Ladies and gentlemen, thank you for standing by, and welcome to the Total Second Quarter 2020 Results Conference Call hosted by Patrick Poullianne and Jean Pierre session. I must advise you this conference is being recorded today. I would now like to hand the conference over to Mr. Patrick Poullianne, Chairman and CEO of Total. Please go ahead, sir.
Hello, everybody. Good afternoon or good morning. I hope that all of you are well and staying safe. At Total, we are almost all of us back to Paris office, 75%, 80% of the staff, taking, of course, all the appropriate precautions consistent with our safety culture. But it's good to be, again, together.
We are more innovative when we are collectively at the office that's in front of screens. And in the fields, all the business units are fully operational today. And that's, of course, our big priority our main priority, keeping people safe, but at the same time, maintaining all our business operational. I'm happy to welcome you this afternoon together with Jean Pierre for his earnings call. I'm joining you today because we felt important that in these unprecedented times, the Chairman and CEO of the company can directly give you the big picture of where the company stands, and Jean Pierre will explain you in details all the 2Q, Q2 results of resilient by Bairn and before we go to the Q and A.
So during these quarters, I will not be very original. We faced some very exceptional circumstances, the worst since 2014. The COVID related lockdown led to unprecedented global demand destruction, and this was made worse by the drop in oil and gas prices. The brand fell by 60%, dipping below $20 per barrel in April and averaging less than $30 per barrel for the quarter, with high differentials, negative differential between the Brent market and the real crude prices, around is around $5 to $6 per barrel because of low demand. And the natural gas prices in Europe and Asia dropped by 60% to historic lows.
Of course, the production restraint mainly by OPEC plus countries helped lead the way to a market recovery, but has seen rent come back to an average of more than $40 per barrel since the beginning of June. And I would say we are optimistic about the willingness of all these producing countries to take actions and maintain the crude price above $40 which is, in fact, a low floor for most of them, if not all. Of course, given our exposure to some of these countries, the impact of quarters on total was close to 1 100,000 barrels per day in the quarter. And so we have revised slightly our full year production outlook to be in the 2.9000000 to 0.95000000 barrel per day range because the discipline of OPEC plus countries is stronger than ever. But again, that's good news for the market and for the crude price, and it is a matter of value over volume.
In the Downstream, refining margin collapsed at a very low, even negative levels during several weeks, and we had to limit the refining utilization rate under 60%. And marketing volumes fell by 30% in the quarter as an average. However, in Europe, we can give you some good news from Europe. Also since June, we have seen a rebound here in Europe, and activity in our marketing networks is back, I would say, 90% of the pre COVID levels. And our gas, electricity business and marketing are close to the pre crisis levels.
In face of all these extraordinary weak and volatile second quarter environment, I would say that the company has been quite resilient. During this quarter, we generated CHF 3,600,000,000 of cash flows, and we reported positive adjusted net income. And we preserved our balance sheet strength with a gearing of around 23.6% after this first half of the year. So what are the lessons that we can draw from this quarter for the group perspective? The first lesson is there again the value of the integrated business model.
These resilient results are due in particular to the over performance of our trading activities around $500,000,000 above the usual levels. So once again, we demonstrated the value of the integrated model. Upstream was impacted by price and lower production, refining by low demand, low margins, marketing by the low demand. But in the middle of the oil value chain, the trading business captured significant value from the high market volatility. That's the first lesson, and we must keep that in mind for thinking the future.
The second lesson is, of course, that we have the opportunity to demonstrate the reality of what of the low breakeven portfolio and quality of the portfolio of Total. The cash generation of $3,600,000,000 is implying an organic breakeven close to $20 per barrel, so under the $25 per barrel. These results highlight the underlying strength of the portfolio. This is a benefit of following our strategy to focus on assets with low production costs. And by the way, this quarter, we are at $5 per barrel.
We reached the $5 per barrel with all the savings. And notably, the giant long plateau assets in the Middle East, which some could perceive as not giving some, I would say, increased returns when prices are high, but we are very resilient on the contrary when prices are lower. We also rely on an active portfolio management to continuously hydrate the portfolio and the latest example being the announcement The third lesson is the effectiveness of our 2020 performance plan to control the spend. The fast and effective implementation of the action plan at the start of the crisis is really the driving force behind the company wide effort to maximize cash flow. GAAP net investments will be maintained under $14,000,000,000 and OpEx savings of $1,000,000,000 are well underway.
And efforts also to control working capital have given this quarter positive results. So the outcome is that the debt increase on this quarter has been limited to only EUR 1,200,000,000 with the payment of a stable quarterly dividend of EUR 1,900,000,000. The Board of Directors is comforted by this resilience and cash generation. And as I announced you on May 5, the Board maintains a second interim dividend of 0.6 €0.6 per share, the same level as the 1st interim dividend, and we will reduce the situation at the end of the Q3. But equally important, the board reaffirms the sustainability of this level of the dividend in a $40 per barrel Brent environment.
And as you know, we are above $40 per barrel since the beginning of June. The 4th lesson that I'll draw is that in such volatile developments, developing a portfolio of renewable long term PPAs will not only contribute to our strategy to become a broad energy company, but will also contribute to more stable results to our global business model. We may be recovering from this crisis, it's too soon to know, but in our business, we must always prepare for volatility, even exceptional volatility. And despite the short term challenges, we are holding to a long term strategy to invest in profitable growth. And this is why the group is implementing with confident resolve our new climate ambition to move to build a more diversified energy company with stronger positions in the low carbon electricity sector.
As you noticed, during this quarter, we have been very active as well. We entered into the Giant Seguin Offshore Wind project in the UK, I would just say in Scotland. And we acquired an integrated gas and electricity portfolio with 2,500,000 customers in Spain, which includes gas fired power generation. Globally, we will invest close to $2,000,000,000 this year, about 15%, one-five percent of our CapEx, in low carbon electricity to build the future. And our low carbon electricity growth capacity has increased this quarter from 3 gigawatt to above 5 gigawatts, thanks to our new Indian solar GV, and we produced 2,900 gigawatts per hour during the quarter, and we sold more than 25 terawatt hour.
The ambition being to be balanced between our own production and ourselves, and we will come back on this road map at our strategic presentation on September 30. I will also underline that we are also preparing the future in our oil and gas for oil and gas Exploring Company of the Year. So I pay tribute to our explorers today. We have announced the nearby exploration success in Egypt, operated by Eni, with a potentially fast track to market gas discovery. And more importantly, maybe, we have also our exploration exploring large deepwater resources in Suriname with 3 discoveries, I would say with 3 significant discoveries in a row and more to come.
And we are also preparing the supply chain of oil and gas by some countercyclical deals like, of course, the one in Uganda, whereby acquiring the Tudo interest and putting us in charge of this process. We have relaunched all the call for tender in Uganda for the next quarter to benefit from the depressing supply market, and we have the ambition to sanction the project as soon as possible. We have also this quarter finalized the acquisition of the Block 2021 in Angola, which is a development which will benefit from synergies with our large base of operations in Angola. As we announced yesterday, the dramatic change in the environment prompted the Board to make a comprehensive review of the assets using a different price scenario for the next few years. We have been, I would say, quite stringent or pessimistic view or bearish view for $35 per barrel in 2020, dollars 40 per barrel in 'twenty one, then $50 in 'twenty two and $60 in 'twenty three.
We adjusted the gas prices accordingly. For the longer term, we maintain our analysis for the weakness of investments in the hydrocarbon sector since 2015, accentuated by the health and economic crisis of 2020, will result by 2025 an insufficient worldwide production capacity and potentially a rebound in prices. Beyond 2,030, given technological developments and in particular the evolution of transportation sector, We anticipate that oil demand might reach its peak and Brent prices should turn towards a long term price of $50 per barrel, in line with the International Energy Agency below 2 degree scenario. As a result of this new price scenario, we recognized improvements of $2,600,000,000 mainly linked to the Canadian oil sands for $1,500,000,000 and the Australian assets energy asset of $800,000,000 These were, in fact, giant projects with very high production costs. You will notice that this 2.6% impairment due to the different new percent price scenario are quite limited, less than 2% of the balance sheet, which demonstrates that again, we have, I would say, a safe balance sheet.
I would say that the Board of Directors has also decided, maybe more important, which demonstrates our consistency and our willingness to implement the climate ambition that we announced on May 5 for our joint statement with the Climate 200 plus Investors Initiative. In fact, we have decided to look to and the Board has made a review of the assets to check which could be the stranded assets within our portfolio, keeping in mind our climate ambitions that I would look to 2,050. Stranded assets, we gave them definitions where assets with where we have more than 20 years of reserve life with high production costs, I would say, above $20 per barrel or $0.25 The only assets which could which have been qualified as stranded after this review were Fortis and Cermont in Canada, the 2 oil sands projects which remain in our portfolio. And this review resulted in a $5,500,000,000 additional impairment, bringing the total impairment for the group of $8,100,000,000 So I'm being naive, given you, I think, the main element of my introduction. I will turn over to Jean Pierre.
