TotalEnergies Announces Fourth Quarter & Full-Year 2022 Results

Source: www.gulfoilandgas.com 2/8/2023, Location: Europe

The Board of Directors of TotalEnergies SE, chaired by CEO Patrick Pouyanné, met on February 7, 2023, to approve the 2022 financial statements. On the occasion, Patrick Pouyanné said:
“While down from the previous quarter highs due to uncertainties about the demand outlook, fourth quarter oil and gas prices as well as refining margins remained strong in supply-constrained markets. Benefiting from this favorable environment as well as the increase in its hydrocarbon production (+5%) and LNG sales (+22%), thanks to its unique position in Europe, TotalEnergies reported cash flow of $9.1 billion and adjusted net income of $7.6 billion. Including the $4.1 billion impairment related to the deconsolidation of Novatek at year-end 2022, IFRS net income was $3.3 billion.

In 2022, the Company generated $45.7 billion of cash flow. IFRS net income was $20.5 billion, including nearly $15 billion in provisions related to Russia (for an adjusted net income of $36.2 billion). Return on equity was 32% and return on capital employed was 28%, demonstrating the quality of its global portfolio.

The iGRP segment posted adjusted net operating income of $2.9 billion and cash flow of $3.1 billion, up 17% over the quarter, bringing annual results to $12 billion and cash flow to $11 billion. The Company took full advantage of its global LNG portfolio. The Integrated Power activity (covering the electricity and renewables business) generated $1 billion of cash flow over the year, with production of 33 TWh up 57%, and nearly 17 GW of gross renewable capacity installed at the end of 2022. In order to provide shareholders with a better understanding of the growth strategy of LNG and electricity/renewables, the Board of Directors decided that from the first quarter 2023 iGRP's results will separately report the contributions of the Integrated LNG and Integrated Power activities.

Exploration & Production posted adjusted net operating income of $3.5 billion and cash flow of $5.0 billion in the fourth quarter, raising its strong full-year contribution to the Company's cash flow to $26 billion in 2022. Two new discoveries, in Cyprus and Brazil, add to the discoveries already made in Namibia and Suriname in 2022.

Downstream achieved historic performance in 2022 with $8.9 billion in adjusted net operating income and $10.1 billion in cash flow, supported by a refinery utilization rate of 82% that fully captured high refining margins.

TotalEnergies continues to grow in petrochemicals with the launch of the Amiral project, a world-class integrated complex in Saudi Arabia.

In line with the policy announced in September 2022, TotalEnergies implemented a balanced cash allocation in 2022, between shareholders (37.2% payout), investments ($16.3 billion or 36% of cash flow, including $4 billion in lowcarbon energies), and deleveraging (reducing net debt by $12.2 billion, or 27% of cash flow) to end 2022 with gearing of 7%. In addition, the Company has ensured balanced profit sharing with its employees (exceptional bonus of up to one month’s salary* and wage increases taking into account the inflation rate observed in the various countries) and with its customers through rebates on various energy products to mitigate the increase in energy prices. Governments have also benefited from more than $33 billion in taxes worldwide, more than double the amount in 2021, mostly paid to producing countries,

In view of the growth in structural cash flow forecast for 2023 and the share buybacks carried out in 2022 (5% of the share capital), the Board of Directors proposes to the Shareholders’ Meeting the distribution of a final 2022 dividend of €0.74/share, an increase of 6.5% for the ordinary 2022 dividend to €2.81/share, plus the special dividend of €1/share paid in December 2022. In addition, the Board of Directors confirmed a shareholder return policy for 2023 targeting a pay-out between 35-40%, which will combine an increase in interim dividends of more than 7% to €0.74/share and share buybacks of $2 billion in the first quarter. »

1. Highlights(3)
Social and environmental responsibility
• Commercial rebates on electricity prices for VSEs and SMEs
• TotalEnergies ranked first in the CAC40 for investor transparency by the Forum for Responsible Investment

Integrated LNG
• Commissioning of the floating LNG regasification unit at the Lubmin terminal in Germany
• Started production on Block 10, and signed a long-term LNG contract for 0.8 Mt/y, in Oman

Integrated Power
• Acquired a stake in Brazil's leading renewable developer (Casa dos Ventos) with a portfolio of more than 6 GW of onshore solar and wind projects in Brazil
• Total Eren signed an agreement for development of 1 GW wind project in Kazakhstan
• Start-up of 800 MW Al Kharsaah solar power plant in Qatar
• 50% Farm-down of a 234 MW portfolio of renewable projects, in France

