil supplies. On the gas side, this slide is a little complex, but today we can have a clearer view and maybe draw some lessons for what could happen in 2023. In Europe, as you can see, European gas is driving the LNG and power markets for Europe. You have on this slide what happened in 2022 compared to 2021. First, production in 2021 and supply-demand was around 380 million tonnes. It grew to 400 million tonnes by the end of 2022, so plus 20 million tonnes. At the same time, the European demand for LNG has grown by 50 million tonnes. You can see in the graph on the bottom right corner that the demand for gas, and we have all translated in this slide in the equivalent of LNG jumped. Demand for gas in Europe was the equivalent of 170 million tonnes, with 100 million tonnes being delivered by pipeline gas, the famous 130 Bcm from Russia. We had already imported 67 million tonnes in 2021. For 2022, Russian gas has been reduced by more than half. We received only the equivalent of 44 million tonnes of LNG. We had to add on it 1 more LNG, totaling an increase of up to 115 million tonnes of LNG. The bar for 2022 is a little lower than earlier due to a decrease in demand of around 15% as a response to high prices. We found that we had achieved this increase mainly by taking out 15 million to 16 million tonnes from China. China was able to reduce its imports due to slower economic growth, dropping from about 80 million tonnes to around 65 million tonnes. We also saw a contraction of demand from other countries like Bangladesh. Securing supply for Europe has come at the expense of emissions in other countries. Of course, we have done that with significantly higher prices in order to attract this LNG. So what is the perspective for 2023? I might be wrong, but there are key fundamentals. First fundamental is that we expect Russian gas to be lower in 2023 than in 2022 as we have already been supplied by Russian gas via Nord Stream pipelines up until the middle of the year in 2022, and the pipelines are down today. So we expect to see half, perhaps only up to 20 BCM coming from Russian pipelines, predominantly from Ukrainian routes. Therefore, even if there is a potential impact on demand, we expect more LNG being required by Europe than in 2023 than we had in 2022, forecasting 15 million to 25 million tonnes based on demand. The increase of supply in 2023 compared to 2022 is only about 10 million tonnes, 410 million tonnes. So this 15 million to 25 million tonnes needed in Europe is likely to surpass the supply available worldwide. We could also expect a rebound from China with an accelerating recovery driving demand. On the gas side, there is one element that is different, which is storage levels. Storage levels were at 54% last year at the end of January. Today, they are 85%, and we cannot store any more as there is limited storage capacity in Europe. This is why today prices are lower. But we will consume this gas. Therefore, we think some tensions will appear by midyear among the different markets for LNG. In 2023, our activity in front of this environment will continue to deploy our strategy. We have already announced that we are adding some regas capacity in Europe. The one in Germany has been opened; it's operational. We have put an FSRU in Lubmin, which is the point where Nord Stream is landing. This provides perfect access to the German market. Our LNG traders are quite happy with this infrastructure. We have booked half of the infrastructure for our own business. We are adding another one in France where we intend also to book half of it. So that's LNG. We will, of course, continue to seek opportunities in LNG. As you know, we have ambitions in the U.S. and we will update you later. The second part of our deployment strategy, and it's important, is in Refining & Chemicals, where Bernard and his team have worked hard during years to consolidate this Jubail SATORP platform. Our strategy is expanding fundamentally in an integrated manner. We have been happy to take the FID of the Amiral project, which is an $11 billion world-class petrochemical integrated complex, which will come online in 2027. It will reinforce the profitability of our integrated downstream business. And last but not least, integrated power, which is the other pillar of growth, will benefit in 2023 from the acquisition of the remaining 70% of Total Eren. We have exercised our options, as you know, it was a transaction negotiated in 2016, at a time when valuations on renewable assets were reasonable. So that's already in place. We certainly have more work ahead, but we will not rest during the year, as we will be continually pursuing smart developments in all our projects. We are also committed to lowering our emissions. As we announced in September, we launched a worldwide energy-saving plan in the company. The teams have shown amazing responsiveness. The $1 billion has been allocated at an average cost of $50 per ton. It will begin to be expended in 2023 for $400 million spread over two years. This initiative will allow us to lower our targets for Scope 1 and 2 emissions by 2 million tonnes by 2025. We'll revisit this in March. The second point for 2023, and I think it's crucial for investors, relates to our cash allocation priorities. There is now a clear scheme in place. I remind you that we want to deliver 35% to 40% cash payout through cycles, with 37.2% in 2022. We have taken some first decisions with the Board of Directors on the first dividend, which we are now calling the ordinary dividend to differentiate it from the special dividend. We want this to be sustainable, and the announced increase of 7.25% for the '22 final dividend and '23 interim dividend at EUR 74 per share is supported by both the share buybacks we executed last year, which accounted for almost 5% of our capital. This 5% represents a return to shareholders, which we can translate into an increase