I would just like finally for his introductory comments to commend all of the teams of Total for Maersk performing at such a high level during such a challenging period. And what I can tell you is, while we are certainly more comfortable with a brand above $40 per barrel than we were when it was below $30 We'll continue with the same discipline, and I know that the teams will continue with the same discipline to execute and deliver on our four priorities: HSE, operational excellence, cost reduction and cash flow generation. Now Jean Pierre, the floor is yours.
Thank you, Patrick. So for the first or the second quarter, Total resisted an exceptionally weak environment and reported positive adjusted net income. And I think more importantly, the cash generation was good, even better than expectation. Indeed, we generated $3,600,000,000 of debt adjusted cash flow, a decrease of 50% compared to the same quarter last year, despite, as mentioned by Patrick, the 60% drop in Brent as well as in European and Asian natural gas prices. Net debt was limited net debt increase was limited to $1,200,000,000 This reflects the successful implementation of the action plan that Patrick mentioned that helped to drive the organic cash flow breakeven to less than $25 per barrel in the 2nd quarter.
Let's look at the result by segment now. Operationally, the group upstream production in the 2nd quarter was 2 point 85,000,000 barrel oil equivalent per day. That means a decrease of 4% compared to the Q2 last year. New start ups and ramp ups, mainly Culins in the UK, Johan Wer Group in Norway, Iara in Brazil and Temparossa in Italy, were more than offset by reduction linked to OPEC plus production discipline, notably in the Emirates, in Algeria, in Angola or in Kazakhstan, Kazakhstan, as well as the curtailment in Canada, disruption in Libya and natural declines. As highlighted by Patrick, we fully support the production discipline, particularly by OPEC plus recognizing the positive effects it has on the oil price.
Given this OPEC plus quota as well as the situation in Libya, we now anticipate production in the summer season during the Q3 will be the low point. So we now expect to average between 2,900,000 to 2,950,000 barrels oil equivalent per day for the full year 2020. For the IGRP segment, Integrated Gas, Renewables and Power segment. We reported an average LNG price of 4.4 dollars per 1,000,000 BTU in the 2nd quarter, a decrease of 30% compared to the previous quarter and 23% compared to a year ago, mainly due to 3 factors. The long term LNG contract price declined by 16% compared to the Q1, reflecting the lower oil price and given the time lag effect, we anticipate the low point the low point will come in the Q3.
Also in recent months, some of our long term contract Bayer exercised our contractual flexibility to reduce their off-tech. So the share of spot volumes in the sales mix was 35% in the Q2 compared to 17%, 17% in the Q1 and 33% in the Q2 last year. I remind you that last year, the early Yamal LNG cargoes were set on spot. And you know, spot prices were particularly low during this quarter, reflecting the weak environment. So impacted by the lower LNG prices, IGRP reported 2nd quarter adjusted net operating income of something like €30,000,000 to €26,000,000 and cash flow from operation before working cap, the CFFO, close to $560,000,000 This demonstrates that our global integrated portfolio, including Regard, including trading, was able to mitigate the weak 2nd quarter environment.
Going forward, the low oil prices observed during the first half will have an impact on LNG contract price in the second half of the year. And at the same time, we also anticipate that Q3 contract LNG liftings will be harder hit, but deferral than they were in the 2nd quarter by an estimate between 20 to 25 cargoes in the 3rd quarter compared to 9 in the second quarter. So this will be likely a low point as well. However, during the Q4, a number of deferred cargo will be lifted and combined with normal seasonality and a possible improvement in brands, we can expect some recovery later in the year. Despite the volatility, we confirm our strategy for profitable growth in this segment for both LNG and low carbon electricity, which is consistent with the energy transition and our climate ambitions.
Mozambique LNG and Arctic LNG 2 are underway and Nadiaria LNG Train 7 has been affected. So our position as the 2nd largest player in the LNG business is solid for the long run. Also as part of our partnership in LNG with Sunnafax, we have agreed to renew and extend the agreement for LNG supply from Algeria. As Patrick said, expanding our integrated low carbon electricity activity is key to our long term strategy to more broadly diversify the group's energy offering and to achieve net zero ambition by 2,050 together with society. In the UK move that changes the scale of our offshore wind activity, we acquired a 51% stake in the Giant Sea Green 1 project.
In Spain, we have become a key player in the integrated gas and low carbon electricity market by acquiring 2 gigawatts of solar power generation capacity in the Q1 and in the second quarter by acquiring a portfolio of 2,500,000,000 B2C Gas and Power customers, along with 2 CCVT, representing nearly 850 Megawatt capacity. Growth installed renewable power generation capacity rose to 5.1 Gigawatts, essentially doubling in the Q2 compared to the previous quarter, thanks mainly to the acquisition mentioned by Pratik in India of 50% of the portfolio of more than 2 gigawatts from the Adeni Group. And we have increased the number of gas and electricity customers in Europe as well during the quarter to nearly 6,000,000, up 7% compared to a year ago. These important steps allow us to confirm our goal of 25 gigawatts of growth capacity for low carbon electricity by 20 25. As part of our net zero ambition, we took the additional step of making the decision to join the Northern Light TCF project in Norway.
Now moving to E and P. So this segment reported an adjusted net operating loss in the Q2 of $209,000,000 reflecting the drop in commodity prices and the impact of the lower volumes that we mentioned before. In line with the weaker environment, FFO cash flow from operation from E and P fell to DKK1.8 billion, but of course still a single largest cash flow contribution among all the segments and more than enough to cover, by the way, its net investments of $1,400,000,000 in the 2nd quarter. We are committed to profitably developing and high grading the E and P portfolios. We will give you some illustration.
In the 2nd quarter, we started up the 2nd SPSO in Yara, the low breakeven deep offshore field in Tresalt, Brazil. In terms of M and A, we have continued to move countercyclically and acquired true interest in the Lac Albert project in Uganda. We have completed the Angola Block 2021 acquisition announced last year. We closed the sale of Brunei Block CA1, and we announced today that we were successful in divesting our non operated mature assets in Gaba. Although we have implemented strict discipline in cattle spending this year, we continue to explore with some success, notably in offshore Egypt or in Suriname.
We made a 3rd discovery, Cascosie, after Macca well in January and the discovery Sapatera in April. Turning now to Downstream. Adjusted net operating income was $704,000,000 down 38% compared to a year ago and 2nd quarter CFFO cash flow from operation was remarkably strong at €1,500,000,000 The decrease was primarily due to weaker refining, driven by the 48% drop in the variable cost margin and the low 60% utilization rates, which resulted mainly from prolonged outstage at the Faison, the Normandy, the Grand Prix refineries in response to weak product demands. Marketing was weaker as well with refined product sales volumes down by 30% due to the demand destruction during the lockdown. On the other side, our trading activities did very well in the volatile second quarter environment and over performed by about $500,000,000 and at the same time petrochemicals were resilient due to a higher utilization rate as well as resilient margins this year.
Downstream CFO in the first half was DKK2.6 billion. High inventory levels continue to wait on refining margins and utilization rates. The recovery will largely depend on the speed and extent of the post COVID global economic rebound. So our guidance of a range between €5,000,000,000 to €6,000,000,000 for the year can be reached. Finally, at the group level, our adjusted net income was $126,000,000 in the 2nd quarter and reported net income was negative given the $8,100,000,000 impairment recorded this quarter.
The effective tax rate for the group was negative 7% in the 2nd quarter compared to 30% in the previous quarter, essentially due to the adjusted net operating loss in E and P with high tax rates, which was not offset by the positive results in the downstream, which has a lower tax rate. 2nd quarter net investments were €2,900,000,000 including organic CapEx of $2,200,000,000 For the first half, net investments were 6 $500,000,000 and our guidance for the full year in net investment of less than $14,000,000 We confirm capital discipline is part of the action plan. We implemented the action plan at the start of the crisis and since then there is strong company wide effort to preserve cash flow this year, notably by saving $1,000,000,000 in operating expenses compared to last year. And I can tell you that in the Q2, we reduced OpEx per barrel to $5 per barrel from $5.2 per barrel in the 1st quarter, as well as strictly controlling at all levels spending to keep the breakeven low and maximize the cash flow. As part of the action plan, we also concentrate on turning working capital into a source of funds.
And in the second quarter, we had a release of $400,000,000 of additional cash flow through working capital. For the final 2019 dividend payment, we offered, as you know, a script option that was subscribed at 62% and this will reduce our Q3 cash outlay by about DKK1.2 billion. But as you know, the 3,000,000,000 will not be possible for the next 3 interim 2022 dividends. We were very active on increasing liquidity during the quarter. And as announced in May, we have improved our position by more than $30,000,000,000 largely by securing $9,000,000,000 in loan maturity bonds and more than $6,000,000,000 through syndicated loan agreements.
We have net cash flow positive year to year, so we have preserved our balance sheet strength and gearing was below 24% at the end of the second quarter, taking into account a 1.3% impact associated with the impairments we have recorded. To conclude, I would like to emphasize that our priority going forward is to deliver our action plan, generating a level of cash flow that allow us to continue investing in profitable projects, while preserving at the same time an attractive return to shareholders and a strong balance sheet. I think now we can move to the Q and A.
