Earnings Call Transcript - TTE Q2 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Total Second Quarter 2020 Results Conference Call hosted by Patrick Pouyanne and Jean-Pierre Sbraire. I must advise you this conference is being recorded today. I would now like to hand the conference over to Mr. Patrick Pouyanne, Chairman and CEO of Total. Please go ahead, sir.

Patrick Pouyanne, CEO

Hello, everybody. Good afternoon or good morning. I hope that all of you are well and staying safe. At Total, we are almost all back to the Paris office, 75% to 80% of the staff, taking, of course, all the appropriate precautions, consistent with our safety culture. It's good to be together again. We are more innovative when we are collectively at the office rather than in front of screens. All the business units are fully operational today, and of course, it's a big priority for us to keep people safe, while maintaining all our business operations. I'm happy to welcome you this afternoon together with Jean-Pierre for this earnings call because we felt it was important that during these unprecedented times, the Chairman and CEO of the company can directly give you the big picture of where the company stands. Jean-Pierre will explain in detail all the Q2 results and how resilient we have been before we go to the Q&A. During this quarter, we faced some very exceptional circumstances, the worst since 2014. The COVID-related lockdown led to unprecedented global demand destruction, which was exacerbated by the drop in oil and gas prices. The Brent fell by 60%, dipping below $20 per barrel in April and averaging less than $30 per barrel for the quarter. We had high differentials – negative differentials between the Brent marker and the real crude prices, around $5 to $6 per barrel due to low demand. The natural gas prices in Europe and Asia also dropped by 60% to historic lows. Production was strained mainly by OPEC+ countries, which helped to lead the way to market recovery, and we have seen Brent come back to an average of more than $40 per barrel since the beginning of June. We are optimistic about the willingness of all these producing countries to take action and maintain a crude price above $40, which is, in fact, a low point for most of them, if not all. Given our exposure to some of these countries, the impact of quotas on Total was close to 100,000 barrels per day in the quarter. We have slightly revised our full year production outlook to be in the 2.9 million to 2.95 million barrel per day range because the discipline of OPEC+ countries is stronger than ever. This is good news for the market and for crude pricing. It is a matter of value over volume. In the downstream, refining margins collapsed to very low, even negative levels during several weeks, and we had to limit the refining utilization rate under 60%. Marketing volumes fell by 30% in the quarter on average. However, in Europe, we have good news. Since June, we have seen a rebound here in Europe, and activity in our marketing networks is back to around 90% of pre-COVID levels. Our gas and electricity business and marketing are also close to the pre-crisis levels. In light of this extraordinarily weak and volatile second quarter environment, the company has been quite resilient. During this quarter, we generated $3.6 billion in cash flows and reported positive adjusted net income. We preserved our balance sheet strength with a gearing of around 23.6% after the first half of the year. What lessons can we draw from this quarter for the group's perspective? The first is the value of the integrated business model. These resilient results are particularly due to the overperformance of our trading activities, around $500 million above usual levels. We demonstrated the value of the integrated model. While upstream was impacted by price and lower production, refining suffered from low demand and low margins, and marketing fell due to lower demand. However, trading captured significant value from high market volatility. The second lesson is the opportunity to demonstrate the reality of our low breakeven portfolio and the quality of Total's portfolio. The cash generation of $3.6 billion implies cash breakeven close to $20 per barrel and under $25 per barrel. These results highlight the underlying strength of our portfolio. This is a benefit of focusing on assets with low production costs, reaching $5 per barrel through various savings. Notably, the giant long plateau assets in the Middle East, which some might not perceive as providing increased returns when prices are high, show resilience under lower prices. We also rely on active portfolio management to continuously upgrade our portfolio. The third lesson is the effectiveness of our 2020 performance plan to control spending. The fast and effective implementation of the action plan at the start of the crisis is the driving force behind our company-wide effort to maximize cash flow. GAAP net investments will be maintained under $14 billion, and OpEx savings of $1 billion are well underway, with efforts to control working capital yielding positive results this quarter. The outcome is that the debt increase