in dividends, which we intend to pursue. The difference compared to some of our peers lies in the fact that we did not cut the dividend in 2020. Consequently, while we may have less room to increase this year, we have still increased the dividend year after year: a 6.5% increase in 2022 and more than 7% for 2023. Regarding CapEx, I will revert to it. We gave you a range of 14% to 18% in September. It will be 16% to 18% at the high end, with $5 billion dedicated to low-carbon energies. Thus, the balance sheet is challenging to set a specific target for gearing as it sits at just 7%. So our ambitions are expressed differently; we want to continue to strengthen our balance sheet as it is a guarantee for the future. Today, we hold an A+ rating. I think our goal is to reach a better AA credit rating. Certainly, this is aspirational. However, I see this as an achievable objective for you and your team as it secures all our strategies regarding CapEx and returns to shareholders. Surplus cash flows will primarily go toward buybacks. We were at an average of around $1.75 billion last year, which we increased to $2 billion for the last quarter of 2023 in an environment where oil prices are lower compared to last year, around $80 per barrel. This is our commitment to this buyback program. Special dividends are contingent upon the occurrence of super profits. We will return to that, even if, as I will clarify, TotalEnergies shareholders will be rewarded with a special in-kind dividend, as we will organize the spin-off of our upstream assets in Canada. I will elaborate further on this. In summary, this comprehensive program demonstrates our forward-thinking approach. Columns 1 and 4 focus on shareholders while columns 2 and 3 pertain to the company, considering other vital stakeholders as well. The capital investment for 2023 will support our transition efforts, targeting $16 billion to $18 billion, of which $5 billion will be devoted to low-carbon energies, with plans to begin work on integrated power and more advances in new molecules. We are augmenting our commitment to carbon capture storage; we have secured significant projects in Denmark. Of course, this includes new projects in our hydrocarbons sector; specifically, we are investing more in numerous new developments, particularly in LNG projects in Qatar, with no Russian LNG planned, coupled with increased spending in Cameroon, PNG aiming for FID by year-end, and commissioning significant works in Brazil. In fact, there will be no reduction in our carbon expenditures this year. Unlike prior years, we won't be seeing much, particularly not in low-carbon energies and hydrocarbons; our spending will remain aggressive as we seek energy production while also addressing emissions. Production in 2023 will be primarily driven by LNG developments. New production projects in Brazil will have an impact, specifically Mero 2, alongside Atapu 2 and Sepia 2 slated for this year. Additionally, we have a new venture in Uganda firming up pipelines. In TotalEnergies, we don’t anticipate significant reductions in oil or gas. We will focus on stabilizing growth and continuing to supply the market while also emphasizing reserve replacement. You can see, by the way, our reserve replacement ratio for 2022 was 108% at the same price, and 85% when taking price effects into account. With enormous potential to maintain robust reserve replacement rates without including Russia, our company has perfectly positioned itself in this regard. The integrated LNG portfolio ambition, as I just mentioned, is focused on increasing production to meet growing demands while assuring that this feeds our downstream LNG operations. Our position in regasification in Europe remains solid, and we are enhancing our regas capacity in the region by adding facilities in Lubmin, giving us more than 20 million tonnes of capacity. The segments on this slide represent our operations broken down into three distinct categories according to their margins. We maintain solid contracts in Asia and Latin America, which provide consistent cash flow. Another significant area of our focus is Europe, with flexibility in sourcing gas based on the latest contract index pricing amidst current volatility. The current volatile market has accelerated our long-term strategy that continues to remain profitable. Considering our competitive advantage in the spot market, we strive to maintain profitability while supplying gas contracts focusing on price and margin evaluation. We consider new long-term contracts to be a top priority; maintaining a balance of 70% long-term contracts to 30% in the spot market. We have solid partnerships and the financial strength to navigate these relationships effectively. Our focus is highly on contracting, especially given the recent substantial price increases. With the rise of pricing models and demands, we look forward to increasingly signing contracts that align with the market's requirements, with both long-term agreements and spot markets providing flexibility. We believe our strategies provide the right balance of risk and reward while allowing us to capitalize on market trends and source contract volumes. With ongoing demand in Asia-loving spot contracts, we will ensure stronger contractual commitments moving forward. We recognize several new opportunities on the horizon regarding LNG contracts. The overall LNG growth strategy will lead to the development of significant international partnerships across multiple regions, including continued efforts to explore for more sustainable resources. We have significant engagements with key personnel in the U.S. and are continuing to develop relationships in regions across the globe that align with our integrated strategy. The ability to maintain effective partnerships while achieving growth is essential to meet the increasing demands. Now, I think we should move to the last question.