Thank you. Your first question today is from the line of Irene Himona from Societe Generale. Please go ahead.
Thank you. Good afternoon and congratulations on these numbers. I had two questions, please. First one for Patrick. Perhaps you 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 Q1. 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.
Okay. Thank you, Irene, for your comments. The refining assets, I would say you have noticed that and you know our views, and we have committed, I would say, to Europe climate neutrality by 2,050. So we have to be consistent. And we know that in Europe, refining is, I would say, oversupply.
We have noticed that we have divested 1 refinery this year vis a week the Lindsay refinery. It took us quite a long time to divest it. I will say that we are left with not so many assets. You know also that in our road map, and we'll come back on this road map by September of the strategy meeting, But in the road map in the European road map, there is quite a strong willingness from the policymakers to develop biofuels, renewable fuels, I would say, biojet, biodiesel. We have made a first positive experience, in fact, in La Mer.
The only positive refinery in France during the quarter is Lamed. It's no more a refinery. It's a biorefinery. And despite the specificity of the French market, which does not allow us to use Paimholm, we are able to make positive results. So this gives us obviously the willingness and Bernard Pinata will come back on it to develop, say, a more aggressive strategy to develop the bio business, in particular by converting some European refinery to these biofuels.
We have an advantage. It's not from this perspective, that's a total stranded asset. On the contrary, because when you convert brownfield assets, you have, I would say, you spend $500 per tonne to make in CapEx greenfield project to make about $1,000 per ton. So part again of our climate ambition, as we told, we want to decarbonize our old assets by developing biofuels. So that's my answer to you.
And so I'm not we have reviewed these assets, but certainly we are and the Board has not had some answer about refining assets from a stranded point of view. I let the floor to the complex second question to Jean Pierre.
Thank you very much. The guidance for the tax rate for full year, of course, it depends on the crude price and the global environment. But I would say that at current level around $30,000,000 $40 per barrel, we expect the group tax rate around 15% and the contribution of E and P in that tax rate will be around 25%, 30%.
That's an average of $35 per barrel, I think, let's just say, for the year. We are a little above today. So and it's quite sensitive to the oil price, so be careful.
And for the working cap, it's a matter of prices as well, because you know the BFR is impacted particularly by the stocks. But we are very satisfied to see during the Q2 that we managed to cash in more or less $400,000,000 this year. So it's a cash in. So I can tell you that we continue to monitor this working capital. All the teams are mobilized to limit the working cap.
And we hope that if we maintain, if we are around the current level of prices, we could have a positive impact on the BFR for the full year. So cash
in. Thank you very much. I remind you that we stated in the Q1 in May that we have an objective of a release of $1,000,000,000 At $30,000,000 At $35,000,000 So we are on this way. Okay. But it's clearly a priority.
And to be fully honest with you, we have put as an incentive to all the executives of the company, cash working capital release before year end. So it seems to work. So the focus on cash is strong in the company.
Thank you.
Thank you. The next question is from the line of Michele Della Vigna from Goldman Sachs. Please go ahead.
Thank you. Patrick and Pierre, congratulations on strong results in a very difficult macro environment. I had one strategic question on the low carbon business. Until now, it's made perfect sense to develop most of that business as unconsolidated associates with project financing, in this way limiting the CapEx and the corporate gearing. But I was wondering at a time when investors are very focused on seeing this business gaining scale and also with rising frameworks like the European Green Taxonomy that focus on revenue and CapEx exposure, perhaps wouldn't it be better to have a consolidated low carbon business and show separately the debt, the CapEx and the unlevered and levered returns and in that way offer greater visibility on the growing scale of that business and on the underlying economics?
So you have to be patient until September 30. We are no, but to be clear, we are working on it, obviously. And we will be I will tell you why we'll do it. As you noticed during the since the beginning of the year, we have made a lot of progress in terms of acquiring I mean, of growing the portfolio. We have grown a project in India, the project in Catalan, projects in Qatar, projects in Spain.
So we have today a much stronger visibility on what will be the development of this business, low carbon electricity business between today 2025. And by September, we'll be able to provide you not only projects, but consolidating vision of and financial figures that like we are doing today in E and P with what is the target of production, what is the target of financial returns. So Michele, please wait a little for that. But it's clear and I fully support your view. And we all notice that, that the market today is very keen and is giving a much better multiple to these type of businesses than I would say our heritage business.
And so the only way to attract part of this multiple of the company will be to give more visibility. But to do that, we need to, of course, to grow it to make it sensible. So this will be, I would say, one of the main objectives of our strategy presentation in September will be to give you, I would say, more than a flavor, but to give you some insights on what is this new energy business for Total, this low carbon electricity. And so that you can be convinced that there is a it's a growing business. It's a profitable growth, I would say.
And of course, as you said, of course, this is sustained by the capacity to make some project financing to leverage the financing. But we'll come back in detail a bit. So I fully support your analysis. And we have we are on the same, I would say, understanding. And by September 30, if you will have all that you want, maybe not all, at least what we can deliver to you because we always keep a sit down thing for us.
But not honestly, the progress has been strong. And in fact, we are clear Jean Pierre told you that we are on the road map of delivering these 25 gigawatt cost capacity. We can do more than that. And I mentioned that the ambition is at least to produce as much as we sell. So we can tell you we'll give you a high production figure.
It will become quite sensible in the company.
Thank you.
Thank you. The next question is from the line of Christian Malek from JPMorgan. Please go ahead.
Hi, thank you and thanks for taking my question. Two questions, if I may. One regarding the oil price outlook and clearly the revisions are sort of prudent. And I want to understand better, Patrick, how you see the macro backdrop, particularly with the comments around underinvestments in the supply and also just how that compares to where demand and the trajectory of demand? I know it's an impossible question, but it's clearly something that speaks to something you've been talking about and analysis you've done.
So is that just guidance around what your views are on the supply outlook? That sort of segues into the second question, specifically around how you plan for FIDs and the priorities around FIDs over the next 12 to 18 months if you are to sustain your production over the medium term? How should we think about the priority around projects and particularly with the discoveries in Cerro NAND? Thank you.
Okay. Thank you, Christian, for these two questions. So first one is not fully impossible because I gave such a sort of answer in our price scenario. No, we didn't as you noticed, we have been very prudent obviously for the next 3 years, but we also kept in our scenario the average on the next 30 years is around 36.8. But we noticed that we kept part of the scenario we published by beginning of the year, which is between $25.30 rebound, which could go up to $70 per barrel.
Why? Because we had before this crisis. And I think, again, this crisis, we have forced it feeling today is that the supply will be damaged. In oil business, when you don't invest, you have a natural decline. Course, in the last year, this was offset by the increase of the shale oil production.
But we can be wrong on it, but we have the feeling that this crisis is pushing investors to have another view of the investments in the shale oil. You have a drop today from 13,000,000 barrels of oil per day to 11,000,000, next year should be around 11,000,000 barrels per day in our views. Of course, it could come back, but I think investors in Shell will be more prudent. So that means that this effect could be less efficient in the next years. And at the same time, as you noticed, there is less and less FIDs.
And so as we came to the second question, for most of the players. So it was good before 2020, but it was the balance was coming from shale oil. I would say that today it's even worse, less FIDs and less shale oil could lead again to lack of oil production. Of course, there is a link to the demand. And that's back to the other question, which I noticed that today, people are all obliged to stay beyond their screens.
So they write a lot, a lot of stories about the demand has vanished forever. I don't think so it's right. I think, yes, it's true, but I don't tell you I will not tell you if it's a V shape, a W shape. My traders gave me a good story. They told me it's a root square shape, root square shape, which means that it could take a go back to 90% and then it could be 2 years to go down to the back level, but to the level pre COVID.
But I'm convinced we'll come back to this level. On the longer term beyond 2,030, we could have some effects technology, but I don't think it would come very quickly. And so from this perspective, we kept and the Board kept because we had the discussion at the Board level this vision of a price which could rebound by 2025. Again, putting a price is difficult. We have to make an assumption, but this is in our views, which lead us to bad FIDs.
And it's why, by the way, the strategy of Total is clearly to be a multi energy company, which means less low carbon electricity, but also oil and gas. Not to make any mistake. We want to grow and we will grow. So we will
update you by September about the profile growth
between 2020 2025. September about the profile growth between 2020 2025. Of course, we did not acquire Ghana and Algeria, so we have an impact. But we have some key projects And to come to your question especially, the FIDs, key FIDs for us on which we work are in Brazil, Deepwater, Meru 3, I think this year, Opsoon and Meru 4. And in Uganda, of course.
Obviously, we have a big stake in Uganda operating. We have solved a lot of issue in Uganda. We continue to work out despite the COVID by teleconference. We progress a lot on the pipeline and with Uganda, with Tanzania. So and I hope that we could benefit on Uganda and a very good project if we get good costs with the prices being there.