this quarter has been limited to just $1.2 billion alongside the payment of a stable quarterly dividend of $1.9 billion. The Board of Directors is comforted by this resilience and cash generation. As I announced to you on May 5, the Board maintains the second interim dividend of €0.60 per share, the same level as the first interim dividend. We will reassess at the end of the third quarter, but importantly, the Board reaffirms the sustainability of this level of dividend at a $40 per barrel Brent environment. We've been above $40 per barrel since early June. The fourth lesson is that in such a volatile environment, developing a portfolio of renewable long-term PPAs will not only contribute to our strategy to become a broader energy company but also provide more stable results from our global business model. We may be recovering from this crisis, but it’s too soon to know. In our business, we must always prepare for volatility, even exceptional volatility. Despite these short-term challenges, we remain committed to our long-term strategy to invest in profitable growth. This quarter, we successfully entered into the giant Seagreen offshore wind project in the UK and acquired an integrated gas and electricity portfolio with 2.5 million customers in Spain, including gas-fired power generation. Globally, we will invest close to $2 billion this year or about 15% of our CapEx in low-carbon electricity to build the future. Our renewable electricity growth capacity has increased this quarter from three gigawatts to about five gigawatts, thanks to our new joint venture in India. We produced 2,900 gigawatt-hours during the quarter and sold more than 25 terawatt-hours. The ambition is to balance our own production and our sales, and we will return to this roadmap at our strategic presentation on September 30. Additionally, we are preparing for the future in our oil and gas businesses, evidenced by our successes in exploration. You may have heard that WoodMac has selected Total as the exploring company of the year. We have announced nearby exploration successes in Egypt, operated by Eni, which is a potentially fast-tracked market gas discovery. More importantly, we have made three significant discoveries in Suriname, with more to come. We are preparing our oil and gas operations through counter-cyclical deals, like the one in Uganda, where acquiring Tullow's interest gives us a leading role in that process. We have relaunched all tender calls in Uganda for next quarter in order to benefit from the depressed supply market, and we aim to sanction the project as soon as possible. We've also finalized the acquisition of Block 20 and 21 in Angola, which will benefit from synergies with our large base of operations in Angola. As we announced yesterday, the dramatic changes in the environment prompted the Board to conduct a comprehensive review of our assets using various price scenarios for the next few years. We have taken a stringent and somewhat pessimistic view of prices at $35 per barrel in 2020, $40 in 2021, $50 in 2022, and $60 in 2023. We adjusted gas prices accordingly. In the longer term, we maintain our analysis that the weakness of investments in the hydrocarbon sector since 2015, accentuated by the health and economic crisis of 2020, will likely result in insufficient worldwide production capacity and a potential rebound in prices by 2025. Beyond 2030, technological developments, particularly in the transportation sector, may lead to an anticipated peak in oil demand, with Brent prices trending towards a long-term price of $50 per barrel, in line with the International Energy Agency's below two degrees scenario. As a result of our new price scenario, we recognized impairments of $2.6 billion, mainly linked to the Canadian oil sands ($1.5 billion) and the Australian energy assets ($0.8 billion). These projects had very high production costs. You may have noticed that this $2.6 billion impairment due to the new price scenario is quite limited, representing less than 2% of the balance sheet, which demonstrates a strong balance sheet resilience. The Board has also decided to review assets in line with our climate ambitions announced on May 5, emphasizing stranded assets within our portfolio that illustrate our long-term outlook to 2050. Stranded assets were defined as those with more than 20 years of reserve life and high production costs above $20 to $25 per barrel. The only assets classified as stranded after this review were Fort Hills and Surmont in Canada, the two oil sands projects in our portfolio. This review led to an additional impairment of $5.5 billion, bringing the total impairment for the group to $8.1 billion. I would like to conclude my introduction by commending all of Total's teams for their high performance during this challenging period. While we are certainly more comfortable with Brent above $40 per barrel than we were below $30, we will continue with the same discipline. I know the teams will persist with their commitment to execute and deliver on our four priorities: HSE, operational excellence, cost reduction, and cash flow generation. Now, Jean-Pierre, the floor is yours.

