Christopher Kuplent

Christopher Kuplent (Bank of America Corporation) questioned the disappearance of the CFFO payout link and how the integrated power business's free cash flow inflection might alter payout policies, and asked about the M&A environment for undeveloped resources, citing Namibia as an example.

Answer

Patrick Pouyanné, Chairman and CEO of TotalEnergies, clarified that the 40-55% payout was mentioned, noting 55% was high and debt-financed in 2025. He stated that integrated power becoming net cash positive (2026/2027) would change perspectives, but guidance changes would be cautious. For M&A, he emphasized that the market for undeveloped resources is expensive, necessitating smart, non-cash deals like the Galp swap in Namibia.

Christopher Kuplent noted the absence of the CFFO payout link from the presentation and asked if TotalEnergies is reconsidering its payout policies as the integrated power business approaches free cash flow positive status in 2027. He also sought insights into the current M&A environment for undeveloped resources, particularly after the competitive Namibia deal.

Answer

Chairman and CEO Patrick Pouyanné clarified that the 40-55% payout range was mentioned in the last slide, indicating that the 55% payout in 2025 was high and financed by debt, which is not sustainable long-term. He stated that while the integrated power business is accelerating towards being net cash positive, the company will monitor results before changing guidance. Regarding M&A, Pouyanné highlighted that the market for undeveloped resources remains expensive, requiring smart, non-cash deals like the Galp swap in Namibia, which leveraged TotalEnergies' exploration success.

Christopher Kuplent of Bank of America Merrill Lynch asked how the stronger euro, which makes the dividend more expensive in dollar terms, affects the company's overall payout view, and whether the Exxon/Hess arbitration outcome has changed TotalEnergies' perspective on rights of first refusal.

Answer

Patrick Pouyanné, Chairman & CEO, explained that while the FX impact on the 2025 dividend is limited, a systemic shift to a stronger euro would be considered by the Board in the overall shareholder return framework. On the arbitration, he stated the outcome was 'good for the industry' as it provides clarity on standard industry clauses, and noted he generally dislikes such rights as they can lower asset value and create complexity.

Christopher Kuplent asked for factors that could improve cash conversion later in the year and questioned TotalEnergies' competitive positioning for renewable growth as competitors face pressure to slow down.

Answer

CFO Jean-Pierre Sbraire and CEO Patrick Pouyanné noted that while the downstream segment is challenged, a recent spike in refining margins could provide a boost, showcasing the benefit of their integrated model. On renewables, Pouyanné stated their strategy is driven by the strong growth in electricity demand (4% in 2024), fueled by data centers and AI. He sees the pressure on competitors as a potential opportunity to acquire assets more easily, reinforcing their integrated power strategy which combines renewables with flexible gas assets.

Christopher Kuplent of Bank of America asked about the competitiveness of green hydrogen, the attractiveness of company shares for U.S. M&A, and the potential for shareholder returns to exceed 40% of CFFO.

Answer

CEO Patrick Pouyanné explained the green hydrogen strategy involves exploring various models (tolling, investing, purchasing) to create value within Europe's regulated FNBO framework. He clarified the U.S. listing change aims to boost share value and liquidity, not to facilitate M&A with shares. He confirmed the shareholder return policy remains 'more than 40%' of CFFO, noting the Q2 payout was 45%, and that the gearing target of 7-8% does not constrain this policy.

Christopher Kuplent of BofA Securities inquired about the political climate in Europe concerning potential windfall taxes, fuel price caps, and taxes on share buybacks, asking if policymakers have learned from the recent energy crisis.

Answer

CEO Patrick Pouyanné stated that while European leaders want to avoid another energy crisis, he does not foresee a windfall tax due to fundamental tax principles. However, he acknowledged that a tax on share buybacks, similar to the one in the U.S., could be considered in Europe. He affirmed that such a tax would not alter TotalEnergies' buyback policy, which is designed to share additional profits with shareholders.