Upstream
• Withdrawal of TotalEnergies representatives from Board of Directors of PAO Novatek and deconsolidation of the Company's 19.4% stake in Novatek
• Acquired additional 4.08% interest in the Waha concessions in Libya
• Divested the Dunga field in Kazakhstan
• Acquisition by TotalEnergies EP Canada, ahead of its spin-off, of an additional interest in Fort Hills
• Launched Lapa South-West project in Brazil
• Gas discovery on the Zeus-1 well, located on Block 6 in Cyprus
• Oil discovery in the Sépia area, Brazil
• Entry to the Agua Marinha offshore exploration block in Brazil
• Launched exploration activities on Block 9 for drilling in 2023, in Lebanon

Downstream and new molecules
• Final investment decision for the Amiral Petrochemical Complex with Aramco, Saudi Arabia
• Launch with Air Liquide of a renewable and low-carbon hydrogen production project on the Grandpuits platform in France
• Start-up of BioBéarn, the largest biogas production unit in France with a capacity of 160 GWh
• Memorandum of Understanding with Air France-KLM for the supply of 0.8 Mt of SAF over 10 years
• Creation of a joint venture with Air Liquide to develop a network of more than 100 hydrogen stations for trucks in Europe

Decarbonization
• Memorandum of understanding with Holcim for a pilot project to decarbonize a cement plant in Belgium
• Entry on two permits for CO2 storage in the North Sea, Denmark

The evolution of Scope 1+2 emissions of operated installations in 2022 is mainly due to the increased use of gas-fired power plants (7.2 Mt in 2022 versus 3.8 Mt in 2021), in the context of lower availability of nuclear power plants in France, as well as the start-up of the Landivisiau power plant. Conversely, emissions from Oil & Gas activities fell by 2%.

Hydrocarbon production was 2,812 thousand barrels of oil equivalent per day (kboe/d) in the fourth quarter of 2022, up 5% quarter-on-quarter, benefiting from projects ramp-up (Mero 1 in Brazil, Ikike in Nigeria), resumption of production from Kashagan in Kazakhstan, lower planned maintenance (notably on Ichthys in Australia), and despite the disposal of Termokarstovoye, in Russia.

Hydrocarbon production was 2,765 kboe/d in 2022, down 2% year-on-year, comprised of:
• +3% due to start-ups and ramp-ups, notably CLOV Phase 2 and Zinia Phase 2 in Angola, Mero 1 in Brazil and Ikike in Nigeria,
• +2% due to the increase in OPEC+ production quotas,
• -3% portfolio effect, notably related to the end of the operating licenses for Qatargas 1 and Bongkot North in Thailand, as well as the effective withdrawal from Myanmar, the exit from Termokarstovoye and Kharyaga in Russia, partially offset by the entry into the Sépia and Atapu producing fields in Brazil,
• -1% due to security-related production cuts in Libya and Nigeria,
• -1% due to price effect,
• -2% due to the natural decline of the fields.

In the fourth quarter 2022:
• iGRP adjusted net operating income was $2,889 million, up 5% year-on-year, mainly due to the growing contribution of the Integrated Power business,
• iGRP operating cash flow before working capital changes was $3,127 million, up 28% year-on-year, mainly due to the performance of the Integrated LNG business, which benefited from higher prices and the growing contribution of the Integrated Power business,
• working capital increased during the quarter, taking into account margin calls in gas and power supply activities.

Full-year 2022:
• iGRP's adjusted net operating income was $12,144 million, up 95% year-on-year, thanks to its integrated LNG portfolio, in particular its regasification capacity in Europe, which positioned it to capture the benefit of the favorable pricing environment, and thanks to the growth of the Integrated Power business,
• iGRP operating cash flow before working capital changes was $10,754 million in 2022, up 76% yearon-year, for the same reasons. Starting in the first quarter of 2023, iGRP results will be presented in two segments:
• Integrated LNG covering LNG production and trading activities as well as biogas and hydrogen activities,
• Integrated Power covering electricity generation, storage, trading, and B2B B2C gas and power marketing activities.