Jean-Pierre Sbraire, CFO

Thank you, Patrick. For the second quarter, Total resisted an exceptionally weak environment and reported positive adjusted net income, which was even better than expectations. Indeed, we generated $3.6 billion of net adjusted cash flow, which is a decrease of 50% compared to the same quarter last year, despite a 60% drop in Brent and in European and Asian natural gas prices. The net debt increase was limited to $1.2 billion, reflecting the successful implementation of the action plan that Patrick mentioned. This action plan helped drive organic cash flow breakeven to less than $25 per barrel in the second quarter. Let's look at the results by segment now. Operationally, the group's upstream production in the second quarter was 2.85 million barrel oil equivalent per day, representing a decrease of 4% compared to the second quarter last year. New startups and ramp-ups, mainly Culzean in the UK, Johan Sverdrup in Norway, Iara in Brazil, and Tempa Rossa in Italy, were more than offset by reductions linked to OPEC+ production discipline, particularly in the Emirates, Nigeria, Angola, and Kazakhstan, as well as curtailments in Canada and disruptions in Libya. As highlighted by Patrick, we fully support the production discipline, particularly by OPEC+, recognizing the positive effect it has on the oil price. Given this OPEC+ quota and the situation in Libya, we now anticipate that production will hit a low point in the summer season during the third quarter. We expect to average between 2.9 million and 2.95 million barrels oil equivalent per day for the full year 2020. For the Integrated Gas, Renewables & Power segment, we reported an average LNG price of $4.4 per million BTU in the second quarter, a decrease of 30% compared to the previous quarter and 23% compared to a year ago, mainly due to three factors: the long-term LNG contract price declined by 16% compared to the first quarter, reflecting the lower oil price, with a time lag effect expected to hit in the third quarter; some of our long-term contract buyers exercised the contractual flexibility to reduce their off-takes; and the share of spot volumes in the sales mix increased to 35% in the second quarter compared to 17% in the first quarter and 33% in the second quarter last year. I remind you that last year, early Yamal LNG cargoes were sold on spot. Impacted by lower LNG prices, the Integrated Gas segment reported a second quarter adjusted net operating income of around $30 million and cash flow from operations came close to $560 million. This demonstrates that our global integrated portfolio, including regas and trading, was able to mitigate the weak second quarter environment. Looking ahead, the low oil prices we observed during the first half will impact LNG contract pricing in the second half of the year. At the same time, we anticipate that third quarter LNG liftings will be harder hit by deferrals compared to those in the second quarter, with an estimate of between 20 to 25 cargoes deferred in third quarter compared to nine in the second quarter. However, during the fourth quarter, we expect some of the deferred cargoes will be lifted in conjunction with normal seasonal trends and a potential recovery in Brent prices. Despite the volatility, we confirm our strategy for profitable growth in this segment for both LNG and low-carbon electricity, consistent with our climate ambitions. Mozambique LNG and Arctic LNG 2 projects are underway, and Nigeria LNG train 7 has reached FID. As part of our partnership in LNG with Sonatrach, we have agreed to renew and extend the agreement for LNG supply from Algeria. As Patrick mentioned earlier, expanding our integrated low-carbon electricity activity is essential to our long-term strategy, aiming to diversify the group's energy offerings and achieve net zero emissions by 2050 together with society. In the UK, we've significantly scaled up our offshore wind activity through the acquisition of a 51% stake in the giant Seagreen 1 project. Our position has solidified in the integrated gas and low-carbon electricity market in Spain by acquiring a 2 gigawatt solar power generation capacity portfolio in the first quarter and an additional 2.5 million B2C gas and power customers alongside 2 CCGT representing nearly 850 megawatts of capacity in the second quarter. Our gross installed renewable power generation capacity rose to 5.1 gigawatts, having nearly doubled in the second quarter, primarily due to the acquisition in India of over 2 gigawatts from the Adani Group. We also increased the number of gas and electricity customers in Europe during the quarter to nearly 6 million, reflecting a 7% increase compared to the prior year. These significant