Christopher Kuplent from Bank of America inquired about the impact of the Castrol divestment on BP's 2027 free cash flow target, considering the operating cash flow removed versus reduced CapEx and finance costs.

Answer

Kate Thomson, Chief Financial Officer, provided a quick answer, estimating the impact on free cash flow to be in the order of $200 million. She expressed confidence in delivering the 2027 free cash flow targets despite the transaction, noting that the targets were set excluding any Castrol divestment.

Christopher Kuplent from Bank of America asked about the impact of the Castrol divestment on BP's 2027 free cash flow target, specifically how much free cash flow was sold and if these are considered rounding errors before updating the target.

Answer

Kate Thomson, Chief Financial Officer, provided a quick answer, stating that the free cash flow targets were set excluding Castrol divestment. She noted that while operating cash flow is reduced, CapEx is also reduced, and finance costs will decrease. She estimated the net impact to be around $200 million, which falls within the range of free cash flow generation, so she sees no need to change the targets.

Christopher Kuplent of Bank of America Merrill Lynch asked how the TANAP pipeline disposal proceeds are structured to affect net debt and whether the UK North Sea is a focus for portfolio changes, similar to the Aker BP joint venture in Norway.

Answer

EVP Gordon Birrell stated that BP is awaiting clarity on the UK's fiscal situation before making any decisions on its North Sea portfolio structure. CFO Kate Thomson explained that the TANAP transaction is structured so the cash proceeds directly reduce net debt, with the ongoing accounting impact flowing through the non-controlling interest line.

Christopher Kuplent of Bank of America Merrill Lynch asked for clarification on how disposal proceeds, like the structured TANAP deal, impact net debt. He also inquired if the UK North Sea is a focus for portfolio changes, similar to the Aker BP model.

Answer

EVP - Production & Operations Gordon Birrell stated that BP is awaiting clarity on the UK's fiscal situation before making major portfolio decisions in the North Sea. CFO Kate Thomson explained that the TANAP transaction is structured to provide cash proceeds but is accounted for through non-controlling interest, rather than as a direct reduction of reported net debt.

Christopher Kuplent of Bank of America requested details on the restatement of Archaea Energy into the Gas and Low Carbon segment and its expected EBITDA contribution. He also asked for more numerical details on the recently signed Cook agreement in Iraq, such as CapEx, production, or IRR metrics.

Answer

Executive Katherine Thomson explained that Archaea was moved from the Customer and Products segment and that its EBITDA will be disclosed annually, with the business on track to be free cash flow positive by 2026. Executive Murray Auchincloss addressed the Cook agreement, stating he was limited in what he could share until the PSA is published by the Iraqi government. He highlighted it will be a capital-light JV with much-improved terms, including rights to both oil and gas and price upside, making it a highly profitable venture.

Christopher Kuplent of BofA Securities asked about the value proposition of issuing more hybrid bonds at a relatively high cost to lower net debt.

Answer

CFO Katherine Thomson explained the issuance was a 'value play' to take advantage of an all-time low in senior-sub spreads, allowing them to pre-fund upcoming maturities in a strong market. She reiterated that hybrids are an important, tax-deductible part of the capital structure.

Christopher Kuplent inquired about the current state of the M&A market for undeveloped resources, asking whether it's a buyer's or seller's market and where the bid-ask spread currently sits, referencing deals like the Namibian farm-down. He also asked for an update on LNG Canada, specifically regarding a potential Phase Two FID or farm-down.

Answer

CFO Sinead Gorman stated that Shell is not divesting from high-conviction assets like LNG Canada, focusing instead on maximizing value from its asset base and redeploying capital from lower-returning opportunities, citing the Colonial Pipeline exit as an example. CEO Wael Sawan added that the M&A market is currently 'somewhere in the middle,' not at the extremes of mid-cycle conditions. He emphasized Shell's strategic patience and high bar for accretive deals, focusing on differentiated advantages and value addition rather than simply resource buildup, noting that capital reallocation is a key focus for higher return opportunities.