And of course, don't forget that if the price come back, the short cycle cash flow, we have still the 1,000,000,000 barrels which are in the portfolio can be reactivated. So these ones could also fill the future growth of the production after time.
Sorry, can I just follow-up very quickly on, if I may, on the second point in that, it sort of tends to plan to hope for the best plan for the worst? And then your dividend set at 40, it's hard not to ask this, but if all does stay below 40 on a sustainable view, what are the tools you have in order to mitigate? Because it sounds more like a half glass full strategy on oil over the next 3 years.
No, but at $40 the dividend is sustainable. And again, look, this quarter, I mean, then it's an arbitration among our capital expenditures. So we will arbitrate between the different projects. It will be a matter of value over volume, but the best projects like the one I mentioned will be financed for sure and we don't intend to and if we have to arbitrate, we'll more arbitrate on the short cycle if we don't have the quick return. So again, I cannot tell you more than that, that when I just told you about the sustainability of the dividend at $40 per barrel.
About Suriname, Christian, you have to it's a matter of
let's be
a little patient. We have announced 3 discoveries. We are still making some logs. And as you notice, we are finding oil. We are finding some oil with gas with light oil with condensate.
So we are quite convinced that a development at least one quick development should be put in place. We are doing a 4th exploration well on Cascaisi soon. After that Total is becoming operator. So it's good for us a new very high large oil province, which will concentrate a lot of the force of the company. But I want to have all the data before to be to give you more, I would say, figures about the capacity of all that.
Thank you.
Thank you. The next question is from the line of Lydia Rainforth from Barclays. Please go ahead.
Thanks and good afternoon to everyone. Two questions please. The first one, Patrick, the moves that we've seen this quarter and this year, whether it's selling Lindsay, Gabon, buying into Sea Green, they're all very consistent with the strategy that you set out. But it does seem to be moving very quickly. And is that kind of has that sort of changed and strategy accelerated since the start of the year?
Are you seeing more opportunities in low carbon relative to what you did at the start of the year? And actually, sorry, linked to that one, the stranded assets review, did the results surprise you from that? And then one last question, if I could. On the downstream, can you just give an idea of where you expect the cash flow contribution to be? Because clearly, refining margins have been very weak over the last 3 months or so.
Okay. The last one is or so?
Okay. The last one is quite clear. I mean, the cash came quite, of course, obviously from the trading. The trading business, when I tell you that trading has over performed by around $500,000,000 The beauty of trading is that when I give you a result, you can translate it in cash. So it's easy to do and the tax rate is almost is quite small.
So why by the way that we have a low tax rate globally. So can it is it sustainable? What Jean Pierre told you is that at the first half despite the terrible second quarter, we have generated on the downstream EUR 2,600,000,000. So we gave you a guidance of EUR 5,000,000,000 to EUR 6,000,000,000. That means that if we double it, you are in the range.
Again, it's very difficult. That's true that the margins and planning margins are very low. But the marketing business as which I think is very low point by the Q2. So it's giving better cash since June, more normal ones. Of course, the trading cannot reiterate because it was linked with capture of strong performance was linked to very high volatility.
And frankly, I hope we'll not have such a high volatility in the second half. But so all in all, I'm confident with the guidance which was given to you by Jean Pierre and we'll see. The other asset, did the review surprise you on stranded assets? No, I mean, I would tell you. The main point was for us to be very comfortable to say, okay, we have made this statement in May or June.
We want now to be clear and consistent with the climate strategy. So let's do the review. When I had in the one to one the one to one roadshows, people were asking me what about stranded assets. Immediately, I was thinking to be all signs, which was obvious to me because and by the way, this quarter we demonstrated it because we have curtailed the production on the oil sands. And the production has been reduced to 25 1,000 barrels per day on Suncorp with vast amounts.
Why? Because in fact, the cost of production was much higher than the oil price. So we were so I think, again if you think to the future, at least and so we made a asset by asset redo to be sure that we are missing nothing. And long reserves and high production costs, we had only this once in the portfolio. And I think so the Board said, okay, then let's do it.
We had to find, I would say, an accountable way to do it, I mean, in terms of recognizing. So we decided to use only the proven reserves to make the test, which is a way to be consistent with figures which can be audited and the auditors were very comfortable with the way to make this review and this impairment. And I think it's a vision that in fact what does it mean for us proven reserve? That means by 2,040, 2050, we think that if oil demand is going down, then the type of assets which are high on the cost merit curve could be stranded. And that means that what is happening today would become the new normal for the oil sand.
So we did not identify other ones. The others which are not so we don't have by the way. The other long term oil assets we have are in Abu Dhabi. And you know in Abu Dhabi, the cost of production is less than $3 So we don't have at all the situation. The first questions are about the strategy in low carbon electricity.
I think, yes, you have seen not only press release, you have seen assets moving. It's not only press release, these are real deals. Why did we accelerate? I think, first, I'll be clear, it is a result of 2 years 3 years of putting in place the teams, identifying the opportunities, finding the right partners. For example, India is a consequence of the partnership with Adani on the gas and then we leverage that to go to renewables.
And we also made something strategically, which was, I would say, 1.5 years ago to decide, okay, let's not concentrate on solar only, but let's look to other technologies. And clearly, I would tell you that maybe we made a mistake in the past, but it's better to recognize it, but not to ignore it. Offshore wind is obviously fitting very well, I would say, in terms of capital intensity, production capacity as well. So we are very happy to have managed to convince SSE to become their partner in these giant projects. It's honestly for less than around less than $100,000,000 of entry cost.
It's safe to us. Years of getting the permits and offshoring can be very slow. So I think it's a very efficient entry. So yes, that's true. It's also and as I said to Michele, I think just before, this recognizes the fact that we are more and more comfortable in, I would say, approving the projects.
We have a clear, better and better strategy, and we'll be able, again, to show you more by September 30. So it's and it's consistent. I would say all that, if we have we're able also to make this statement on May 5, our climate ambition is because we are clearly more comfortable with developing this multi energy company that we want Total to become. So Total will become Total Energy, as you know, with EBIT and S and not only Total Oil.
The next question is from the line of Jason Gammel from Jefferies.
Thanks very much, gentlemen. I just want to ask a couple of questions on the LNG business. You mentioned deferring quite a few cargoes in the 3rd quarter. And I'm curious right now where prices are at, if it's even profitable to lift LNG from the U. S.
Gulf Coast. I know that your shipping fleet and regasification capacity could potentially have some benefit there. And then the second question is really more on the medium term supply and demand balance. You talked a little about oil fundamentals moving forward. You maybe spend some time on the LNG market as well?
I mean, obviously, spot prices are pretty bad right now, but you are investing in quite a bit of capacity for the middle of the decade.
Yes. So concerning the deferred cargo, I mentioned to you that during the Q2, we decided to defer 9 cargoes coming from the U. S. And mainly from Freeport, given the flexibility we have on the contracts. For the Q3, we can imagine, can anticipate that we will have more deferred cargo than in the Q2, depending on course of the timeline in the formulas.
No, I think our trading team clearly are thinking to cancel to cancel around 30 cargoes from the U. S. The U. S. Obviously today is less profitable.
It's very clear. It depends. We had some deals like the one it depends on the which provenance it is. I mean, which the deal we've done with Toshiba last year gave us a much lower dollar per 1,000,000 BTU of cost of production than some other ones. So we arbitrate.
But clearly today, this U. S. Spot, this U. S. LNG is not very profitable.
So that's the reality. Again, that's today, it's short term. It does not change what we think fundamentally. Fundamentally, this LNG business is a business we will continue to grow. There is we don't make the energy transition in this planet shifting from coal to gas without a growing LNG market.
And so that's the fundamental. And so we'll keep it. Having said that, coming back to your second question, I think first, this crisis has sometimes some benefit. And one of the benefit from this crisis is that I think there were many LNG projects who were not far from being sanctioned. All of them are stalled, which is good, because we were a little afraid by having too much supply by 2023, 2024, 2025, 2026.
Today, what is happening is that we'll not have too much supply and all three projects we have to know Arctic 2, Mozambique LNG and LNG 27, which will come into that window, will come at a time where we can expect, on the contrary, to have a much more balanced market. And so we are I think even if today we suffer, in 3, 4 years, we will benefit from this situation. I think this is a wake up call for everybody what is just happening. People were thinking that it's a business model of U. S.
LNG, which is to make a sort of infrastructure business where you find people to offtake the gas with no integration is a new way to make business. Obviously, I think the offtakers today will become more and more cautious. And it's back to what we think. We think that the right business model is to be integrated, integrated on the upstream, integrating on the midstream and downstream. Again, we are as I said, when we acquired the ENGIE portfolio, we were thinking that maybe part of that was being too much free gas capacities in Europe.
Today, we are being quite happy to have all these free gas capacities, which give us a form of good results. So we have and again, to be so the lesson is that when we are off takers, we have to be integrated. And for example, in Cameron, being an equity in Cameron give us an edge in fact because we from this perspective because yes, the offtake part today is suffering, but the plant the shareholder of
the plant is quite happy today.