steps allow us to confirm our goal of 25 gigawatts of growth capacity for low-carbon electricity by 2025. As part of our net zero ambition, we also made the decision to join the Northern Lights CCS project in Norway. Moving on to the E&P segment, reported adjusted net operating loss was $209 million in the second quarter, reflecting the drop in commodity prices and the lower volumes mentioned earlier. In line with the weaker environment, cash flow from operations in E&P dropped to $1.8 billion, yet it remains the largest cash flow contributor among all segments, more than enough to cover its $1.4 billion net investment in the second quarter. We remain committed to profitably developing and high-grading the E&P portfolios. In the second quarter, we started up the second FPSO in Iara, a low-breakeven deep offshore field in Brazil. In terms of M&A, we've actively pursued counter-cyclical opportunities, acquiring two interests in the Lake Albert project in Uganda, completing the acquisition of Angola Block 20, 21, and announcing the successful divestment of our non-operated mature assets in Gabon. While implementing strict capital spending discipline this year, we continue exploration with some success, making a third discovery in Suriname alongside previous finds in offshore Egypt. Turning to Downstream, adjusted net operating income stood at $704 million, a decrease of 38% from last year, but second quarter cash flow from operations was notably robust at $1.5 billion. The decrease in net operating income was mainly due to weaker refining performance driven by a 48% drop in variable cost margins and sub-60% utilization rates stemming from prolonged outages at refineries in Feyzin, Normandy, and Grandpuits in response to weak product demand. Marketing was also adversely affected, with refined product sale volumes down 30% during lockdown. On the flip side, our trading activities performed exceptionally well during the volatile second quarter, overperforming by around $500 million, while petrochemicals exhibited resilience on account of higher utilization rates and margins. Downstream cash flow from operations in the first half reached $2.6 billion, but high inventory levels continue to burden refining margins and utilization rates, with recovery largely contingent on the pace and extent of the post-COVID global economic rebound. Thus, our guidance range for the full year is between $5 billion to $6 billion. For the group level, our adjusted net income was $126 million in the second quarter, while reported net income was negative due to the $8.1 billion impairments recorded this quarter. The effective tax rate for the group was negative 7% in the second quarter compared to 30% in the previous quarter, mainly due to the adjusted net operating loss in E&P with high tax rates unable to offset the downstream profits with lower tax rates. Second quarter net investments totaled $2.9 billion, including organic CapEx of $2.2 billion. In the first half, net investments were $6.5 billion, and we project full year net investments of less than $13 billion. The capital discipline remains an integral part of our action plan, initiated at the crisis' onset, bolstered by strong efforts company-wide to secure cash flow this year, particularly by achieving $1 billion in operational savings versus last year. We reduced OpEx per barrel to $5 from $5.20 in the first quarter, while closely controlling spending at all levels to achieve low breakeven and maximize cash flows. Additionally, as part of the action plan, we also focused on turning working capital into a source of liquidity. We achieved a cash inflow of $0.4 billion from working capital this quarter. For the final 2019 dividend payment, we offered a scrip option that was subscribed at 62%, relieving our third quarter cash outlay by about $1.2 billion. However, as you know, the scrip dividend option will not be available for the next three interim 2022 dividends. We remained highly active in enhancing liquidity this quarter, as announced in May we improved our position by more than $30 billion, primarily through securing $9 billion in long-maturity bonds and over $6 billion via syndicated loan agreements. Having preserved our balance sheet strength, we remain net cash flow positive year-over-year, with gearing standing below 24% at the end of the second quarter, accounting for the 1.3% impact from the impairments recognized. In conclusion, I would like to emphasize that our primary objective moving forward is to deliver on our action plan, generating sufficient cash flow to sustain investment in profitable projects, while simultaneously ensuring attractive shareholder returns and a sturdy balance sheet. We can now move on to the Q&A.

