Ladies and gentlemen, thank you for standing by, and welcome to Total Energy's Second Quarter 2021 Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Session. I must advise you that this conference is being recorded today. I would now like to hand the conference over to Mr.
Patrick Poujane, Chairman and CEO of Total Energy. Please go ahead, sir.
Hello. Good afternoon or good morning, good evening everybody for the Q2 conference call. I'm happy to join you together with Jean Pierre, our CFO. It's quite unusual to have the CEO coming to the 2nd quarter call, Well, generally it's a very short one. So I wanted to make it a little longer for you before to go to holidays.
No, but more seriously I think it was also because it is a first conference call of Total Energy's, so I wanted to celebrate it by participating myself and also Because as you've noticed, we have with the Board of Directors taken yesterday an important decision that I wanted to share with you. So first, I will just introduce the call with few comments and then Jean Pierre will review all the results and then we will go to the Q and A together. As you all know, our shareholders have voted unanimously almost 99.9% to adopt our new name and to embrace a new identity, very colorful. Every journey begins with 1 step and this is an important step that marked the transformation of Total to Total Energies. Total Energies, our name pays homage of course to our proud history as Total, but by expanding it To Total Energy with NS, we declare our ambition to become a broad energy company, a company producing several energies and a world class players in the energy transition.
At least as important as our new names, the shareholders also voted strongly more than 92% in favor of our ambitions for sustainable development and energy transitions towards carbon neutrality. And knowing that we have the support of our shareholders gives us comfort as we move forward to implement our strategy and transform Total Energy. I would like to emphasize that this resolution is very important for our futures as it contains clear guidelines for next 10 years, not only in terms of the carbonization target, but more importantly in terms of the evolution of our portfolio. 1st, increasing our renewables and electricity portfolio and building an integrated production trading sales electricity business. 2nd, consolidating and growing on LNG our LNG production and sales by the by the third.
3rd, lowering our oil product sales by 30%, while our oil production will be peaking during the next decade. And also in this resolution in terms of capital allocation criteria for new hydrocarbon projects, New technical cost low technical cost, sorry, or low breakeven and a lower CO2 intensity for all our new projects, Lower intensity than our portfolio average. So it's a continuous improvement scheme in which we engage the company. Total Energy's clearly an important role to play as a major energy provider in the global community And the responsibility to all our stakeholders to continue to grow, to succeed and to create value. The challenge we face is to find the best path that manage The risk inherent to our industry, but also the opportunities and to maximize the probability of success and this path shapes our strategy.
First, I would like by the way to underline some of the progresses we have made in our energy transition For your India through Adanirim in which we owe 20%. And more original having our first by a bunch of corporate PVA successes with Amazon, Microsoft, Air Liquids, Orange, Merck, which will support our renewable development. Secondly, I would like to comment our decision to exit from the Petro Sidenio asset in Venezuela, which is in fact a way to put a road map in action. I would like to underline that it's not Related to the political situation in Venezuela was a sanctioned situation even if this situation the last 3 years does not make our life very easy and put some constraints on the capacity to maintain the assets according to Total Energy standards, but in reality is exit to lower the consequences of the strategy of Total Energy's as approved by our shareholders. Petro Ceccio would indeed require in near future significant amount of CapEx to restore the production with new wells and to rejuvenate the upgrade the upgrader.
Clearly, allocating CapEx to the development of extra heavy oil projects in the Orinoco Belt would not be consistent with our hydrocarbon strategy in terms of CO2 intensity of new hydrocarbons CapEx. So together with Equinor, which shares the same ambitions towards carbon neutrality, we engaged with PDVSA, which offered us the possibility to exist, Yes, for a symbolic amount, but against a broad indemnity in relation to all past and future liabilities arising from Total Energy's This results in the recognition of an exceptional capital loss of €1,400,000,000 in the financial statements of Total Energy for this quarter, but again it is indeed a way to put Total Energy's strategy into action. This was the first specific item I wanted to comment. The second one of course is related to our cash allocation framework putting more color on it as there is more color on our new logo. In February, in a more uncertain crude oil price environment, we were clear that our priority was restoring balance sheet strength, which we define as a minimum A debt rating and a gearing below 20%.
Thanks to the strong second quarter performance and the first one as well, particularly in terms of cash flow, we reduced our gearing much were faster than expecting beginning of the year down to 18% at the end of this first half. This combined with a more positive economic outlook improved our financial flexibility substantially over the first half and clearly much quicker again than anticipated at the beginning of the year. In terms of performance as it will be demonstrated by Jean Pierre, I'm confident that we are back stronger than we were before the crisis, thanks to the action plans implemented last year. Given our stronger financial position, we are ready to move on to the rich path, the solution that addresses and combines our top cash flow priorities, investing to maintain the Powerful cash flow machine of today and to develop the profitable new energies for tomorrow, deleveraging the balance sheet to increase financial Strength and flexibility and returning cash to shareholders, but including the benefit of higher prices As we stated it in February, if you remember, in our clear CapEx priorities for cash flow allocation, there was a 4th box In which it was written flexible at higher oil prices when gearing is under 20%.
So this was in fact And it is true that since the beginning of the year we have captured the benefit of a quite a high price environment. And so while respecting the implementation of our strategy, the Board debated about the reserve to shareholder and Which color could we give to this 4th box that I just reminded you? First, before to speak about it, I would like to remind everyone that Total Energy is the only European major who decided to support the dividend through the crisis and we are convinced that we were right to maintain trust of our shareholders and a quick financial recovery confields that belief. I remind you that all dividend represent let's say 35%, 44%, 33%, 35% of our cash flow from operations, which is returned to shareholders through dividend. Return to shareholders will continue to be mainly in the form of dividend, but the Board has decided it is time to use part of the surplus cash flow linked to higher prices for share buybacks.
The concept is to allocate up to 40% of the cash flow, The surplus cash flow above $60 per barrel to buybacks. So to be clear and to clarify since the beginning since the start of the year oil prices have averaged $66 per barrel. And we have a sensitivity that we gave you in February, which is $3,200,000,000 of educational cash flow for $10 For Powerwall, so $66 minuteus $66, 60 percent of 3.2 It makes $2,000,000,000 and so 40% will mean share buyback of $800,000,000 in 2021. And if the average price is going up to $68,000,000 for example, so we are not far, it could go up to $1,000,000,000 And you can move on. If it's even higher, the more the price will be, the better will be in terms of the highest share buyback will be.