4.1.2 Integrated LNG
LNG production was 4.4 Mt in the fourth quarter, up 10% from the previous quarter, benefiting from a full quarter of production from Ichthys LNG in Australia after a planned maintenance in the third quarter. Production declined by 2% over the year, despite the restart of Snøhvit, Norway, in the second quarter, due to the end of the Qatargas 1 operating license and supply issues at Nigeria LNG.

Total LNG sales were up 22% in the quarter and 15% in the year, supported by strong LNG demand in Europe. Adjusted net operating income for Integrated LNG was $11.2 billion in 2022, double the $5.6 billion contribution in 2021, as the integrated LNG portfolio, in particular its regasification capacity in Europe, was well-positioned to capture the benefit of the favorable pricing environment.

Cash flow from Integrated LNG was $9.8 billion in 2022, up nearly 80% from the $5.5 billion contribution in 2021, for the same reason.

4.1.3 Integrated Power
Gross installed renewable electricity generation capacity reached 16.8 GW at year-end 2022, up 6.5 GW yearon-year, including nearly 4 GW from the acquisition of 50% of Clearway Energy Group in the United States and 0.8 GW from the start-up of the Al Kharsaah photovoltaic project in Qatar.

Net electricity generation stood at 9.4 TWh in the quarter and 33.2 TWh in 2022, up 57% year-on-year thanks to higher utilization rates of flexible power plants (CCGT) as well as a 53% increase in generation from renewable sources.

Adjusted net operating income of Integrated Power was $1.0 billion in 2022, up nearly 60% from the $0.6 billion contribution in 2021, driven by growth in power generation.

Cash flow from Integrated Power was $1.0 billion in 2022, up nearly 50% from the $0.7 billion contribution in 2021, for the same reason.

4.2 Exploration & Production

4.2.1 Production
Exploration & Production adjusted net operating income was:
• $3,528 million in the fourth quarter 2022:
o stable year-on-year, thanks to the rise in oil prices, and despite the increase in taxes, particularly in the United Kingdom,
o down 16% in the quarter, due to lower oil and gas prices,
• $ 17,479 million in 2022, up 67% year-on-year, thanks to higher oil and gas prices.

Operating cash flow before working capital changes was as follows:
• $4,988 million in the fourth quarter 2022:
o down 12% year-on-year, due to higher taxes, particularly in the United Kingdom, and despite rising oil prices,
o down 22% in the quarter, due to lower oil and gas prices, and despite higher production,

• $26,080 million in 2022, up 39% year-on-year, thanks to higher oil and gas prices.
The impact of Energy Profit Levy (EPL) in the United Kingdom on current income was $0.4 billion in the fourth quarter, and $1.0 billion in 2022. The negative impact of EPL on deferred taxes was treated as a non-recurring item, amounting to $0.6 billion for the full-year 2022 and $0.3 billion in the fourth quarter.

Refinery throughput was:
• down 13% over the quarter due to the impact of strikes on French facilities and a planned shutdown at the Antwerp platform in Belgium,
• up 9% year-on-year in the fourth quarter 2022, due to the recovery in demand, particularly in Europe and the United States, and the restart of the Donges refinery in France in the second quarter of 2022, partially offset by the items above,
• up 25% in 2022, due to the increase in the utilization rate of refineries.

Petrochemicals production was:
• down 25% year-on-year in the fourth quarter of 2022 for monomers and 26% for polymers, due to the impact of strikes on French facilities and an unplanned shutdown on the BTP platform in the United States,
• in 2022 compared to 2021, down 13% for monomers and 8% for polymers, after the very strong postCovid increase observed in 2021. Adjusted net operating income for the Refining & Chemicals segment was:
• $ 1,487 million in the fourth quarter 2022:
o down 23% in the quarter, due to the impact of strikes in France, planned maintenance at the Antwerp refinery, and less favorable market conditions in petrochemicals,
o 2.7 times higher than in the fourth quarter 2021, driven by high refining margins,
• $7,302 million in 2022, up 3.8 times year-on-year, due to high refining margins in Europe and the United States and higher refinery utilization rates.

Operating cash flow before working capital changes was $1,144 million in the fourth quarter 2022, down 47% on the quarter, mainly due to the impact of $719 million for the European Solidarity Contribution for 2022 refining activities. It is up 32% in the fourth quarter of 2022 year-on-year thanks to higher margins, and, for the full-year 2022 it was $7,704 million, 2.6 times higher than 2021, thanks to higher refining margins and throughput.