Christopher Kuplent inquired about the current state of the M&A market, specifically whether it's a buyer's or seller's market for undeveloped resources, and where the bid-ask spread is sitting. He also asked for an update on LNG Canada, particularly regarding a potential FID for Phase Two or a farm down.

Answer

CFO Sinead Gorman denied speculation about divesting high-conviction assets like LNG Canada, stating Shell focuses on maximizing value from its asset base. CEO Wael Sawan noted that Shell is actively looking to redeploy over 15% of its $225 billion capital employed into higher-return opportunities. He characterized the M&A market as 'somewhere in the middle,' not at mid-cycle conditions, emphasizing strategic patience, accretion, and adding value to acquired barrels rather than simply building resource for KPIs.

Christopher Kuplent asked about Shell's role in renewables, considering the M&A and PPA markets, capital allocation, and opportunities, citing the JV in Brazil needing fresh equity. He also requested an update on the Venezuelan Trinidad situation and the Dragon license.

Answer

Shell CEO Wael Sawan addressed the Venezuelan Trinidad situation, noting it's early days and Shell is assessing the Dragon license with the government. CFO Sinead Gorman reiterated Shell's strategy to shift its renewables capital allocation from 80% producing assets to 80% trading by 2030, citing recent divestments (Atlantic Shores, Inspire, Cleantech, Savion JVs) and continued focus on gas-fired power plants and battery investments. She also mentioned the listed JV in Brazil is focused on value-accretive turnaround options.

Christopher Kuplent asked about Shell's role and capital allocation in renewables, including the M&A and PPA markets, and the situation with its JV in Brazil requiring fresh equity. He also requested an update on the Venezuelan Trinidad situation.

Answer

Shell CEO Wael Sawan stated that the Venezuelan Trinidad situation is worrying, with Shell assessing the Dragon license and working with the Trinidad and Tobago government, currently in a wait-and-see mode. CFO Sinead Gorman reiterated Shell's strategy to shift capital in Renewables and Energy Solutions (RES) from producing assets (80%) to trading-backed assets (80%) by 2030, citing divestments like Atlantic Shores, Inspire, Cleantech, and Savion. She also mentioned the Brazilian JV's focus on value-accretive turnaround options.

Christopher Kuplent noted that the Marketing segment is outperforming on significantly less CapEx than budgeted and asked for the reasoning. He also posed a hypothetical question about whether Shell would maintain its stance on buyback comfort if the payout ratio were to exceed the 50% CFFO target.

Answer

CFO Sinead Gorman explained the lower Marketing CapEx is intentional, as the team has been asked to focus on maximizing returns from past investments before more capital is released. Regarding the payout ratio, she stated that exceeding 50% would require a board-level decision that it is the best capital allocation choice for the company at that time, based on a value vs. risk assessment. CEO Wael Sawan reinforced that the 40-50% range is 'sacrosanct' and will be delivered through the cycle.

Christopher Kuplent asked why the Marketing segment is outperforming on lower-than-budgeted CapEx and posed a hypothetical question about whether Shell would be comfortable with a payout ratio exceeding 50% of CFFO.

Answer

CFO Sinead Gorman explained the Marketing team is focused on maximizing returns from past investments, hence the lighter CapEx. On the payout, CEO Wael Sawan and CFO Gorman both stressed the 40-50% range is "sacrosanct" and the core commitment, with any deviation being a significant capital allocation decision based on value and the macro outlook.

Christopher Kuplent questioned if Shell's past weakness was 'hubris' rather than 'mediocrity,' asking for an update on the paused Rotterdam biofuels project, and queried the very low Q1 CapEx in the Marketing segment.