In the favorable context, so not only I think we clarify this element of our cash flow allocation today, but we want also of course to confirm our priorities in terms of cash flow allocation, invest in profitable projects to implement Total Energy's transformation strategy to a broad energy company support dividend through economic cycles like we have done it and we continue to do it to maintain a solid balance sheet and a minimum of 8 long term debt rating by sustainably incurring the gearing below 20% and increase the return to shareholders via share buybacks in a high price environment. So now I leave the floor to Jean Pierre, who will review the 2nd quarter results.
Thank you, Patrick. So let me tell you that first that we are proud to have a strong set of numbers for this first conference call of TotalEnergies. Total Energy's 2nd quarter adjusted net income increased to $3,500,000,000 or $1.27 per share, which is 20% higher than the pre pandemic second quarter of 2019, even though grain prices were essentially the same in both quarters and despite the lower production this year. The increase in results reflects, as Patrick mentioned, the benefits of the action plans we implemented in response to the crisis and it entices the importance of ongoing discipline on cost and on net investments. Annualizing the 2nd quarter adjusted net income, return on capital employed is close to 11% at 10.9 that means that we are back with double digit profitability in such an environment.
From this point, for obvious reasons, I will focus on the sequential comparison rather than looking back at last year, which was completely different due to the crisis. So Total Energy benefited from oil and gas markets that were 13% and 28% higher respectively, in the Q2 versus the Q1. Brent continued to rebound, reaching 76 dollars per barrel end of June and averaging $69 per barrel during the Q2 versus $61 for the Q1. Our average LNG price increased by 8%, which takes into account the lag effect on oil linked contracts and the increase in spot prices. Refining margins in Europe, although higher compared to Q1 levels, remained weak at $10 per tonne, but Petrochem performed historically well, thanks to very high margins on polymers.
Operationally, oil and gas production was 2,750,000 barrels per hour equivalent per day in the 2nd quarter, Down 4% from the previous quarter, mainly due to major maintenance shutdowns as often planned in Q2, but higher than last year. For the 2021 full year, we anticipate production will be around 2 point 85,000,000 barrels per hour equivalent per day as the production will progress in Q3 and Q4. In terms of results by segments, first, the IGRP segments. So it confirmed its 1st quarter performance with adjusted net income and cash flow of around $900,000,000 Renewable project farm out activity, which is as you know an integral part of our model was lower in the Q2 compared to the Q1 and this explains some of the difference quarter to quarter. There was nothing unusual about our Q2 gas trading activities, but I remind you that in comparison gas trading was stronger than usual in the Q1 due to the winter storm in Texas.
Gas and power sales are similarly lower in the Q2 than in the first mainly due to weather. Looking ahead, since most of our LNG sales are under oil linked contracts, we have good visibility and expect the price to increase to more and $7.5 per 1000000 in the 3rd quarter. Looking now at the Renewable and Electricity activity, We are continuing to grow this business with more than 500 megawatts of gross renewable power generation capacity commissions in the 2nd quarter. We have more than 8 gigawatts of gross installed power generation already online and more than 40 gigawatts in the portfolio. So we are on track to achieve our objective of 35 gigawatts online by 2025.
Net power production increased to 5.1 terawatt hour reflecting higher outputs from both renewable and facility. Notable among the highlights of the quarter, Ichthys. Ichthys restarted this month after a maintenance shutdown and delivered its 1st cargo of carbon neutral LNG to Japan, we acquired a 23% interest in a 640 Megawatts Offshore Wind Project in Taiwan, as Patrick commented already, that is already covered by DPA and expected to start up next year. And Adani Green Energy, in which we had a 20% interest since January to acquire the portfolio of 5 gigawatts of renewable power generation capacity in India that will contribute 1 gigawatt to total energy target of 35 gigawatt in 2025. Moving now to the E and P segment, which is, as you know, the cash machine of the company, but sorry, it's positive and straightforward.
Capturing the benefit of rising oil and gas prices, the segment reported $2,200,000,000 of adjusted net operating income, up 10% quarter to quarter and DKK4.3 billion of operating cash flow, up 11% quarter to quarter. Operationally, we had a successful well on Saipatara South in Suriname and we started production in Zinnia Phase 2 in Angola. The Downstream delivered good performance as well. Refining and Chemicals plus Marketing and Services reported combined adjusted net operating income of more than $900,000,000 in the 2nd quarter, up by more than 75 percent from the previous quarter. And operating cash flow recovered significantly in the 2nd quarter, increasing to $1,500,000,000 up 67% from the Q1.
Indeed. Thanks to strength of our integrated model, the Downstream was able to overcome depressed European refining margins and benefits from very high petrochemical margins as well as the rebound in marketing and services results to pre crisis levels. As the global economy continues to recover and particularly as demand for aviation fuel comes back, we expect refining to improve. And Polymer benefits from historical high margins and we expect the situation to continue as It is a result of a high worldwide supply chain stress. Finally, at the group level, the main takeaway from the Q2 is that We are back with solid results and strong cash flow, which is the lifeblood of the company.
Adjusted net operating income was $3,500,000,000 a 15% increase quarter to quarter. Test adjusted cash flow was $6,800,000,000 The 18% increase compared to the previous quarter and for the first half it reached $12,500,000,000 We had working capital release in the Q1 and a larger one again this quarter. So cash flow from operations after working capital was $7,600,000,000 in the 2nd quarter, a $2,000,000,000 increase over the Q1 and for the first half it reached more than $13,000,000,000 As a result, we reduced the net debt to capital ratio, the gearing, faster than expected to 18.5% at the end of the second quarter. It is a major step towards incurring Gearing sustainability below 20%. And once again, annualizing the Q2 adjusted net income, we are back to double digit profitability.
In terms of cash flow allocation, net investments were $3,200,000,000 in the 2nd quarter and $7,200,000,000 in the first half. And the Board decided to distribute the 2nd interim dividend of €0.66 per share, stable in euro but representing an increase in the last compared to a year ago. And now Patrick and I, we are ready for the Q and A.
Thank you. And wait for your name to be announced. You can also star and one for any questions. And your first request is from the line of Christian Malek of JPMorgan. Please go ahead.