Fourth quarter 2022 sales of petroleum products were down 3% quarter-on-quarter and 7% year-on-year, due to lower demand related to high oil product prices and above-normal temperatures in Europe for heating oil. Full-year 2022 sales were slightly down 2% year-on-year, as lower sales to professional and industrial customers, particularly in Europe, were partially offset by the recovery of aviation and network activities worldwide.

Adjusted net operating income for the Marketing & Services segment was $1,550 million for the full-year 2022, down 4% year-on-year, mainly impacted by the evolution of the €-$ exchange rate.

Operating cash flow before working capital changes was $2,365 million for 2022, down 7% year-on-year.

5. TotalEnergies results

5.1 Adjusted net operating income from business segments
Segment adjusted net operating income was:
• $8,238 million in the fourth quarter 2022, compared to $7,316 million a year earlier, due to higher oil and gas prices and refining margins,
• $38,475 million in 2022, compared to $20,209 million in 2021, for the same reasons.

5.2 Adjusted net income (TotalEnergies share)
TotalEnergies’ adjusted net income was $7,561 million in the fourth quarter 2022 compared to $6,825 million in the fourth quarter 2021, due to higher oil and gas prices and refining margins.

Adjusted net income excludes the after-tax inventory effect, non-recurring items and the impact of changes in fair value(17) .

The net income adjustment items(18) represented -$4,297 million in the fourth quarter 2022, consisting mainly of:
• -$3.8 billion impairments and exceptional provisions, including -$4.1 billion related to Russia (deconsolidation of Novatek) and a +$0.7 billion impairment reversal in Canada,
• -$0.7 billion stock effect,
• -$1.4 billion related to the impacts of the European Solidarity Contribution, of the Energy Profits Levy in the United Kingdom on deferred tax, and of the electricity generation infra-marginal income contribution in France,
• +$2.0 billion of fair value change effects.

For the full-year 2022, these items amounted to -$15,671 million, consisting mainly of:
• -$15.7 billion impairments and exceptional provisions, including -$14.8 billion related to Russia and - $1.0 billion related to the withdrawal from the North Platte project in the United States,
• -$1.7 billion related to the impacts of the European Solidarity Contribution, of the Energy Profits Levy in the United Kingdom on deferred tax, and of the electricity generation infra-marginal income contribution in France,
• +$1.4 billion capital gain on the partial sale of SunPower shares and the revaluation of the retained and consolidated share using the equity method,
• +$1.1 billion of fair value change effects.

TotalEnergies' effective tax rate was 41.4% in the fourth quarter 2022, compared to 44.1% in the third quarter 2022, mainly due to the decline in the Exploration & Production tax rate linked to lower oil and gas prices.

In 2022, the Company’s effective tax rate was 40.9%, versus 37.9% in 2021, mainly due to the increase in the Exploration & Production tax rate, notably linked to the higher oil and gas prices. Income and production taxes amounted to $33.0 billion, versus $15.9 billion in 2021.

5.3 Adjusted earnings per share
Adjusted diluted net earnings per share were:
• $2.97 in the fourth quarter 2022, calculated based on 2,522 million weighted-average diluted shares, compared to $2.55 a year earlier,
• $13.94 for the full-year 2022, calculated based on 2,572 million weighted-average diluted shares, compared to $6.68 for the previous year.

As of December 31, 2022, the number of diluted shares was 2,502 million.

As part of its shareholder return policy, as announced in October 2022, TotalEnergies repurchased in the fourth quarter 2022 34.7 million shares for $2 billion for their cancellation. In 2022, 128.9 million shares were repurchased for cancellation, representing 4.92% of the share capital, for $7 billion.

5.4 Acquisitions - asset sales

Acquisitions were:
• $292 million in the fourth quarter 2022, notably for the acquisition of an additional 4.08% of the Waha concessions in Libya,
• $5,872 million for the full-year 2022 for the above item as well as payments related to the award of the Atapu and Sépia production sharing contracts in Brazil, the acquisition of an interest in Clearway Energy Group and the bonus related to the New York Bight offshore wind concession in the United States.