So again, I think the lesson is let's continue to it's part of it's having LNG development and growth is really anchored in the strategy of the group.
Thanks very much.
Thank you. The next question is from the line of Thomas Adolff from Credit Suisse. Please go ahead.
Hi, good afternoon. A couple of questions, please. I mean, firstly, considering your comments on gas, obviously, you're also investing a lot in gas, called a gas switch and driving growth. Is Europe making a mistake with the Green Deal? I'd be interested to get your views on that.
And then secondly, you talked about low carbon being high multiple, your legacy business, fossil fuel, oil and gas currently being low multiple. But is it now getting interesting for you considering your slightly more positive medium term view on oil to actually be more active in M and A and fossil fuel? Or you're just generally happy with what you already have in the portfolio? And if I may, finally, just on gearing. I know you do have a target or an ambition to be at around 20% pre or post IFRS 16, but is there a soft or hard ceiling for that ratio?
Thank you.
Good question. Now Europe, obviously, I mean, I'm more optimistic. I think if you can listen to the Green Deal and in particular to Frans Timmermans, the Vice President in charge of the Green Deal. I think he has understood and the last speeches he has delivered on hydrogen the hydrogen ambition, it was interesting because I think that Transceva has clearly understood and the Commission understands that you don't make a transition in Europe without natural gas. And people want to jump immediately to green hydrogen and he explained that he had to go for blue hydrogen if you want to be efficient.
So I think and for most of the countries and Germany in particular, natural gas is part of the is obviously the only way to move from coal to gas if you don't take nuclear. So I think I know that people in Europe are trying to tend to put all the hydrocarbons in the same basket. But I noticed since and maybe because they want to put more money in all this green deal, but the political leaders are becoming more and more realistic about the space for natural gas in this transition. So and you know, by the way, for as I already said it, but among our good electricity business today, we have this gas pipe oil plant, which are running at a very high level and we generate quite a good business. So I think it would be a mistake, obviously, to answer to your question, if Europe was putting aside natural gas, but I think it's not the case.
Of course, they will ask us to I would say make the gas greener by injecting some biogas and we are looking to develop ourselves a business in biogas to make it greener by injecting some hydrogen. But I think and we should why not if I of course it's a matter of course of will the European customer be happy to pay more. But at the end all that has to be paid by somebody not by us. So I'm optimistic about the situation in Europe, because it will be a question of facing the reality. Should we be more active on M and A and all?
Again, we are multi energy strategy and compass oil and don't make any mistake. We want to grow. So I'm not sure I have nothing to no message today. Obviously, the fundamental for me is to be on oil with low cost, low cost oil. I mean, this is consistent.
So if we had opportunities because of course the cycle is very low and that some people are desperate to have access to low cost oil, we will solidify, of course we will not do it. And by the way, this is what we've done, I think, with Stilo, renegotiating the deal. This is what we have done in Angola to access to $400,000,000 for, I would say, dollars 400,000,000 or less than $1 per barrel. So again, it's the fundamental for me, it has to fit with the strategy of I think access to assets with low cost of production. And so you could see us on this sale.
The gearing, let there nothing has changed. We said less than 20%. I think it's without IFRS because this was target was set before the IFRS 16 on lease was put in place, so we didn't move it. So that's the objective. Today, we are at 24.
I remind you the allocation of capital we set before the crisis is still valid. It's further CapEx of the company, the dividend, we keep the dividend and then the gearing. So clearly, one of the objectives, if we have more cash flows coming because of price rebound, we will allocate that to lower the debt. And so I keep the 20% as a very strong move because again, if today we are comfortable this crisis to face the situation, to reverse the storm, to maintain the dividend, the lesson is clear to me, allocation of cash, extra cash, if we have it in the coming years, would be primarily to come back under 20%. Do we have a very high ceiling?
No. But obviously, there is a certain point that we need to be careful. Again, that will be a discussion for the board. But I'm again, at $40 per barrel, you notice that this quarter, we have, I think, increased the debt by $1,200,000,000 So it's the equivalent of a brand of around $44 per barrel. By the way, Lydia has calculated for me and she's right.
So I mean so that means that we are at $40 We said we can maintain the dividend, which we are balanced more or less in terms of cash, net cash, post dividend. So that's important, I would say.
Thank you.
Thank you. The next question is from the line of Biraj Borkhataria from RBC. Please go ahead.
Hi, thanks for taking my questions. I just wanted to touch base on chemicals following the impairments yesterday and your change of view on oil prices. But this has been a bit of a focus for Total and you have a few growth projects there. So I was wondering if you could talk about over the last 6 months, has your long term or medium term view on the chemicals market changed in terms of attractiveness and how you think about mid cycle margins for that business? And then the second question is on the comments you made on oil trading.
I think you've mentioned €400,000,000 to €500,000,000 this quarter. Just sort of reference point, can you say what your oil trading business typically generates in an average year, just to get a reference point for that? Thank you.
The pole trading is a secret that I just gave you, but we've done $500,000,000 more than usual, but you will not have the usual figure. So sorry for the second question. You tried, but it's a good try, but it's not I tried as well to answer you or not to answer you. Chemicals, let me tell you, no, we have projects in chemicals, but petrochemicals, I mean, we have been always very clear and selective in the petrochemical growth. We said primarily, and this is not a change, we want to invest in feedstock advantage projects, which means mainly on natural gas projects, because we want them to have an advantage on the feedstock compared to naphtha.
So of course, in an environment where everything is low, the advantage for nat gas cracker is less obvious than the naphtha cracker. But the fundamental is that for me is that even on the medium and long term, I see a disconnect between the oil and the gas certain number level of projects. We are working or cracker in the U. S. Will start next year.
It's an integrated and the other fundamental in petrochemical for us is that we are integrated between monomers and polymers. When we make a cracker, we want to have the polymer capacity coming together. Otherwise, you could face. So to answer to your question on medium term view and long term view, no, it does not change because we look to be, I would say, integrated margin between monomer and polymer. And so we have the U.
S. Coming or we have our projects in Korea where we continue to grow and develop our Korean platforms together with our Korean partner. And the other big project is the one in Saudi Arabia with Saudi Aramco, Amiral, on which we progress. We will launch the FEED by, I think, September. So we have progressed despite the COVID.
It's a very big plant project. So all these projects are moving forward. There is also a project in Nigeria. So we don't change our view on it. I would say it's a selective growth based on projects which really fit with the fundamental characteristics, advantaged feedstock and secondly, integration monomer and polymer.
Okay, understood. Thanks.
Thank you. The next question is from the line of Jon Rigby from UBS. Please go ahead.
Thank you. Hi, guys. Can I ask two questions? First is on the impairment charges from yesterday and the discussion you had on the Canadian projects. I'm sort of intrigued by your methodology because it seems somewhat artificial.
Are you saying that you don't think the 2P resource base will get produced out or you won't produce out the 2P resource base? And either way, given your reluctance to sanction any more as a non op, wouldn't it be sensible just to sell out of these projects? And if that's the case, would you expect to realize a price that's above the carrying value on the balance sheet? Because presumably, when you come to negotiate a disposal, you want the buyer to pay for the 2P resources, I would have thought, or that would be somewhat odd. Question 2,
just on your working capital.
Can you just confirm there's nothing funky going on? You're not sort of selling receivables. If you can bring the balances down, this is a structural benefit to the balance sheet going forward, not just a one off in 2020? Thanks.
No, John, let's be clear. By the way, all impairments calculations are artificial. So it's not the methodology, there is the scenario, the price scenario has to be set by the Board and not each company has its own scenario. So you have also the discounting rate, which is can be maybe different. So I can give you I can tell you this matter of impairment.
It's not we don't find the answer, the methodology in a book, a precise one, first comment. The second one, regarding the weight when we came to Canadian projects, I mean, again, it was a matter for the Board to be consistent with the vision which we put in our, I would say, the climate ambition that we have a vision, maybe we can be wrong, obviously, that the oil demand will plateau and
will decline. And then if it is the
case, because we
have a lot of oil
on this planet, and will decline. And then if it is the case, because we have a lot of oil on this planet, that means the pressure on the oil price by 2,040, 50 might be stronger like today. And then what will happen is that the assets will be higher the highest production cost will be in trouble. So we made that review. We had a 2P profile of our assets we are doing until 2,068, I think some one of them.
And we said to ourselves, okay, if we don't believe by that, that basically today and 2,068, but the price of oil will remain at a level which might be enough to produce all the assets. We have to make something. So then was a question of methodology. Of course, the 2P reserves, but you know they are proven and probable. They are not certain.
Proven and probable means proven for 1P and probable for 2P minus 1P. And by the way, if you look to what are the SEC rules from some independents in the U. S, you take only the 1P and not the 2P. So we said to us, okay, we're finding a way to translate this long term price assumption and this long term risk on these assets into a calculation. So there was a form of logic to us to say, no, the 2P does not disappear.