Patrick Jean Pierre. Congratulations on these results. Great to see Total Energy is back on the front foot and a buyback frame to cement that. Two questions, if I may. Patrick, I know in the past you've talked about the impact of underinvestment exacerbated by COVID-nineteen energy transition trends and so on.
Can you update us on your thinking of how you'd frame the next few years on your market? We've clearly had some constructive comments from your peers? And has it influenced your decision to launch a buyback arguably sooner than we all anticipated? The second question in some ways relates to that is on CapEx. Net CapEx remains guided within the sort of 12%, 13% range and Half of it's your maintenance, half of it's for growth and not that growth element, half of it's renewable electricity.
If the oil market is getting tighter and looks more attractive. Is there a case to allocate more investment within oil and gas potentially to benefit from that through high oil volumes given that's what over the years Total has been exemplary at? Thank you.
Thank you, Christian for your comments And your questions. So first about the industry and the underinvestments that we have observed. I'm still on that mood. I know that at $75 per barrel, obviously, people will try to forget. But you have a global environment We've all the climate debate, which puts pressure on many players and which gives, I would say, when you are listening to the last Net 0 IEA report even if we disagree with the conclusion obviously it puts some pressure on many players.
And my view is that Probably the industry will be more prudent to relaunch a bunch of projects. Making a link by the way with your second question, obviously Like into what we will do in total is being able to relaunch some short cycle CapEx like we have in sales. Last year was a crisis, we stopped, I would say $2,000,000,000 of infill wells and short cycles in Angola, in Nigeria, in Congo. Of course, obviously, today the instruction is that we can relaunch that and probably next year in our budget we'll not Take to 12, 13, but probably more to 13, 14. There is a $1,000,000,000 extra CapEx which could come, might come.
Let's see just to give you the magnitude. So We'll activate that. Considering, I would say, the larger projects, I'm still more cautious. I think We have observed quite a lot of volatility. And by the way, it's also true that if you have less investments, you give some support to higher prices for the oil price.
So my view is the atmosphere today is more to have less investments, more prices, of course, then cycles can Can't come back. 1 of course of the key question for the market will be to observe what will happen in the U. S. Shale oil players, which will have an influence. My view is that by end of next year, we might come back at the level of the production we had before the crisis.
But then even there maybe we are wrong. We are not a direct player in that game and we do not intend to become 1. But my view is that investors and financial investors, which are giving equity to these Shareholders are also because of ESG and all these, I would say, trends and market trends, strong market trends, Probably also more cautious to deliver equity and money to oil and gas, oil in particular. So I'm still I don't think I mean, of course, at a higher price, you see more investments, but I don't think it will be as much as before and that it will compensate quickly the underinvestments in which cycle in which we entered. Considering Total, I think, yes, this year 2012, 2013 probably next to 2013 more of next to 2013 than 2012 Because we have been a little more active on the renewables and electricity that anticipated at the beginning of the year, which leads to the split that you mentioned.
Honestly, I think this level is quite okay around €3,000,000,000 for this business. It's an acceptable level, Not much probably. And it's clear that I told you, I think the company, with this type of environment, keeping in mind that we plan our CapEx on a $50 per barrel for, I would say, large greenfield projects and we'll continue to stick on that discipline. I think the right figure for the global financial balance of the company is around, let's say, up to $14,000,000,000 And so This is probably a type of figures that we will confirm to you at the CMD in September. And again, it would be more on short cycle Oil projects rather than on large greenfield projects that we might do it, but we have quite a lot of I will come back on that in September of we had 1,000,000,000 barrels of oil reserves To activate, we activate only part of it and the prices will stop.
So we can do it again. And we have for example put into production Zinya too. But Angola is specifically a case where we can do it. There is one limit to my comment, which is that COVID is still there. And you know we have teams and we have been obliged for example a country from Angola where we have a lot of opportunities to drill.
The limitation is an operational one because our teams are under stress for almost 18 months. So it's not so easy. And so We do not want to overburden them even if themselves would like to benefit from the high oil price. So this is a challenge we face as well. We should Keep that in mind, but we still are even if the environment is brilliant, but COVID is still there.
So safety is of course Value and we have that in mind when we allocate CapEx, the capacity to deliver in a safe and healthy environment. Patrick, we've gone from just sorry to follow-up
on this. We've gone from 12% to 13% to 14%. Is there a cap on CapEx? Or is there a framework that you're sort of Sorry to hear just on a sort of medium term just to help us understand the capital frame better?
No. For 2021, I repeat 12, 13 next to 13. I was more giving you the framework on which we work considering your second question, but it could go next year to 2013, 2014 rather than 12, 13. Okay, clear. Thank you.
Thank you. Your next question is from the line of John Rigby from UBS. Please go ahead.
Thank you. Hi, guys. Two questions. 1 Sort of jumps out at me with the sort of narrative around the withdrawal from Venezuela and then some of the Additional disclosures that company has been making about new FIDs and the sort of carbon emissions per level of production. So I wanted to ask you whether you could just sort of talk a little more about how you balance the sort of economic returns of New projects, so around IRRs and paybacks, NPV, etcetera, versus The carbon emission or emission profile of those projects, does it lead you to certain projects, maybe some offshore or deepwater and away from others?
And is that shaping both your FID pipeline, but also potentially your sort of review of your existing projects, if that makes sense. The second is, can we just have a quick update on Mozambique and current thoughts there and whether there's any further Thinking around time lines etcetera. Thanks.
Okay. Thank you, John for your two questions. First one, Yes. It's clear that and again it was the core of the resolution which was Putting to the vote of our shareholders of AGM, when we described what will be the ambition of TotalEnergies in terms of Sustainable Development, Climate Portfolio for the next 10 years and allocation of capital. It was probably the most important linea of it Where we described that the criteria to sanction new Greenfield Hydrocarbon Project, we put 2 criteria on the table.
1, which is in line with our Strong economic belief which will low technical costs under $20 per barrel typically. I think it's written like that Or low breakeven in case we could benefit from specific fiscal terms and breakeven and Typically under $30 per barrel. So it's a technical aspect, which was by the way in our strategy for the last 5, 6 years Since 2015. So there is nothing fundamentally new. Just and why did we do that?
Just because if you think that you are in a market old market When demand might decline in the future, it's obviously very safe to have your projects being on the safe side in terms of technical Cost or breakeven. That's an obvious economic case, which where this is the right bridge between climate and volatility of the oil price. But we have added another criteria, which is that we consider that each new greenfield project's carbon intensity Must be must improve the average of our carbon intensity today. So to be clear, The average of CO2 intensity of our oil portfolio today is at 20 kilo per barrel. And so each new project must be below it.