Operator, Operator

Your first question today is from Irene Himona at Societe General. Please go ahead.

Irene Himona, Analyst

Thank you. Good afternoon and congratulations on these numbers. I had two questions, please. First one for Patrick. Perhaps in relation to the Board's review of stranded assets in the portfolio, I wonder if you can share with us your views on the risk of stranded refining assets and indeed, refining margins long term through the energy transition in relation to Total, but also in relation to the European industry in particular? And my second question for Jean-Pierre. In the second quarter, your Upstream tax was, in fact, a little bit above the first quarter. I wonder if there is some guidance for full year expectations on that front, and also, if you can please remind us of your full year expectation for working capital? Thank you.

Patrick Pouyanne, CEO

Okay. Thank you, Irene, for your comments. The refining assets, I would say, you have noticed that – and you know, obviously, that we have committed to Europe's climate neutrality by 2050. So we have to be consistent. In Europe, we are aware that refining is oversupplied. We have divested one refinery this year – this week, the Lindsey refinery. It took us quite a long time to divest it. I would say that we are left with not many assets. You also know that in our roadmap – and we'll come back to this roadmap in September, but in the European context, there is a strong willingness from policymakers to develop biofuels and renewable fuels. We have had a positive experience in La Mede, the only positive refinery in France during the quarter. It's now a biorefinery. Despite the specificity of the French market, which does not allow us to use palm oil, we are achieving positive results. This positions us well and supports our willingness to aggressively develop the bio business, particularly by converting some European refineries to produce biofuels. From this perspective, these won't be stranded assets; in fact, on the contrary. And when you convert brownfield assets, you spend about $500 per ton in capital expenditures, instead of over $1,000 per ton for greenfield projects. So that aligns with our climate ambition. In terms of stranded assets, we acted decisively. We conducted a review of these assets and focused on those likely to become stranded from a refining perspective. I pass the floor to Jean-Pierre for the second question.

Jean-Pierre Sbraire, CFO

Thank you very much. Regarding the full-year tax rate guidance, it depends on crude prices and the global environment. Currently, at around $30 to $40 per barrel, we could expect a group tax rate of around 15%, with E&P contributing to that tax rate at about 25% to 30%.

Patrick Pouyanne, CEO

That's an average of $35 per barrel, I think. We are a little above today, and it's quite sensitive to the oil price. Be careful.

Jean-Pierre Sbraire, CFO

Regarding working capital, it's impacted particularly by price variations due to stock movements. But we are pleased to note that in the second quarter, we managed to cash in approximately $400 million this year. So, that gives us confidence that we will continue to monitor working capital closely. The entire team is mobilized to limit working capital impacts, and we hope that if we maintain current price levels, we could positively affect the overall working capital for the full year.

Irene Himona, Analyst

Thank you very much.

Operator, Operator

Thank you. The next question is from the line of Michele Della Vigna from Goldman Sachs. Please go ahead.

Michele Della Vigna, Analyst

Thank you, Patrick, Jean-Pierre, congratulations on strong results in a very difficult macro environment. I had one strategic question on the low-carbon business. It has, until now, made perfect sense to develop most of the businesses unconsolidated and associated with project financing. This way, it limits the CapEx and corporate gearing. However, at a time when investors focus sharply on scaling this business and with rising frameworks like the European green taxonomy that focus on revenue and CapEx exposure, do you think it would be beneficial to have a consolidated low-carbon business? Showing separately the debt, the CapEx, and the unlevered and levered returns would likely provide greater visibility on the growing scale of that business and its underlying economics?