But again, there are probable ones. The 1P are certain. The profile is going, I would say, until 2,040. So let's take the 1P, which were audited figures. So okay, it's a matter then of finding the right accountable way to be everybody was comfortable to make the calculation.
Is it more artificial than something else? It's a decision. At least It's more less artificial than just putting a figure. The reconciliation that we've done as well, obviously, and that's an accounting rule is what we are supposed to have in our books, a value of assets which makes sense compared to the market what could be the sale of the value of these assets you want to sell them. And that's the second part of your question, which is sensible.
And that was a check we've done. So at the end, we are left with a certain carrying capital employed on these assets, which when we compare to various valuations, which are given to us by Woodmark, by banks, by we use many calculations, the last transactions we were done on many metrics, etcetera. We are at a level which is not 0 obviously because it has a value, it has a value and which is in our book, That's fine. So and again, I think if we don't tell you, we never said that the 2P have disappeared, the 2P are there. We say that in our books, we'll not take into account the 2P to be consistent with the global impairments and ambition.
That's all we have. So yes, it's a sort of approach, which of this is transparent, clear. And I think that the buyer, obviously, if there is a buyer, we'll have a different view than us about the capacity of attracting value from this asset and maybe in 2,068, we'll be happy to produce this asset. For the time being, let me quickly, Total is just waiting to see the pipelines in Canada, the TMX pipeline being built, then the value of the asset will be higher. And then if somebody has a good offer, we never say never.
But we are very patient on this one. So working capital is Working
capital, yes, of course. Managing with working capital is key for us to preserve our cash. And as already mentioned during the call we had with you in May, we mentioned in the action plan that we our target is to cash in $1,000,000,000 through working cap at $35 per barrel end of this year. So for doing that, we use all the different tools we have and selling accounts receivable through programs with different banks, of course, is part of the way we manage the working gap. There is nothing bizarre.
By the way, it's not this quarter, right? It was done by the company for many years. Yes.
So you do that on a regular basis, quarter after quarter.
The President of Refining and Chemicals, few years ago, has decided that it was a good time to be a little more innovative in this way because the burden on the capital employed was so high that we had sometimes to take that's part of what these financial markets with a zero interest raised credit is giving possibilities. So that's nothing I call. Thank you.
The next question is from the line of Oswald Clint from Bernstein. Please go ahead.
Thank you. Yes, two follow ups, I guess. I'm just thinking about the big upstream pipeline of projects you had, Patrick, the 800,000 barrels a day and the 15% internal rate of return that you had at $50 oil. So you've obviously got a little bit of a square root going on with your oil price changes last night and going forward. So I'm just curious if you could give us a sense of how that number may have changed post the price resetting, please?
Thank you. And then, I mean, yes, you talked about chemicals there, which was interesting. I was just curious, it's difficult for us to see chemicals obviously on a quarterly basis. But given your more balanced monomer polymer ratio and given your very high ethane input, I think it's well over 60%. But is your chemical business outperforming peers in the 1st 6 months of 2020?
Is it possible to just to talk about that, please? Thank you.
On the second one, to be honest,
I don't have all the peer, K, clearly figures. What I can tell you is that clearly the petrochemical business was very resilient. And in fact, there was not far to be in line with the budget session we put budget figures we put last year. So why in particular because in the polymer business, we benefited from more demand on all the e. L.
F. Segment. Of course, we suffered from less demand from the car manufacturing businesses, but on the contrary, we had more demand on the other part. So of course, we have to be prudent because we also observe that there is a weaker business today in the U. S.
Than in Europe. Europe has quite well resisted. And I would say, our Middle East business is also well resilient. So compared to OPs, I mean, it's difficult because honestly none of us have really the same size of petrochemical business. Our competitors have a very large ones.
We are, I would say, a medium sized business and some of them do not have any business. On the upstream pipeline of projects, I would say that there is no I mean the main influence between today and today and yes, and when we announced 800,000 barrels per day of 18% is that I think at 15%, we were taking into account I think the acquisition of Algeria and Ghana in this figure, which of course are not there in the profile today. Having said that, as you notice, Ozdag, our scenario is coming back to $50 by 2023. And we told you that we sanctioned projects at $50 per barrel. So I'm sanctioning projects at $50 per barrel.
The scenario that we just put to make impairment is coming back to $50 plus from 2023. So I think there is no change. I mean, and what I hope is that the cost of the project will be lower like Uganda because so we could have a better IRR even at 50 because we sanctioned at 50. So it does not change that outlook fundamentally. I would say the main impact today for us would be more on the LNG projects, not on oil projects.
On the LNG projects, as I told you, we have already sanctioned 3 of them. Of course, these today, we are, I would say, more patient before to sanction a project like Papua LNG, but we have to work. We are not planning to sanction it very quickly. So we'll need to see and probably one of the consequence for me in LNG is that we will wait and we will ask and we'll wait to get some long term contracts. I think the new LNG projects will be more sanctioned with more long term contracts with 3rd party customers like Mozambique LNG by the way and maybe less by a lot of spot contracts, people taking the risk.
That could influence the FIDs in terms of timing of sanctioning the new LNG projects. But in terms of price visibility, we are comfortable with $50 before, we are still comfortable with $50 today.
Understood. Thank you.
Thank you. The next question is from the line of Christopher Kuplent from Bank of America. Please go ahead.
Thank you very much. And Patrick, just two quick follow ups. Firstly, on dividend, of course, we're going to wait for Q3 and hear whether you can tell us more then. But just wanted to ask a conceptual question. You used to refer to a 40% payout ratio of CFFO.
Do you think that can be a model in the future rather than to highlight a progressive dividend policy. So maybe I'm too soon asking that question, but I'm going to ask it anyway. And secondly, you mentioned earlier, you obviously have made you've grown your appetite for more offshore wind. So in terms of gross capacity, that's now a bit more than 1 gigawatt in your pipeline. Can you perhaps give us an indication how much offshore wind you think will play a role in your 25 gigawatts target for 2025?
Thank you.
So yes, no, Chris, you are not too soon. You will never have the answer on your first question. Because there is one lesson for me is there is no way for Total to be trapped in any mathematical formula by the way to calculate the dividend. That I think is a mistake. I think we must keep a certain flexibility because it's not only a question of a short term calculation, it's a short term of confidence in the future and what is the vision of the company and what is the vision and the trust we have in the capacity to deliver additional cash flows.
And this is a way that I explained you that in May, but the Board of Directors has put has had this long discussion about dividend. It is a matter of not being too reactive because we have suddenly a drop in the oil price and a drop in the cash flow and then I would apply a percentage of 40% or 40% or 60% and plus I can make I think it's not the right way to manage this. I think so and by the way for the timing, I'm quite satisfied that we took time because price has coming up back to about $40 At about $40 again, we can maintain our dividend. And I think this capacity to build the trust with the shareholders is very important in our eyes. So I will not be I will not come back to this type of mathematical formula.
That's not I think the best way to maintain to give the vision. The most important for us is to explain you how we can continue to grow the cash flows in the future coming from oil and gas and electricity. At least we'll try to do it in September. Offshore wind, okay. Let me I mean, again, there are opportunities.
We are looking more and more again to that. We are in particular looking more specifically to floating or flowing because we are early come over. We think there is a big potential. There are countries where there can have some very good incentives. We should be able to announce a new one by beginning of September and before end of August.
So we see so we will see other figures, other gigawatts of offshore wind coming into the picture. But I don't want to put, let me be clear, a firm target for discipline. We have a pipeline of solar in Spain, of solar and wind in India, of offshore wind in others. I think if we begin to constrain all system, what I can only tell you is that fundamentally, we think that offshore wind is fitting very well with the business model of an oil and gas company because we can leverage some competencies from our Offshore Engineers, which are today working in the industry because there is an offshoring capital and clear barrier and entrance barrier compared to Solan. But it's also longer to develop a project.
It can take quite a lot of time to make the studies, to get maritime licenses and to get all the connection licenses. So I think all that is so we see a good field for an oil and gas company to grow. We have been late to that. So now we try to find some potential, I would say, business to develop. But I think what they observe is that what part of the and I should have answered that, explained that also to you, one of your questions we had before, I think from Lydia, is that the fact that Total is investing more and more, we see more and more people look into our doors to see if we could partner with them.
And in particular, offshore wind, we've seen, for example, Infrastructure France, we do not have the technology. We think that Total could bring this 13 offshore wind technology and could be a good partner. So that's more, I would say, a trend, but no precise figure.
Very clear. Thank you.
Thank you. The next question is from the line of Henry Tarr from Berenberg. Please go ahead.
Hi, and thanks for taking my question. Just had one on the growth in low carbon. I know you've talked a lot about that business today. But how do you see the most attractive way of growing in that business? So is organically the best way?
Or are you looking at M and A as well? If you look at M and A, how do you assess sort of prices in that space? And I think you referenced earlier that valuations there are definitely run quite hard. And then have you got all the expertise you need in the company today across those different areas? Or are there is there an area where you would like to add some expertise, whether it's offshore wind or somewhere else?