It's a case for Uganda, it was around 13. It will be the case for the projects which we just Are approving with our partners which is Mero 4 in Brazil where we are around 18. So that's true. But in the way we appreciate today and this is a change for sure In Total Energy as compared to Total. The way we appreciate the new projects, we have on one side The IRR, the NPV keeping again the same fundamentals that you knew adding my two elements of technical costs And low breakeven, but the company has run like that since 2015.
But we have also we are considering for each project as well this carbon intensity impact. And what I described from upstream is true in all the business. It's true as well for marketing people when we look to Growth projects we speak about scope 3 in the same way we speak about scope 1 for upstream. So It influenced the new project and which is future projects. This does not lead to a Full review of our portfolio, even if in the case of Venezuela, I think we look at okay we are in a with asset for loan.
But as I said, the context is not so easy. And we stayed in Venezuela in 2008 When we are we were partially nationalized I would say by the government because of in fact fundamentally because of the Huge potential to develop new projects in the extra IV oil or Winokko Belt. This Today is no more in our agenda. It's no more consistent with Total Energies, because developing extra oil in the ore in the cobalt, You are above my 20 kilo per barrel. You have a low technical cost, but you're high intensity content.
And so We are as a Board and ourselves we are very management is very consistent with what we submitted to our shareholders. So we decided because there is there was an opportunity and also because together with, as I said, with Equinor, we shared in fact the same views. We decided and we had the opportunity offered by PDVSA to exit and rather than dragging our feet and Not willing to participate in the new CapEx. It's better to lead PDVSA the capacity to do what they want, but this has clearly an influence. I know that you are not a big fan of our position in Venezuela.
So it took time to us to execute your comment, but Sometimes it came 1 by 1. If you have another question, do we have other ideas like that? My answer is no. We don't have so many assets on which we Like that. And Deep Offshore, of course, again, the example of Deep Offshore Brazil, large portfolio of large project like Meru It's fitting with the criteria.
And by the way again John we have taken a strong commitment in our resolution which is that Every year, you will see reports coming from Total Energy's demonstrating that for each of these projects hydrocarbon projects, If we yes or no, we respect this criteria. And if we do not respect, of course, we'll have to explain why we consider that it was still Acceptable to make a sanction, but this is a clear guideline for all our teams. Mozambique. Mozambique, you know the situation. You can read the newspaper like me.
We have been quite clear. There is a war in Mozambique. It's a civil war. It's The war in this area in the north of Mozambique, we have been forced to declare 4th measure. We have decided to Stop and even to I don't know how do we say that we will demand or to stop the project and dismantle The teams, because we don't see a clarity of time line.
I said publicly it will take at least 1 year. In fact today it's no more in our hand. There is It's a question. The government of Mozambique is taking actions to reinstate stability in this Cabo del Gado region is not just by the way only the area where the project is, it's not only the Palma and Afuji areas, Is Cabo Delgado as a whole because these insurgents are everywhere I would say. You've seen that we have taken decision at the ACDC level to the government Mozambique government has asked SADC to mobilize some help, military help.
You've seen or probably or you're right probably as well that Rwanda is involved now. But frankly to be clear, Total Energy is not involved at all in these military actions. It's no more we are out we are there to Of course, we are following, but my view is that it will take time. We of course, we what I can just tell you is that I I had a chance to discuss with President Niuse in May in Paris. He told me his willingness to solve the issue And what I can observe is that months after weeks after week is respecting and taking the actions that you described to me.
So then Let's see if they can get out. But again this issue is beyond it's not a measure of gas development. It's beyond us. It's a question of peace And stability and when we say that there was quite a lot of casualties. So the populations there is suffering and Of course, this is a priority for them.
And as Total Energy, we if we can support, we continue to support the population As much as we can including by keeping some means to evacuate some people when there are difficulties. So this is a situation in Mozambique. I have observed that Area 4 just last week recently joined our declaration. But again The gas is there. The project is there.
So let's be patient. And the timeline, I said at least 1 year, We hope that again the military actions taken by the government will be able to restore peace In that part of the planet.
Okay. Thank you. That's very comprehensive. Thanks a lot.
Thank you. Your next question trend comes from the line of Irene Himona of Societe Generale. Please go ahead. Thank you, Eiracio. Good afternoon.
Thank you, Patrick, for clarifying the Investor Distribution policy and the amount. My question is really regarding The dividend, obviously, as you said, it's a flat euro amount. It's an increase in dollar terms. How does the board think around Dividend progression. If it is a progressive policy, what would drive an increase in that quarterly euro amount going forward?
And I had a second question specific to The Q2 result in Marketing and Services, where your sales volumes remain around 21% below precrisis levels and yet the Norbert is pretty much the same. So clearly, unit margins are exceptionally strong. I wonder if you can talk a little bit about the sustainability of this in the second half of the year. Is it likely to be sustainable as demand recovers for COVID? Thank you.
Yes.
Iren, so your first question, I mean, I'm always amazed by the capacity When we announced something on one side to go on the other side. But I mean I think we are quite clear. No, we I said that we will Support the dividend for the cycle. We've done it when it was down. So today, obviously, we have not the capacity Several of peers, we divided the dividend by 3 to announce the increase, because it will be not reasonable.
So we have designed a policy which is to a continuous we never decrease the dividend for 30 years. So we progress when we have the feeling that we are able, but fundamentally the dividend will grow when it will be linked to a structural increase of free cash flow. So it means by as you know within the next 3, 4, 5 years we will have some increase of Production with large projects and then it will we will be able to deliver an increase of free cash flows. We told you last year Between 2020, 2025 or 2020 6, we have an increase of cash flows of $5,000,000,000 per year. So that will be obviously the source of dividend increase.
So dividend increase for me is linked to a structural increase of cash flow of operations. That's fundamental. So today it's not the case. This year we are benefiting from higher oil price, which is good. We are.
And so the tool that we want to use when we are in such a situation as we announced it in February, Again, it was quite clear with the share buyback boxes, which is when we have higher we benefit from higher oil price. We want to return part of it to shareholders. And today, we give you the clue, which is above $60 per barrel. We give 40% of the free of these additional cash to up to 40% of the Total cash to the shareholders. So our policy will be on the dividend increase only if we link that with structural increase of cash flows linked to better operations, not only upstream production, but it could come from downstream as well where we have new projects and a strategy which aims to deliver additional cash flow and we will come back on that in September for sure.