Answer

CEO Wael Sawan acknowledged past projects took on logarithmic risk and that the company is now more forensic, which led to pausing the Rotterdam project due to changing market conditions. Executive Sinead Gorman explained that Marketing CapEx is seasonally low in Q1 and reflects a higher bar for spending and dynamic capital allocation, where funds are deployed to the best opportunities across the group, not just within a specific business.

Christopher Kuplent of Bank of America asked where Shell is most tempted to increase capital deployment, despite the focus on discipline, and questioned if the 30-40% of CFFO payout target is outdated given recent performance.

Answer

Executive Wael Sawan stated that while opportunities exist in areas like Integrated Gas and Upstream, any new investment must clear a very high hurdle rate, especially when compared to share buybacks. Executive Sinead Gorman defended the financial framework, highlighting the consistency of distributions and the strength of the balance sheet as underpinning shareholder returns.

Christopher Kuplent of Bank of America asked about the internal company mood amid the ongoing transformation and how management maintains cost discipline with a growing cash balance. He also sought more detail on the sources of non-portfolio OpEx savings and whether a segment-level breakdown would be provided in the future.

Answer

CEO Wael Sawan described the internal mood as positive, driven by being on a 'winning team,' but noted no one is complacent. He emphasized that cost reduction is an outcome of a broader cultural transformation focused on competitiveness, simplification, and prioritization, citing examples like reduced travel and IT contractor consolidation. CFO Sinead Gorman added that there is still 'so much more to go,' indicating further potential for savings.

Christopher Kuplent asked if the $1.5 billion buyback target effectively means Equinor is aiming to be free cash flow neutral after dividends and buybacks over the course of 2026 and 2027, considering the fluctuations in CFFO and CapEx.

Answer

CFO Torgrim Reitan confirmed that it makes sense to look across both 2026 and 2027 when considering free cash flow generation for capital distribution. He stated that Equinor aims to run with a solid balance sheet and will lean on it in 2026, knowing that 2027 is expected to have larger free cash flow, and this perspective informed the 2026 share buyback level.

Christopher Kuplent asked if Equinor is effectively targeting to be free cash flow neutral after dividends and buybacks over the course of 2026 and 2027, considering the fluctuations in CFFO and CapEx.

Answer

CFO Torgrim Reitan confirmed that it makes sense to look across both 2026 and 2027 when considering free cash flow generation available for capital distribution. He stated that Equinor aims to maintain a solid balance sheet, acknowledging that the company will lean on it in 2026, with a larger free cash flow expected in 2027, and the 2026 share buyback level was set with this two-year perspective.

Christopher Kuplent questioned the discrepancy between the recent trading update and the weak reported results for the MMP segment. He also asked why Equinor would not increase its investment in Ørsted given the current lower share price.

Answer

Torgrim Reitan, an Equinor executive, explained that some transactions impacting the MMP result occurred very late in the quarter, after the trading update was issued. Bård Pedersen added that the update did flag expected weakness from CCS wells and LNG trading. Regarding Ørsted, Reitan reiterated that Equinor is a long-term, industrial owner and sees it as a quality company, despite the share price reflecting current industry-wide challenges.

Christopher Kuplent of BofA Securities asked for the macroeconomic assumptions, particularly commodity prices, that were used to set the new, lower NCS tax installments for the second half of the year.

Answer

Executive Torgrim Reitan explained that the tax installments were based on forward prices from earlier in the spring. While not providing a specific number, he suggested that looking at forward prices from early June would provide a good estimate of the assumptions used in the calculation.

Christopher Kuplent asked for an assessment of the M&A environment and whether current market uncertainty is creating opportunities, and also inquired about the expected evolution of net working capital.

Answer

Chairman & CEO Paolo Rocca stated that while consolidation is important, finding suitable targets is challenging, but the company remains watchful for opportunities. CFO Carlos Gómez Álzaga explained that after generating cash from working capital in H1, the company expects to build some inventory in Q3 for new projects before releasing some again in Q4.