Asset sales were:
• $425 million in the fourth quarter 2022, notably related to farm-downs in the Integrated Power business and the disposal of interests in Block 14 in Angola,
• $1,421 million for the full-year 2022 related to the above items as well as SunPower's disposal of its Enphase shares, the partial disposal of the Landivisiau power generation plant in France, the sale of the interest in the Sarsang field in Iraq, and an additional payment related to the 2020 sale of interests in the CA1 offshore block in Brunei.

5.5 Net cash flow

TotalEnergies' net cash flow(19) was:
• $5,333 million in the fourth quarter 2022 compared to $5,076 million a year earlier, reflecting the $226 million decrease in operating cash flow before working capital changes and the $483 million decrease in net investments to $3,802 million in the fourth quarter 2022,
• $29,426 million for 2022 compared with $15,833 million in 2021, reflecting the $16.6 billion increase in operating cash flow before working capital changes and the $3.0 billion increase in net investments to $16,303 million this year.
Cash flow from operations was $5,618 million in the fourth quarter 2022, compared to operating cash flow before working capital changes of $9,135 million, reflecting the $3.1 billion increase in working capital, mainly due to:
• a reduction in tax liabilities linked to the pace of tax payments and the fall in oil and gas prices, notably in Norway and the United Kingdom, partially offset by the European Solidarity Contribution,
• the increase in margin calls and the seasonality of the gas and electricity supply activity,
• the price and volume effect on inventories.

5.6 Profitability
Return on equity was 32.5% for the full-year 2022.

6. TotalEnergies SE statutory accounts
Net income for TotalEnergies SE, the parent company, was €7,835 million in 2022 compared to €6,868 million in 2021.

8. 2023 outlook
At the start of 2023, oil prices are moving between $80-90/b in an uncertain environment, where the possible worldwide economic slowdown could be counterbalanced by the recovery of China, global demand being expected to rise in 2023 to more than 100 Mb/d. In this context, OPEC+ countries have shown their willingness to keep prices above $80/b. Refining margins in Europe, particularly for distillates, are expected to remain supported by the effects of the European embargo on Russian petroleum products from February 5, 2023.

The tensions on European gas prices seen in 2022 are expected to continue into 2023, as the limited growth in global LNG production is supposed to meet both higher European LNG demand to replace Russian gas received in 2022 and higher Chinese LNG demand.

Since December 31, 2022, the production related to TotalEnergies' participation in Novatek, of 0.3 Mboe/d in 2022, is no longer consolidated. Excluding Novatek, TotalEnergies expects its hydrocarbon production to increase by approximately 2% to 2.5 Mboe/d in 2023, driven by three main start-ups planned for the year: Block 10 in Oman, Mero 2 in Brazil, and Absheron in Azerbaijan.

Continuing its growth momentum in LNG, TotalEnergies is strengthening its unique position in Europe in 2023 with the commissioning of two floating regasification terminals, the first of which, located in Lubmin, Germany, is already operational.

Having generated $1 billion in cash flow in 2022, the Integrated Power business will continue to grow in 2023 with power generation expected to reach more than 40 TWh, a 30% increase year-on-year, benefiting from the full integration of Total Eren, leading to a comparable rise in cash flow.

The implementation of an energy savings program will strengthen Downstream’s competitiveness, allowing it to benefit from a favorable European refining environment.

In 2023, TotalEnergies expects net investments of $16-18 billion, including $5 billion dedicated to low-carbon energies.

Supported by the strength of the Company's balance sheet and its cash generation potential, the Board of Directors confirmed a shareholder return policy for 2023 targeting a cash pay-out of between 35% and 40% as well as the following cash flow allocation priorities:
• a sustainable ordinary dividend through cycles, that was not cut during the Covid crisis, and whose increase is supported by underlying cash flow growth,
• investments to support of a strategy balanced between the various energies,
• maintaining a strong balance sheet with a target rating at an "AA" level,
• buybacks to share surplus cash flow generated at high prices and possibly a special dividend in the event of very high prices.
For 2023, this shareholder return policy will combine a 7.2% increase to 0.74 €/share in interim dividends and share buybacks of $2 billion planned for the first quarter.

TotalEnergies confirms its project to spin-off its affiliate, TotalEnergies EP Canada, by listing it on the Toronto stock exchange. TotalEnergies intends to retain a 30% stake in the listed entity, and to distribute 70% of the shares to TotalEnergies SE’s shareholders, through a special dividend in kind. This transaction would be subject to the approvals that will be taken by the General Assembly of TotalEnergies on May 26th, 2023.


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