And so that's the dividend part. And for the buyback, it is a way. And I think it's a legitimate request from our shareholders or oil and gas shareholders To see part of the returns coming from the high volatility of the oil price, which we are in the high range. Of course, when we are in the low range like last year and so we define that as a $60 per barrel threshold Between high and low. This is a message of today.
The second question is about marketing and services. So I think there are 2 sources. It's true that we did not recover all the volumes, But it's coming back. So volumes, it's an average between the during the but there are 2 sources I think because the network on the retail networks, The volumes are done only by 5%, not 20%. So these figures of all product sales is a mix of retail networks where we have quite a good margins And of businesses with very low margin and to be honest as well with you, the Total Energy's vision when we said But we will reduce our oil product sales by 30%.
Obviously, we have discovered that we can clean our portfolio of oil product sales By not losing much margins in some areas of the business. This is the way to cope with the scope free objective. So it's Beginning to be in action, I think somewhere in this marketing and services company being more efficient and so that does not impact margins. But the source of the margins of the additional In all, I mean of the good very strong results is twofold. 1 is not only given by the market, Better margins, which by the way is a way to it's linked also to the low refining margins.
You have a sort of Counterbalance effect there when margins in refining are low, so marketing is benefiting. So it's why we put always The Downstream business together is the best way to look at it. The other source is a positive one is the cost, because you know Last year and this is true for the whole company, my comment. We launched because of the crisis on strong saving program, action plans €1,000,000,000 last year. We move on this year to more an additional €300,000,000 and we'll move to next year an additional €200,000,000 And the teams are still very focused on that.
We did not, I would say, stop these efforts on the contrary. And marketing and services in particular have been very strong. So part of it for me is threshold. So to your question, I'm not sure we can repeat every quarter of $400,000,000 or more performance. But clearly this is our objective To on the Marketing and Services to continue to improve the returns.
So That's the reason why. That's the fundamental reason between
Thank you. Your next question is from the line of Biraj Borkhataria from RBC. Please ask your question.
Hi, thanks for taking my question. Apologies if this has already been asked, but Cut off for a little while. On the buyback front, I just wanted to ask thanks for the clarifications there. But to the extent you generate free cash flow And the oil price is below $60 a barrel because refining margins are high or chemical margins are high, etcetera. Are you assuming all of those excess free cash flows go to the balance sheet?
Because I'm looking at your financial framework and thinking In a year or 2, you may be undergeared. So I'm wondering if the 40% guidance may should move up over time if your balance sheet continues to de gear? And the second question on that is just timing wise, do you need to wait for approval at the AGM The buyback to start or is that already in place? Thank you.
So first question and thank you for the question. No, it's clear that the Board considers that below $60 per barrel is for the benefit end of the company and fundamentally to strengthen the balance sheet like we said. So there is But if I give you the framework, in 2021, we are spending, I'll say, EUR 12,000,000,000 to EUR 13,000,000,000 let's say next to EUR 13,000,000,000 of CapEx. Dividend is more or less €8,000,000,000 a little more. And €60 per barrel, we might be above €22,000,000 €23,000,000 So it gives it's Part of what has been allocated already to the debt in fact.
So the $60 so it's clear that it's not the priority that's the way to think to that. So yes, we have free cash under $60 our breakeven is lower than that, but it will be allocated primarily to strengthening the balance sheet as we explained In February. No, we don't need any AGM approval. It's in our decision. So the decision is taken.
So to answer to your question when it will take place, we are going to holidays. So it will not take place in August because we don't work during holidays. And there are overall days which are Christmas holidays, which will take place between end of August and Christmas. So but we will execute it. It's a commitment.
I know my colleagues told me this morning there were some questions about are you sure? So in Total Energies And that's not changed from Total before because you have the same management. I think we have a strong track record of saying what we tell, Executing what we tell. And so I can tell you that it's quite clear we will do it and Including and so we are there is no trick there. We will execute this buyback.
Of course, the price is moving. But when I look to end of July, we are already a little more than 66%. And I think that August will stay strong. So We will execute that, I would say, before year end according to On market allocations, Naman.
Understood. Thank you.
Thank you. And your next question is from the line of Martin Ratz of Morgan Stanley. Please go ahead.
Hi, hello. I also have two questions. First of all, Apic, I wanted to ask if you could say a few words about The Fit for 55 package from the European Union. I know there's a ton of measures in there, but I was wondering if from your perspective there was anything sort of unexpected Or something that's caught your eye or something that impacts Total disproportionately. It can be quite difficult to really sort of oversee the Full implications of this.
So I'm sort of very keen to hear what you think of it. And the other thing, it all follows a little bit of a similar trend, to be But I noticed that you're now disclosing greenhouse gas emissions on a quarterly basis, even down to the level of scope 1, scope 2, scope 3. I think this is So very interesting. But I also noticed that actually from 1Q to 2Q, the Scope 3 number was already down quite a lot, I think from 88,000,000 to 77,000,000 tons of CO2 equivalent. And Just to sort of start to understand these numbers a bit sort of going forward, I wanted to ask you sort of what level of sort of quarterly volatility should we expect in those numbers?
Because They're clearly not going to trend down like this every quarter. There'll be quarters where they're going to be up. There may be several quarters in a row that they're going to be up. Just want to make sure that we understand that if they go up for a couple of quarters that what is that, that is normal. So I wanted to ask, so how variable are these quarterly numbers in so we can understand them and when they come in, in quarters ahead?
Yes. I think Martin, as always, you want to go quicker than us. No, we have decided it's true with the Board and I think it was a good remark for Board member to tell us, okay, now Total Energy's we have this resolution. Part of the strategy is driven by Scope 1 and 2 and Scope 3 objectives. So you need to so it's good in your financial results and I think it's a way to speak Primatically, ESG to disclose your emissions.
As you noticed, we were not able because it's new to us and we have not a full system. We were not able by the way to have the historic figures, so we have decided to begin from 2021. So you will see and I think the question of volatility As we don't have track record also for quarterly results, we took a risk. So I will not answer to you easily. But my view is that there is Fundamental wise, Scope 3 of Q2 is under Scope 3 of Q1 is just linked to I think we are selling less gas because it's not as cold in Spring wet in winter.
