THIRD QUARTER 2026 RESULTS - TOTALENERGIES SE

Financial Performance:

• Adjusted net income surged 50% quarter-over-quarter to $9.1 billion in Q3 2026, driven by high commodity prices and operational efficiency.
• Strong cash flow generation reached $12.3 billion, a 25% increase from Q2, resulting in free cash flow after dividends of over $6 billion.
• Return on equity stood at 19.6% and return on assets at 17.4%, with all segments delivering record or near-record results.
• Net debt reduced significantly, improving the gearing ratio to 9.1% (below the 10% target), supported by a $3 billion positive working capital contribution.
• Operating costs remained low at $4.7 per barrel, anchored below the $5 guidance, reinforcing the low-cost producer status.

Guidance and Future Outlook:

• Full-year 2026 free cash flow guidance raised to $42–$43 billion, up from previous estimates, contingent on sustained high energy prices.
• Management reaffirmed a commitment to return 40% of cash flow to shareholders; potential uplifts to the final dividend or accelerated buybacks may occur if cash flow exceeds $42 billion.
• Fourth quarter 2026 results are anticipated to be strong, with LNG and gas trading performance expected to match Q3 highs due to rising TTF and LNG prices (TTF around $30–$33/MMBtu).
• Long-term upstream growth target remains >3% per year by 2030, with all relevant projects now in execution phase.
• Integrated power business targets net cash positivity in 2027, driven by asset integration and renewable capacity additions.

Business Segments and Product Lines:

• Upstream: Hydrocarbons production grew >3% quarter-over-quarter (ex-Middle East impact); gas production increased >3% q-o-q, supported by new projects in Cyprus, Nigeria, Abu Dhabi, and Azerbaijan.
• Downstream: Achieved record quarterly results with refining throughput up nearly 10%; European and global refining margins hit historical highs ($33/barrel) due to supply disruptions and Russian capacity loss.
• Integrated LNG: Results more than doubled quarter-over-quarter, benefiting from a 20% rise in average LNG prices ($12.3/MMBtu) and successful trading; no force majeure declared on LNG volumes despite regional tensions.
• Integrated Power: Net generation up 25% YoY to 44.3 TWh (Jan–Sep); cash flow up 7% q-o-q, with contributions from the EPH joint venture (TTIP) driving full-quarter results.
• New Developments: Final Investment Decisions (FID) secured for projects including Kronos (Cyprus), IMAA (Nigeria), Umshite Gas Cap (Abu Dhabi), and Absheron Phase 2 (Azerbaijan); new long-term LNG agreements signed with Kumul Petroleum (2.4m tpy) and Noftec (1.5m tpy).

Market and Competitive Landscape:

• Global oil prices rallied from $80 to over $110/bbl during the quarter, ending at $121/bbl, fueled by geopolitical tensions in the Middle East and the conflict in the Strait of Hormuz.
• Refining margins reached unprecedented levels globally, particularly in Europe and the U.S., driven by unavailability of Russian refining capacity and logistical disruptions.
• Asian buyers increased demand for long-term LNG contracts due to volatility in spot markets (JKM); TotalEnergies leveraged its flexible fleet to maintain market share without force majeure declarations.
• Geographic diversification across 11 LNG-producing countries proved a strategic advantage, mitigating regional conflicts and ensuring supply continuity to key markets like Asia and Europe.

Risks and Challenges:

• Geopolitical volatility in the Middle East, specifically the Strait of Hormuz, impacts shipping lanes; current LNG volume flows through the strait are estimated at ~25% of pre-war levels.
• Potential for a sharp escalation in the Middle East conflict could alter commodity prices and supply chains unpredictably.
• Regulatory and political risks in France, including potential taxation and subsidy caps on fuel prices, though management notes the government has recently paused new taxes due to TotalEnergies' price stabilization efforts.
• Sanctions on Russian and Ukrainian LNG (Yamal) and potential EU restrictions on Russian oil exports complicate global supply logistics and pricing.

Management Commentary and Tone:

• Management conveyed high confidence, describing the quarter as "all green" with "outstanding operational performance" and "exceptional" cash flow generation.
• Patrick Pouyanné emphasized the company's strategic strengths—integration and geographic diversification—as key drivers for capturing value during market disruptions.
• Tone was resilient and opportunistic, highlighting the ability to navigate global crises while maintaining low costs and high margins.
• Management dismissed the need for special dividends, favoring a formulaic 40% return ratio that allows flexibility via dividend top-ups or buybacks.

Analyst Questions and Answers:

• Dividends & Capital Allocation: Clarified that no special dividend is planned; instead, a potential top-up on the final dividend will ensure the 40% payout ratio if cash flow exceeds $42 billion.
• Growth Strategy: Reiterated that 2030+ growth will be achieved primarily through new project access (DROs) and exploration, not large-scale M&A; no urgency to fill a resource gap.
• Downstream Investment: Confirmed no new refinery construction will occur; focus remains on maintaining existing capacity and optimizing crude slate, with opportunistic biofuel investments only where regulation is stable.
• US Strategy: Priority remains on natural gas and LNG integration in the US; M&A is counter-cyclical and not currently prioritized due to high asset prices.
• European Gas & Yamal: Discussed the impact of EU sanctions on Yamal LNG exports; noted reduced utilization for European-bound volumes post-January 2027 and competition with Asia for remaining Russian LNG.
• Germany Wind: Admitted challenges in the German offshore wind market due to regulatory delays and high connection costs; write-offs were taken on non-viable concessions.
• Hybrid Debt: Explained continued use of hybrid instruments due to low interest rates (3% cost), with no immediate plan to refinance unless market conditions change significantly.

Other Key Points:

• Share Buybacks: Board authorized $2.5 billion in buybacks for Q4 2026 and Q1 2027.
• Ukraine/Russia: Ukrainian attacks on Russian refining capacity continue to support high global refining margins.
  Operational Efficiency: Statoil refinery (Saudi Arabia) returned to nominal capacity; all refineries running at full speed.
• France Strategy: Management highlighted the strategic value of the gasoline/diesel price cap as a political asset, avoiding higher taxes despite increased costs.
• LNG Fleet: A large, cost-effective tanker fleet provides a competitive edge in trading and logistics, allowing the company to capture volatility benefits.