Paul Cheng, Analyst

Patrick, both BP and Shell have recently made pretty large acquisitions in the biogas area to jumpstart their operations and grow in that space. I've noted that you mentioned you have a significant biogas unit in France and a joint venture to develop projects in the U.S. Do you see biogas becoming a core aspect of your low-carbon business moving forward? If so, do you think you need a larger platform or acquisition to accelerate growth?

Patrick Pouyanne, Chairman and CEO

Biogas, honestly, M&A can be a viable growth avenue if we find the value we are willing to pay. I remain unconvinced regarding several billion-dollar acquisitions in biogas, but we have recently established satisfactory platforms both in France and Poland. The rationale aligns with our local business strategies, ensuring profit margins that meet our objectives. I think it makes more sense to demonstrate consistent, stable growth on a local level rather than seeking out high-stakes acquisitions away from our core markets which could dilute value.

Jean-Pierre Sbraire, CFO

Thank you for breaking out the integrated power business starting in the first quarter. Can you tell us what returns you have achieved so far? Other peers such as BP and Shell seem to have questioned their overall returns in this area, and I’m curious about your view – or what the results you’ve seen thus far.

Patrick Pouyanne, Chairman and CEO

We have a solidified strategy for integrated power and aim to improve returns from this segment significantly. However, determining our exact returns is a work in progress. By the end of this year, we'll be in a much clearer position to present a comprehensive analysis. We aim to balance the flexibility of contracting with the volume of energy produced and the positioning of our assets to ensure higher profit margins going forward.

Oswald Clint, Analyst

Could I ask, please, Patrick, just on the dividend again? I mean, a 7.25% increase, you said you couldn't do more. That's understandable; it's helped by the buyback. We understand that, too. But in the context of the trend where you've done, let's say, 5% or 6% growth for the last 1, 2, 3 decades, if we can sustain the dividend and the commodity view cooperates, could 6% to 7% or 7% to 8% become a new trend line for the ordinary dividend?

Patrick Pouyanne, Chairman and CEO

On the dividend, we didn't say we couldn't do more. We have decided to increase it by 7.5%, which is indeed a departure from our previous trend. However, this is a reflection of the increase in buybacks. Maintaining buybacks also keeps our commitments to shareholders, and we want to ensure that returns are felt by them. Let’s see what our performance looks like for the 2023 fiscal year, as our capacity to increase dividend rates may pivot based on price level and our operational performance.

Alessandro Pozzi, Analyst

I have two questions. Regarding emissions, I see that they came in below target in 2022, but they were still up year-over-year. Most of it was driven by CCGT. Therefore, I wonder if you can provide us with a target for 2023 and how you see Scope 1 and 2 emissions evolving. Also, I have observed that Scope 3 has come down, and I would like to know the main drivers for this reduction.

Patrick Pouyanne, Chairman and CEO

The emissions targets for 2023, we can expect to see a continued decrease in emissions. Our clearer target will likely be under 40 million tonnes, aiming to lower them from 40 million tonnes to 38 million tonnes based on performance from operations and enhanced efficiency measures. As for Scope 3 emissions, the reduction can typically be attributed to operational improvements and upgraded processes that provide better monitoring and tracking of emissions produced within our upstream and downstream operations. Regarding refinement, the EU ban came into effect on February 5. I see the diesel market in Europe is affected as we search for replacement sources. It seems that we will still be able to source diesel from elsewhere, and we also anticipate that the market will tighten, especially during the second part of 2022. The protests in France will not have a material impact. The margins may be affected temporarily, but they will stabilize as we continue working on managing demands and supply fluctuations effectively. Operations in Europe could be confused, especially in the second half of 2022, and it's crucial for us to remain proactive. We are currently monitoring trends to anticipate those adjustments in pricing and formations, and we believe we can manage through potential variations. We will apply consistent methodologies to safeguard margins.

Operator, Operator

This was the last question. Back to you for the conclusion.

Patrick Pouyanne, Chairman and CEO

Thank you. I've noted a good participation in this presentation. Our next meeting will occur in March, either on the 21st or 23rd; we will confirm the date very soon. This meeting will showcase a presentation on strategic sustainability and climate, built around our sustainability and climate report, like we did last year. It will be live in London, allowing for informal discussions with all of you. Thank you for your attendance and continued support of TotalEnergies shares. Thank you.