Okay. In M and A, you have 2 different types. Something which I think is almost impossible for us is to buy an existing asset with a return of 5%. I'm not so buying, making M and As on existing producing assets, I think is almost no way. I'm in China and we are not an infrastructure fund or an insurance company.
So I mean that competition we don't go. But in M and A, what we have done like for example in Spain and we have other projects on WeWork is to acquire some pipeline. We have development companies on the ground in many countries where people are developing, are acquiring rights, connecting rights, land rights and then they don't have the financial capacity to develop, but in total it's coming. And this M and A, I can tell you, is a few tens of 1,000,000 of dollars. So it has nothing to the end.
This makes sense, because in fact, it's a way to have a sort of non organic business development teams. So we are doing that in Spain. We are looking to do that in another country, a big country where we are not very present, which is the U. S, because we want to. But then we will develop the projects together with the development.
So it's a I would say pipeline acquiring some pipelines might be the right way to grow quicker. Internally, we have quite a lot of expertise today with all the teams which we put together. So we are able in many areas to evaluate properly the quality of the products are good. And so because 1 plus 1 plus 1 plus 1 plus 1 begin, we need to acquire some and we continue to recruit in that segment because we grow. So I think we are but again, it's more for me, the explosive would be a geographic exercise because the LICO wins in electricity and in this part, the regulations in Spain is not the same, but in the U.
S. So if you want to have teams and you want to develop renewable business in the U. S, it's better to have some U. S. People in your team rather than doing that from Madrid.
It will not work. So that's more of a so this could let us to make some, I would say, small M and A. But big ones, no, because it makes no sense from the pure allocation of capital. And because as well, I think what we can use our balance sheet, when Total is coming into a project and part of what we brought to SSE in Scotland is that we are able to get very access to a very low financing returns. So we can when we put all that with financial engineering in place, the tariff is quite efficient.
We don't need to be listed as a green company to do it. We have our balance sheet, which is even better than all these green companies. Even if we can do green balance in the future or 2, which is a way to leverage all that. This is the objective of Jean Pierre.
That's great. Can I just ask a quick follow-up just on net acquisitions? So obviously, there's a lot of moving parts in and out. Do you have a view on sort of where net acquisitions might come out for this year and next? Are you looking to be flat or
is it still This year, you have under $14,000,000,000 guidance for net investments. And so at the end of the year, you will do the math.
That's great. Thank you.
Thank you. The next question is from the line of Martin Ratz from Morgan Stanley. Please go ahead.
Yes. Hello. I wanted to ask you the following. So when it comes to the number of customers that you now service in Europe, it starts to become sort of quite a lot. And I'm not quite sure I've sort of lost count here, but it's either $8,500,000 or $8,500,000 plus the other sort of $2,500,000 that you just acquired.
And I was wondering what the sort of what the attraction of that business is sort of going forward? How does it fit in the overall picture? And the second thing I wanted to ask you is about the returns on Sea Green. Look, us sort of mostly been looking at oil for the last 10, 20 years, often find it quite a struggle to kind of really appreciate what kind of IRRs are available in the new energy space. But clearly, you making this investment sort of expresses a view.
At the same time, also your oil price assumptions have come down. So perhaps you could argue that perhaps the balance of returns in oil versus these renewable areas is moving. And I was wondering how you currently compare these two areas from a purely from an IRR perspective?
Yes. Okay. The second question, we said already last year that fundamentally, when we have accepted sanction renewable projects on the target on a double digit IRR, which begins at 10. So it's more than 10. And but this is down, this calculation is down on an equity basis, because obviously there is a you have to use to you don't make these PPAs, long term PPAs are financeable.
You can make some project financing, so you have the leverage. And so by the way, I do not understand the debate, which seems to appear in some of the papers that you should be listed as a green company to have access to low cost of capital. No, you don't need to do that. I can tell you it's easy to have access to low cost of capital by project financing when you have a long term PPA and it's even a lower cost of capital. So I mean, I'm so that type of IRR.
Why did we accept it? Because that's clear also that these type of projects do not give the volatility. When I'm investing in a project like this one, I have I mean, of course, I'm taking the risk of the counterpart, which is the U. K. Government for figurine.
So if the U. K. Government changed its mind, I could be at risk. But otherwise, I have a contract for difference for 15 years. I know the figure.
So I put it in the figure. So compared to the oil part, yes, I don't go to the high 15% or 20%. I don't have the I would say the upside, but I don't have the downside as well. So it's why I was saying this somewhere this type of business is giving more stability is the business model of the company like the marketing and services. And it's back to your first question, why do we develop in electricity along the value chain because we believe in the integrated business model?
Of course, we will so we have some customers, yes, and they are giving, yes, it's a small margin per customer, but if you have 1,000,000 of customers, it will grow. So it's like marketing business. It's very, very similar in fact. But at the same time, of course, we want to grow and one of the objectives we have is to produce as much terawatt hour that we have as we will sell. I want an integrated business model.
So we will come back on that in September as well. But so I mean then do we have an objective in 1,000,000 of customers? We say more than 10. We are not far from that. It's not it's more a matter of, again, finding along these electron value chain, taking the money from producing, which will be volatile beyond when you go to a gas fired power plant, less on renewables.
From trading, obviously, because you have a trading machine in the middle, which will agglomerate your renewable business and then selling to customers. And again, it's at the end of the day, my view is that it's probably the business selling to electricity, gas and electric power business customers, which is the most similar to what we had in the company. It's not very different.
All right. Thank you.
Thank you. The next question is from the line of Peter Low from Redburn. Please go ahead.
Hi. Thanks for taking my questions. The first was just another one on the criteria you used to determine which oil assets would be classified as stranded. Was that solely based on the production costs and reserve life? Or did the fact that oil sands are high carbon intensity for production also factor into your decision?
The second was just you mentioned that you're looking to sanction Uganda as soon as possible to take advantage of the current contracting environment. How much deflation are you seeing in service costs? And are there any other projects you're looking to accelerate to try and take advantage of
that? No, I think we are clear about the Sanddell asset. It was based not on, I would say, CO2 content criteria. It was fundamentally based on an economic approach, which was giving the vision that we put that we have on, I would say, a decreasing demand, a plateau and decreasing demand by 2,050. And because climate change will be put into action and policies will come, then what could be the high cost reserves which could be at stake and we've done it like that.
So we and of course it has to be long, long reserve. So it was above 20 years of reserve and I think about $25 per barrel. And so I think with that, of course, when we made the I would say, when we made the calculations about the impairments, we put into action our assumption of CO2 price. So it had an impact on the impairments levels because we said that we use $40 per ton and then we tested $100 per ton. So it had influenced the impairment.
The result of the impairment came as embedded the CO2 pricing. But honestly, there is, I think, no mystery at the end, but the stranded assets are the oil sands. I mean, it's not a surprise to us. I mean, and again, that's true that as well. So, okay, Uganda, we made the tender, so we'll see what will be the result.
Yes, we want the cost deflation across the whole I think what I can tell you is that before last year, we had only 2 consortium bidding. This year, we are 3 or 4. So a lot of people are looking to order, so more competition. We have introduced new competitors, by the way, Chinese ones as well. And so I hope that I think it's probably it will be one of the largest projects which will be sanctioned in the coming 6 or 10 or 12 months.
So I think it attracts a lot of interest of the industry. So I'm optimistic. I think it's why we are pushing out on it and we are it's clearly a very high priority. So it will be a test about the appetite from the supply chain and the service industry to get access project. But we have done it recently in Mozambique LNG.
The project team has already worked on I remember there was 2 tenders that came to us on service for drilling services, And we did not approve the award of the contract at the executive committee levels, and we take to the team now. These standards were done 6 months ago or 9 months ago. The process has been long. So we don't reward anything, and you will go back to the market in 3 months and we'll see what you will get. And we've done it as well for we've done it on all the standards, by the way.
We are a little unhappy of friends of the project Mozambique LNG, but you know we've done it on the LNG tankers, same story, and we got a decrease of 10% or 15%. So I think it's that part okay. We suffer today from our revenues part, but we have to try to get the maximum benefit from the cost part.
Thank you.
Thank you. The next question is from the line of Jason Gabelman from Cowen. Please go ahead.
Yes. Hey, thanks for taking the call. First question just on the $40 Brent outlook and the ability to pay the dividend at $40 Brent. That also includes an assumption for gas prices and refining margins, both that are probably currently below whatever you're assuming longer term. So can you just discuss what you are assuming when you say you could sustain the dividend at $40 Brent?
What those gas and refining what the gas price and refining margins are that you're including?
It's for the U. S, I think it's around $3 or $2.8 if I remember, dollars 2.8 to $3 for Henry Hub 2.7 exactly. For the Asian price, it's around $6 no, yes, dollars 6 I think. And but I don't want to make a mistake. I know you showed me something wrong with that.
And on European price, I think around 5, something like that. I mean, I'm wrong on the Asian price. I have a doubt certainly in my head. It's $5 for Europe, I'm sorry, dollars 5 for Europe, but again, and for the refining margin, think it's around $35 per ton in MCE.