And so I think there will be a seasonal effect, which is just linked to our gas sales fundamentally, our gas sales And our CCGT are running more in winter than in summer, but as well obvious as well. So I think you could expect some This seasonality from the scope 3 according to just the consumption of energies because in fact scope 3 just Consumption of energies. On the scope 1, we begin of course to why do you have a decrease. First, because one refinery has been sold. Linze is out of the perimeter now.
So and also because we have some continuous effort. So on the Scope 1, normally you should see more declining even if be careful, Scope 1 might be impacted by your new project Coming in coming on stream. For example, in Q3, we are just on the verge to start up our new cracker In the U. S, I think it's a coming it's a matter of days or we put them a challenge To be able to start it up before this call, but they failed, but I still supported them. No, but I mean, so this one obviously is adding I think 1,000,000 tons of CO2 on the scope 1 immediately.
So it's why you could have the scope 1 and 2 Well, the reason will be a global continuous improvement and decline because we are engaged to lower our emissions by 40% Between 2020 and 2030. But each time you have a new asset coming on slip when we operate it, it will increase. So that's Well, thank you for recognizing the effort and I think it's again a pragmatic way to speak To do what we propose to provide to our shareholders. The first question is a little more complex because to be honest, I have asked my teams to deliver to me a summary of 50 5, and I think I received 55 pages. So So I'll ask them a second summary.
No, to be I think what is interesting for me is The political debate which seems to emerge now in Europe, because now we are entering into the hard part of it. It was Everybody was quite buoyant to say, okay, let's go for the reduction of 55%. And now we put the real words and the real words means that people are Covering, but if you want to get there, there will be an impact on energy prices in Europe. And I think this is when So commission proposed an EPS on heating, I mean urban heating or this begins to of course Government begin to realize what it means. So we'll see how it will be able to manage that.
For Total Energy's, I think we are following carefully, obviously, all what is linked to plane, we say all the plane industry and the targets for Jet fuels because it seems that it's very ambitious and we will we have to check if all the conditions quite technical, But today it seems that for example some of the animal fats would not be possible according to the scheme which is very strange to us because if we do not I have access to this source of lipids. I don't know if we can make all these liquids jet fuel liquids, New jet fuel will be possible. So we just had I think to engage now with governments and commission to check From an industrial point of view, we can deliver the various energies which are required. But it's a package which obviously So I will be more able to answer to you in September, but in July. I'm not sure I will use my holidays to read Hundreds of pages, but at least maybe the small summary, but we'll come back to you.
Wonderful. Well, if your team could share that short summary with all
of us, that would be terrific because Thank you.
Thank
you. Thank you. Your next question is from the line of Christopher Kuplent, Bank of America. Please go ahead.
Thank you. Good afternoon, gentlemen. And I want to echo what Martijn said. I think this is a great detail in your disclosure. And on that point, If I may ask you for clarification and widen the debate, not on a project by project, but including inorganic moves.
You've been famously, I think, very successful in countercyclical acquisitions over the last 5 years. Do you think they have become particularly more difficult considering their direct impact, particularly from producing assets On your progress regarding decarbonization. So if you wouldn't mind including M and A in your answer for a bit of clarification, please. Thank you. And otherwise, Patrick, just wanted to ask you about the name change.
What's been the feedback? Do you feel Total under the old brand has been misunderstood and is becoming A company that is associated with more than just oil and gas. And if I may add a sneaky comment, Then why link your buyback to exclusively oil? Why not link it to other metrics? So sorry, that's just a stupid aside, but those are my two questions.
Thank
you. Yes. If I'm linking today just to even if our results are increasing To our electricity business, I'm afraid the buyback will not be very high, but it will increase in the future. So I took the suggestion for the future. Now, but so On the name change, I think we have been clear.
I think Total is perceived as an oil company, even not an oil and gas Oil company. We are the oil man, which is our history. It's true, but fundamentally and it's fundamental change. The strategy is shifting to become a multi energy, a broad energy company encompassing not only oil and gas, but also electricity. I've explained Several times.
Why? Because we see some growth in these markets and we think we can build a profitable and large business. So We wanted to have again our name in line with our new strategy and not adding. So Total Energy's I think it was a perfect choice because it Say everything. In your name, you described the strategy.
So the feedback, of course, it will take time, I think to including in our share price So people to understand it. But for example, this morning, we gave you another aggregate which is quite unusual like Jean Pierre told you which is the EBITDA. Why did we give you the EBITDA after that? By the way, it's almost €9,000,000,000 I think for a quarter It's just to help you to compare it to the one of the utility, because it seems that today the new energy major The utility just compare the magnitude of the figures and you will see the capacity of being able to become a world A player in the energy transition, but we think will drive our strategy and a profitable strategy. Coming to your first question, to be clear, no, we are very pragmatic people.
We look to different opportunities. For example, you have probably noticed in newspapers that we are working on the Middle East countries when everybody exits where we come in And we look to if we can get some access to good resources at a very in the framework of For very profitable contracts. So we are working on it. So it means that our strategy does not imply at all our capacity to move on new hydrocarbon projects, providing again that when we look to some projects or new assets, It must fit with the idea that it's a low cost asset. I mean low cost in terms of technical cost and new projects beyond in terms of development or and The capacity to of course, if they are older assets, the capacity to drive the emissions down.
Honestly, I would be surprised to see Total moving on mature assets with very high emissions tomorrow. But if it's a very good opportunity, We'll think. Again, it's a question of comply or explain and if things make sense for the company, for For TotalEnergies, because TotalEnergies is a company which wants to continue to deliver the energy of the present For the planet, which is all in gas and which prepared to deliver the energy of the future. So we are in we have 2 feet, 1 in the present, 1 in the future And the present is still there. And you know so we have been quite Agile to take to capture opportunities.
So they are good ones. We will look at them.
Understood. Thank you, Patrick.
Thank you. And your next question is from the line of Lucas Hermann from Exane. Please go ahead.
Thanks very much. And Patri, thanks for taking the time to go to do this call because it's always enjoyable listening to you. A couple of questions, maybe a little abstract. The first one, Acorn CCS project. My understanding is you've decided not to remain within that consortium.