Patrick Pouyanne, CEO

You have to be patient until September 30. We are working on it, obviously. I will explain why we need to do this. Since the beginning of the year, we have made significant progress in acquiring and growing our portfolio. Projects in India, Scotland, Qatar, and Spain are now under our wing, resulting in a stronger visibility for the development of this low-carbon electricity business between today and 2025. By September, we will be able to provide not only project updates but also a consolidated vision with financial figures. We are aligned with your view and recognize that the market is increasingly valuing this type of business more favorably than our heritage business. As such, we want to give you greater visibility. However, it is necessary to first ensure that we can grow it sensibly. We will outline more specific details in our strategy presentation on September 30.

Operator, Operator

Thank you. The next question is from the line of Christyan Malek from JPMorgan. Please go ahead.

Christyan Malek, Analyst

Hi. Thank you, and thanks for taking my question. Two questions, if I may. The first regarding the oil price outlook. The revisions appear prudent, and I wanted to better understand how you see the macro backdrop, particularly around the underinvestments in supply and the relationship with future demand. I know it’s a difficult question, but it speaks to your analysis. Additionally, could you share how you plan for FIDs and your priorities around FIDs over the next 12 to 18 months? To sustain your production medium-term, how should we think about priorities around projects, particularly with the discoveries in Suriname?

Patrick Pouyanne, CEO

Thank you, Christyan, for these two questions. The first one is actually not impossible to answer. I provided a sort of answer in our price scenario. We are prudent, obviously, but we have established that the average for the next 30 years is around $56.8. While we kept some of the previous year's scenario between $25 and $30, which indicates a potential rebound up to $70 per barrel. The reason for this is the understanding that the supply will be damaged. Generally, when you don’t invest, you have natural declines. Until last year, this was somewhat offset by increased shale oil production. However, I feel investors may slow down their investment in shale oil after this crisis. The expectations for next year are around 11 million barrels per day, based on current views. There’s a relationship between these production forecasts and lower FIDs for most players. This wasn't good before 2020, and it appears more precarious now, indicating insufficient oil production levels in the future. Of course, demand remains a vital point. People are trying to analyze the demand, suggesting it has vanished forever; I don't believe this is accurate. It may be true but predicting the pattern is unclear. My traders described it as a square root shape, meaning it’ll potentially return to 90%. Still, it may be a while to reach pre-COVID levels. I'm confident this demand will eventually return. In the longer term, beyond 2030, technology may impact demand but not quickly. We have maintained our view that the transition persists, and these long-term scenarios lead back to FIDs. Our strategy is clearly to be a multi-energy company encompassing oil and gas, not to be misunderstood. We want to grow. We'll update you in September about our goal profile for 2020 to 2025. We've acquired in Ghana and Algeria; hence the impact. However, we retain key projects. The FIDs we are focused on include deepwater projects, primarily Mero 3 and Mero 4 in Brazil and, of course, the project in Uganda, where we have made significant progress. We've worked out several issues with the Ugandan pipeline and aim to benefit from the current depressed supply market to accelerate the project's sanctioning. Simultaneously, don’t forget we still have around 1 billion barrels in our portfolio which can be reactivated.

Christyan Malek, Analyst

Just sorry, can I follow up quickly? If oil stays below $40 sustainably, what tools do you have to mitigate this situation? Your approach appears optimistic regarding pricing.

Patrick Pouyanne, CEO

At $40, the dividend is sustainable. I assure you. It’s crucial to understand that there is financial arbitration of capital expenditures within the company. If necessary, we can reduce our spending on less profitable short-cycle projects. We will prioritize our best projects. At $40 per barrel, I am confident that we can maintain the dividend without significant issue.

Jean-Pierre Sbraire, CFO

Total is committed to achieving financial stability and maintaining dividends through fiscal prudence. We must remain mindful of an evolving environment.

Irene Himona, Analyst

Thank you very much.