So I mean
But let's keep you can keep in mind $40 Brent. It's enough. Because in fact, if that's like why, why did I answer that? Because look, when even if the rest is volatile, think that this company is an integrated one. And so you have plus and minus coming from, I would say, from one part, but the other part is compensating.
So I think and this what is happening this quarter is a good demonstration. So with the $40 barrel of rent, which is driving, I would say, 75% or 80% of the revenues of the company, you have a good metrics of what we need. So, that's enough. If I come back to you and the average price is 41 and I tell you I cut the dividend, you can't kill me. Unless the dollar is at 1.6 compared to euro.
Because there is another assumption, which is more fundamental to the $40 grant is a euro dollar rate, because you know our dividend is expressed in euros. And so the euro dollar Brent rate has obviously an impact. And but again at 1.1 500, 1.2, 1.25, we have no projects. So it's why I said 1.5, 1 point
Got it. And then just a second question on oil price realizations. It seems like those have been trending lower. I think the past few years, you realize something close to 90% of Brent on your oil price realizations. Last quarter is 88%, this quarter it's 80%.
Can you just discuss what's driving that and if you expect it to trend consistently at this 80% with lower oil prices or if you expect it to move back towards the 90%? Thanks.
No, we expect to come back to 90 percent. I think there is something which is clearly today. When you have a very market, which is very strange, it's not only another supply, but it's a very low demand. Clearly, the market like Brent might be overestimated because at the end, people have to sell their crude. They are Nigerian crude, they are Guyana crude, we don't have that unfortunately, or Brazilian crude.
And so at the end, you have a weaker demand, which put pressure on the competition in the market between the cargoes coming from Nigeria, from Angola, from Brazil or from North Sea. And so what we observed, in fact, and it was well confirmed to us by the traders, which helped by the way some trading business around these differentials, is that when you have a market which is very strange today because it's a matter of oversupply but lower demand, you can have some impacts on the differential between your crude price that you want to sell and the market, the brand market or the W2KL market. We don't expect that to I mean, we think this trend is, I would say, just very linked to the huge drop of oil demand, with dramatic of oil demand we have experienced. When the oil demand will come back to 90 percent of the normal way, I would say we should this effect with short term effect will disappear. And so we think that we should come back to the more traditional, I would say, it's even above 90%.
The 90% you observed in the Q1 was quite linked to the Canadian discount, the famous oil sands, we are which have an impact despite we have a lot of beauty in this one. One of them is discounts while we are waiting for the pipeline. So honestly, I think you don't take the 80% as a normal. I mean, it would be it's clearly linked to the specific market condition this quarter.
Great. That's very clear. Thanks.
Thank you. The next question is from the line of Lucas Herman from Exane. Please go ahead.
Patrick, thanks. Good afternoon. Two quick ones, if I might. I'm not sure how quick the second one is. But the first one, just intrigued that the UAE and the project, the very large solar project that EDF was just a part of.
Just intrigued as to whether you'd expressed an interest into that and any comments you might make around price and competition. And secondly, I just want to ask how your oil change your thoughts around hydrogen and integration into the electricity chain in your business have evolved over the course of the last 6 months. The commentary seems much more constructive when I read comments that you've made on the web. So observations, please. Thanks, Patrick.
Thank you, Lucas. You observe a lot what we are doing, I see. Of course, we compete on UAE. We win Qatar, we lost in UAE, very certain limit. I mean, honestly, these projects in the Middle East are big, but if they're competitive, I would say.
And so profitability, again, I answered to Martin, I think before, but there is a certain level under which we don't go. So we don't go under a certain level, and that's all. So we win in Qatar with that level, we did not win Abu Dhabi and yes, we win. That's life, I think. And but honestly, I think if you want, there are other places.
What I observe in the Middle East, they are offering very large projects, so you make volumes. It's a little like all by the way. I can make a sort of parallel between the way the business is developed in the Middle East. In the Oil Business, we have very large fields with low margins. And in Solar Business, very large fields, but low business, low margins as well.
So you have other places like India or Spain, which in the results are returns are better. But again, we are competing and we'll continue to look to other countries. We participated as well to the standards in Saudi Arabia. We did not win, but again, we'll see. Hydrogen, I think hydrogen clearly everybody I think is looking to that.
It's not an easy topic because the question mark, the all out today is of much capital allocation should we put into that. There is a very clear logic to me, but the bigger we will be in the renewable business. So if we have more renewable capacity of production, then there is a certain logic to be to try to produce hydrogen simply because you have other capacities that you don't sell to your PPAs, which could be transformed in hydrogen. So there is a clear link between growing in renewable as a renewable producer and trying to make green hydrogen of the other capacity, which is not sell for your PPA. So that's an obvious link, which is having said that, all that is then the question of economics, at which price can you develop your green nitrogen.
So we have this interest on this one. We are looking as well of course as hydrogen becoming a way to green the gas, natural gas, to inject hydrogen in the natural gas, because it's a storage, it's a carrier, I would say, an energy carrier in hydrogen. So this is again an object, which of course has an interest for Total. We are a very large gas producer, gas seller. So we need to think to hydrogen in a way to and I wouldn't be surprised, for example, that in Europe, we could see some policies and regulations asking us to inject some percentage of hydrogen and biogas in the natural gas network, so to decarbonize the gas, I would say.
So that's something on which we need to work. And of course, the last part will be hydrogen as a mobility carrier. On this one, we need to look more carefully. Clearly, you have the trains maybe on the vessels. But all that will be a question mark, will be at which pace all these hydrogen economy will be developed.
And this is why I'm thinking fundamentally that if we want to develop it, we'll do it through a low cost strategy. And I don't think we'll develop it with something which will be expensive. So no, so we are working on it. We have a team, by the way. We have a pretty good team.
And we but we are I'm less advanced today, but we are on the low carbon electricity renewables because we have less projects. So in our plants, we want to operate green hydrogen projects to supply 1 of our refineries with green hydrogen. We are working on it. And we are also working on a blue hydrogen project to capture some CO2 from SMR in one of our refinery and then to make a full chain, I think, blue hydrogen and to reinject the CO2 in our field. So we are working on 2 projects.
I would say for the next 5 years, but fundamentally, we'll want to allocate capital to be involved. Remember that as well Total is one of the foundation shareholder of the H2 mobility network in Germany. And so which is a country where today there is a stronger push in Europe for the hydrogen development. So it's good to be as well connected to Germany from this point of view.
Okay. Thanks, Patrick. I'll leave it there.
Thank you. And the next question is from the line of Jason Kenney from Santander. Please go ahead.
Can you remind me of the carbon pricing assumptions that you're using, particularly in light of the rethink on your oil and gas pricing? I'm just wondering if there's been a change in the carbon assumptions by 2025, 2030?
It's $40 per tonne. Dollars 40. And just flat real terms?
No, it's not. It's 100. It's 100
beyond 2,030. I was answering to Jason between 2025 and 2030. It was a question of Jason, if I understand. And I think it's real term. Okay.
Thanks. I'm sure it's real term, by the way. I don't think, I'm sure. From 2025, if you want to know everything or from 2028, for $40 per tonne and $100 per tonne on the year 23rd.
Okay.
Thank you. And there are no further questions. So I'll hand back to the speaker.
Good. So you are lucky because I didn't push a wrong button this time to stop the discussion like last time. So thank you for all your questions. And I think I'm happy to have been involved with Jean Pierre to answer to you. And thank you for your comments.
We will have, as I told you, the next meeting that we will have with you is in end of September. We think that we'll have 2 sessions end of September. You have already been invited, I think, to on the 30th September, it will be the strategic session. It will be on one day, it will be in Paris or virtual, but if you can come to Paris for the European ones, you will be more very welcome. We will take all the precaution that we need to take to invite to of course to have you with us.
If you are there, we'll be able to have also live discussion. We intend to have, I would say, that day, I think we'll have the strategy presentation like our custom and probably some focused presentation in the afternoon on different topics, biofuels and U. S. I mean, we are preparing that. And the day before, we are planning and I think we'll be invited so to have a sort of market use.
We have in February 2019, we presented you what we call the total energy outlook. We have spent some time to and Helle, in fact, Helle Peterfferson has spent some time with the teams to develop our new vision. We have introduced a number of things and we intend to present that virtually by a virtual presentation so that everybody can be connected on the afternoon of September 29. It's not directly linked to the strategy of Total. It's a broader view of the market of the oil, natural gas and electricity markets.
Of course, like we can have a vision by 2,030, 40, 50, so long term vision. Of course, it's and I think it's good for Total to develop and to share with you our own vision of the market. So Helle will lead that presentation on the afternoon of September 29, virtually, again, not in present. But then September 30, we'll have this strategic outlook. And so you will have more answers to all your questions.
So I wish you good holidays for the one who take. We are taking holidays because we are little tired after 6 months of being closed in Paris and office is complex. So happy holiday to all of you and stay safe and see you in September. Thank you. Thank you.
Thank you. That does conclude the conference for today. Thank you for participating and you may now disconnect.