I just wonder whether there was a particular reason. Was it just balancing projects? There's a lot going on. This was not right where something else was. And the second question is just How do I think about the EBITDA numbers that you present us with from the renewables business?
Do I just look at them and think, well, they're too small to mean anything at the moment? But It's just the trend, I guess. And it's the thought that you're building a business and yet at the present time, I kind of see the EBITDA falling between 2Q 2020 and 2Q 2021 Or indeed, 1Q 2021 and 2Q 2021. So it's trying to make sense of what those figures are actually saying to me. Okay.
Ekorn, yes, no, just we had last year we made a review of all the CCS Projects we had in the North Sea. We had 4 projects in our portfolio. We had Northland Light. We had the one with BP in the U. K.
North Sea which is called net 0 T side I think on the T. And we are the number one RMS in the Netherlands. And so we look at the map, we look at the potential and in fact and the potential for us to use these projects because we want to develop CCS investments not only to customers but also for ourselves And we made an arbitration I would say to say okay with free projects for the next years we have enough. So let's concentrate on efforts On the NTT, the Aramis and Northern Lights and we decided to leave the Acorn 1 where we had in fact less direct interest To use the capacity of storage of Aecon due to our activity in Scotland in fact. So that's the reason, Stefaan.
So It's not again the project is a good project, but it's just an arbitration within our portfolio of the capital that we want to dedicate to CCS in the coming years. So the second question is about proportionate EBITDA. Yes. I think but I will leave the I think Jean Pierre will explain you. But I think he gave you the clue if in his speech It's about this quarter, there was less farm down.
I think that's explained that.
As I explained to you, we Okay. Farm down is part of our model. And so in Q2, we are less stand down compared to Q1. So that's explained why the EBITDA, it was 3.40 in Q1 and now it's the 2.90.
So it's
just a matter of the rundown. But of course, the underlying trend is an upward trend and it's reflected by the capacity That now we reported on a quarterly basis and the fact that we have increased the renewable capacity by EUR 500,000,000 So it
was a little bit of the quarter effect nothing so sure that because as we have more and more possible projects we found out more and more and so it will just Increase. So that's the point.
And as Patrick mentioned to you, we use this metric because it's metric used by our competitors and we want to give Such metrics to allow you to compare our performance with UBS.
I think in Q1 we found out something like 50% of 200 megawatts, almost 300 megawatts. And Q2 we had no farm down. So again it's not Permanent activity, it depends quarter by quarter, so that's the limit of it. Okay?
That's great. Thank you. Have a great summer.
Thank you. And your next question is from the line of Benfran Hodey from Kepler Cheuvreux. Please go ahead.
Yes. Hi. Thank you for taking my question. 2, if I may. 1 on your LNG portfolio and one on your remaining Oil Sands portfolio.
First on LNG, can you update us on current status of negotiation with Qatar Petroleum on Qatar Northfield expansion and your current thinking on the potential return you can make here. And the second question is about Oil Sands, your position on Oil Sands in Canada, Cermont and Fortil. So if you've announced today the exit from Venezuela, you made no secret, Correct me if I'm wrong that you are looking for divesting at some stage your Canadian oil sands position. Are you making any progress on that divestment process? And do you see an appetite for Any buyers out
there?
Quetta, there is no negotiation. It's a tender. So we have submitted a tender like I think 5 or 6 of our companies. So Qatar I think is just looking towards The offers and of course we have put I think quite an appealing offer, but I don't know the offers of my competitors. So I cannot comment on something I don't know just I can confirm you that Total has submitted an appealing offer to Qatar, but appealing is only on my view maybe they don't have the same view.
We'll see. And returns from okay, Qatar is offering I think they have made public the CapEx figure of $29,000,000,000 for 4 trains. And so when you make the math, it's quite an efficient LNG scheme, so we consider that it's a good opportunity to expand our portfolio In LNG and we have a clear strategy on this side. Then we'll see if we are successful or not. I remind you that We have many opportunities to grow LNG within our portfolio with PNG, with ECA, with Mozambique, with Russia.
So it's a question of generating optionalities that we are committed to Qatar if we are successful. All sense. I don't know where you read, but we have announced that we want to exit from Canada. And I'm not sure we have ever said it. We just last year when we made a review of all our assets according to our climate ambition, The Board made a review of what could be I would say the stranded assets.
I mean it was the criteria used We have very long reserves beyond 2,050 and high technical costs. And in fact, That's true. But in this category, we didn't have much assets, in fact, many assets, but we had the oil sands. So we made Publicly, we made a write off, I think, of almost $6,000,000,000 or $7,000,000,000 on the oil sands. So we have put back in our portfolio Rene, in our assets, the value of the oil sands projects we are for the year since you are down to What we consider is the right value for these assets within an acceptable time line.
So We have also committed and we have announced that we will not sanction any new project. That's true. So we have limited our ambition. But again today at CAD70 $5 per barrel. It makes sense.
It makes money. So I'm happy I'm a happy shareholder of the assets today. It makes Simone, and as I've also explained I think to many potential buyers we think we will maybe think that Total is in disarray. We are not at all. We are very patient.
But these assets will have more value and we will be more buyers The day that the pipeline between Calgary and Vancouver will be built, because you see that day you begin to be able to export your All sends to nice markets and then I think new buyers will be potentially there. So again, we are not in a hurry. It's part of the assets on which we'll not invest new projects, but these assets are the value. The value will increase again with these New outlets for the Alberta and so we'll wait for such points. So we'll wait for that.
Many thanks, Patrick, and have a great summer holidays.
You too.
Thank And your next request is from the line of Jason Lieberman from Cowen. Please go ahead.
Yes. Hey, guys. Two questions for me. First, on the announcement today to buyback stock with oil over $60 Can you just discuss is that based on a backward looking basis for the entire year? Or what's the timeframe that you're assessing that buyback for?
Is it quarterly or Just any guidance on the period? And when are you going to give the first announcement in terms of the figure that you plan on buying back. Will that come with next quarter's earnings? And then secondly, On Chemicals, I know it's reported as part of the Refining and Chemicals segment, but it'd be great just to hear any insight on how much chemicals contributed to the quarterly results just given the strong indicator margins in the quarter that have persisted into 3Q and the outlook for that segment? Thanks.
Yes. So the first question was about
Buyback.
Buyback. Yes. No, I mean no, no. My announcement is for the year. So we are just looking to the forward quarter.