Operator, Operator

Thank you. The next question is from Michele Della Vigna from Goldman Sachs. Please go ahead.

Michele Della Vigna, Analyst

Thank you and congratulations on strong results. I had strategic questions on the low-carbon business. You’ve said developing unconsolidated businesses makes sense, but with the growing focus on scale and transparency for investors, might a consolidated low-carbon business showcasing debt and returns be more favorable?

Patrick Pouyanne, CEO

Be patient until September 30. We are working on this, and we believe it's important to provide that visibility as we grow stronger with new projects in our portfolio. It’s true; the market values these businesses significantly, and we want to grant more transparency.

Christyan Malek, Analyst

Thank you.

Operator, Operator

Thank you. The next question is from the line of Lydia Rainforth from Barclays. Please go ahead.

Lydia Rainforth, Analyst

Good afternoon. Two questions, please. The first, Patrick, regarding your recent movements and deals like selling Lindsey and buying Seagreen – has this acceleration in strategy come about due to the recently observed opportunities in low carbon? Also, did the stranded assets review surprises you? The second question is on Downstream. Can you give us an idea of cash flow contributions going forward, particularly in light of weakened refining margins we’ve faced?

Patrick Pouyanne, CEO

The last one is quite clear. Cash in came mainly from trading. The trading performance this quarter is measurable, as the result is translatable into cash without significant tax impacts. I can tell you that we generated $2.6 billion in the Downstream. Our guidance is between $5 billion and $6 billion, which puts us within reach as we navigate through low refining margins, but that segment has reached its lowest point. The marketing business has witnessed improvements since June. The trading will not reiterate the strong performance we saw previously, but the target figure should stabilize.

Jean-Pierre Sbraire, CFO

Business discipline remains critical. The expectation for next year is cautiously maintained, reflecting challenges experienced in marginal impacts.

Biraj Borkhataria, Analyst

Hi, thanks for taking my question. Just wanted to touch base on chemicals following the impairments yesterday. I was wondering if you could talk about your long-term view on the chemicals market.

Patrick Pouyanne, CEO

We have projects in our chemicals segment focused on feedstock advantage using natural gas, which we continue to invest in strategically.

Jon Rigby, Analyst

Thank you. Regarding the impairment charges from yesterday, could you clarify your methodology? Are you suggesting a reluctance to sanction further non-operated assets?

Patrick Pouyanne, CEO

The methodology for impairment is strict. We have a vision on how demand in the future will respond, and this drives our decisions. The review was erring on the side of caution, recognizing that some assets may not realize reasonable returns in the future.

Christyan Malek, Analyst

Thank you.

Operator, Operator

Thank you. The next question is from the line of Oswald Clint from Bernstein. Please go ahead.

Oswald Clint, Analyst

Thanks for taking my question. Considering your comments on gas and your investment plans, is Europe making a mistake with the green deal?

Patrick Pouyanne, CEO

It's critical to recognize that the transition must involve natural gas. Policymakers appear to be aligning for the inclusion of natural gas in the transition strategy rather than excluding it entirely.

Jason Gammel, Analyst

Thanks for taking the questions. Just regarding your guidance on the dividend, your assumptions around gas prices and refining margins appear critical. Can you discuss what those assumptions are?

Patrick Pouyanne, CEO

For U.S. gas, we are using $2.8 to $3; for Asia, it's around $6; and for Europe it’s $5, while refining margins are set at $35 per ton.

Jason Gammel, Analyst

Got it. Thanks for clarifying.

Patrick Pouyanne, CEO

At $40 Brent, we feel comfortable sustaining the dividend. The entire operation is predicated on an integrated approach that mitigates volatility and boosts remuneration.

Operator, Operator

Thank you. There are no further questions. I will hand back to the speakers.

Patrick Pouyanne, CEO

Thank you for your questions. I appreciate the discussions today, and I would like to inform you that our next meeting will be in September with our strategy presentation and market views. Have a good day.