But you gave me And I need to save money, but you know we are no, which was to start only from this quarter. No, in fact, we will consider We will consider the full year I mean the full year. At a certain point, we'll have to decide at which level, but we can Easily month after month manage it. And again, it's up to 40%, because it's not a mathematical figure. It's a look to 40%.
Just before I said the CAD67.5 per barrel would be CAD9.60 but we it means CAD1 1,000,000,000 in fact Fundamentally. So you know we are not we are rounding the figure, but we will monitor it. I will not describe to use all the mechanics, because I think You need to be sometimes not to know, Michele, but it's a commitment. It's based on the yearly average and we'll monitor it From as I said, not in August because we are on holidays, but between September December we'll monitor That's the bad point. Before year end, don't take it.
It will be down.
On the
Downstream, I think Jean Pierre used a nice word, which was the historic result for Petrochemicals and for polymers, I can tell you polymers, of course, today like in many other, I would say commodities, you see a huge Pressure on the high pressure on prices because a lot of there is in fact What we observed at the world level is 2 effects. 1 of course is the growth of King Heavy in a low, so Quite a high growth in many areas of the planet, but also the fact that last year when the crisis came, people have almost emptied Order inventories. Why? Because when the crisis came to maintain the capacity to continue to manufacture As the system was stopped, we just the people or customers have emptied their inventories and then they did not rebuild them Because of the economic crisis. So today you have a planet and it's not true only for polymers, it's true in many other I would say Semiconductors and others where the inventories were down and now you have quite a good demand because the economy is coming back to The levels previous to the crisis.
So it's quite it put some upward pressures on all these commodities and so we benefit from it. And you know you I think today many comments were positive about the downstream result, which is good for them. But I can tell you with the refining margin was quite poor. European margin I think was around $10 per tonne as an average or not far. Dollars 10 per tonne we lose money.
We have a target of breakeven for European refining margin, which is around $20 per tonne. So at $10 the results are negative. So if you have a plus 500 Just to give him some clue on the downstream, the trading was a normal trading, no exceptional last year on the same quarter. I commented during the same call, but there was an exceptional $500,000,000 reserve on the trading. So I give you plenty of clue today because I'm happy to be in General Energy.
So it's a normal trading this quarter. You have quite a negative figure of refining. So you can deduct Yourself, the results of Polymers, which is quite an historical it's an historical eye. And so and this I think my view It's because of the structural impact. But why I described it, I think it will be maintained for next quarter.
I'm quite optimistic about the Chemical reserve because this polymer stress, global stress will not disappear easily to build on one side the inventories back of our customers And on the other side to deliver the products required by the economic growth. So I think it's a trend which compensates again somewhere This full refining margin. Polymers, by the way, integration works as well, because we benefit from raw naphtha prices In our petrochemical business. So this is why we I always consider this integrated model for it has some value And this is another proof this time. There's another question?
Thank you. Thank you. And we have a final question from the line of Alessandro Pozzi from Mediobanca. Please go ahead.
Hi, good afternoon. I have two questions. The first one, I'd like to go back to the FIG455. And the one thing that was probably missing was carbon capture. And I think across Europe, we are seeing a bit of a divide between government supporting carbon capture like Norway, UK, Holland and some others.
I mean Norway is also providing substantial grants. So how important do you think carbon capture will be for Europe to reach the carbon reduction targets by 2,030 and 2,040. And what is the breakeven that we need to see in terms of carbon price to see a widespread use of the Carbon Capture Technology?
Okay. I think there is a debate, but at the end of the day and the commission is quite clear, if If you want to have a carbon neutrality in Europe without CCS, you cannot achieve it. I mean, we have to be pragmatic. We have also in their plan, 5455, Putting emphasis by the way on natural based solution and for us you have an interesting part of the action plan is also around Natural and carbon sinks, I would say. So we need it.
We need that. There are some debates, of course. There are some pressures from NGOs, But it's interesting to see that some different governments like Norway on one side, which obviously is an oil and gas country, But also the Netherlands, which will not be an oil and gas country by 2,050 are pushing for this type Technologies like the U. K. As well.
To come back to your question, in fact, the best way to lower the cost It's not only the question of the cost of capturing, it's more the question of infrastructure to store. And then you need to have sort of mass effect. It's easier to make it, I would say to lower the cost when you build a CCS Kilometers, in Rotterdam or in the Netherlands with many industries putting together the CO2 in some infrastructure, you can lower the cost. In terms of cost, by the way, in Europe, today, the ETS, the CO2 price is around almost $60 per ton, Not far. It's not a big guess to think that we can reach more than that $100 per tonne by 2,030 and at $100 per tonne The Northern Lights project is very profitable.
So I mean it's a question just of because all this you cannot think CCS if you don't think Carbon price, but everything in Fit for 55 is organized to reach at least $100 per tonne for CO2 by 2,030, if not more. So this makes these technologies profitable. So this is My feedback to you.
Okay. Fine. Thank you. And the second question is a bit more old school. Suriname, I've seen you announce a new discovery.
Maybe can you give us an update on what the potential for the basin there could be?
Again, we announced a new successful well, Saquepara soft after Saquepara. We have another one. The priority today for all of us is for TRS is to move to a first development, oil development. We have a well going on, which is called KESI. I think It's another important well.
And I think we'll have with this sequence of wells by the end of the year, We should be able to answer more precisely to your questions. There is a lot of hydrocarbons. There is as well quite A lot of associated gas. And as you know, neither Apache nor Total Energies have any policy to develop a fleet while flaring. So that means that for today what we are working on together is appraising in order to identify The first oil development mainly with limited associated gas in order to be able to develop according to our standards.
Okay. Thank you very much.
So I understand it was the last question. And so thank you to all of you for attending this call. I would like of course to wish to all of you happy holidays. I think we have not been too long even if when the CEO is present it's a little longer, but it's only the CFO. But again, I would like just to have a conclusion to say that I'm very proud as Chairman and CEO of All what our teams are doing in Turbine Total Energy despite the COVID crisis, we are really putting all our action plans.
We are transforming the company. It's a lot of effort. We have managed to overcame the 2020 crisis environment. And at the same time, we took an important major step in our journey by committing to our net zero ambition and to building together this new more sustainable broad energy company. And thank you again for your attention.
Thank
you. Thank you. With that, we conclude the presentation today. Thank you for participating. You may disconnect.