TotalEnergies - Q3 2023

Transcript

Patrick Pouyanné (Chairman and CEO)

Hello, everybody, everyone, good afternoon. So, or good morning, if you are in the US. So today, I will present with Jean-Pierre, our third quarter results, which once again demonstrates the relevance of our strategy. Indeed, our transition strategy is anchored on both pillars, as we explained to you last September. On oil and gas on one side, integrated power on the other side, and it allows us to fully leverage upside in supportive energy environments like the one we are experiencing today. As explained in our Total strategy and outlook presentation, end of September, we have stayed the course, and this quarter illustrates all these strategies in motion in all our business segments.

Oil and gas first, as you know, we have developed organically a deep portfolio of projects, but our low cost and low emissions, which will offer a growth of production of 2%-3% per year for the next five years. Thanks to this strategy, this quarter, we delivered a 5% increase of production compared to Q3 2022, as several new projects have been put into production, like Mero in Brazil, Absheron in Azerbaijan, Block 10 in Oman or Ratawi in Iraq, and they are more than offsetting our natural decline of 3% per year. The downstream is also contributing to this oil and gas business, in particular, thanks to our capacity to combine an excellent utilization rate of our refineries with very robust refining margins.

On the LNG side, the recent price volatility in European gas markets, spikes spiking as much as 28% in a single day during the quarter, is the most obvious example of real-time markets intention. We capture value along the entire value chain and maximize the margins on both our dominant U.S. and European positions. We are the largest U.S. LNG exporters, and we have reinforced this position this quarter with the sanction of Rio Grande LNG in Texas, and the largest, we are also the largest European gas capacity holders. And very again, we are reinforcing this position this quarter with the commissioning of our second FSRU in France, after the one in Germany earlier this year.

The same integrated strategy extended, as you understood, to our integrated power business, since the electricity market in Europe follows the gas market, as natural gas plus CO2 sets the marginal power price for many years to come. This market is again, once characterized by growing demand and constrained supply, which creates opportunities in the market. As Jean-Pierre will explain you, integrated power achieved a new milestone this quarter with both adjusted net income and cash flow exceeding $500 million. We are well on our way to achieving our $2 billion cash flow target for the year in this business. We have announced this morning an interesting acquisition on the German market, which illustrates our integrated power strategy.

Quadra Energy is the second largest aggregator of renewable energy in Germany, with 9 GW of virtual of onshore wind farm, and offers a very interesting platform from getting value out of a power market dominated by renewable, without capital employed in the asset, and so contribute to our profitability in this attractive market. I will wrap up my introduction by just saying again that the relevance of a balanced transition strategy between oil and gas on one side, integrated power on the other side, has never been clearer. More energy, less emission, more cash flows, and this quarter illustrates this relevance with adjusted net income increase to $6.5 billion and CFFO increase to $9.3 billion. Total generated a $4.2 billion free cash flow after net investments.

Based on the strength of these results and the trust in the company's outlooks, our board approved the third interim dividend increase up 7.25% year-on-year, at 0.74 EUR per share. Having said that, I turn it to Jean-Pierre, who will give you more details through the solid fourth quarter financial results.

Jean-Pierre Sbraire (CFO)

Yes, thank you, Patrick. So now we're moving on to the detailed financial results, starting with our first pillar, oil and gas, which is the cash engine of today. Third quarter hydrocarbon production was nearly 2.5 million barrels of oil equivalent per day, which is notably up 5% year-on-year, as already mentioned by Patrick, thanks to the startup of several oil and gas projects. On oil, production benefited from new production from the first FPSO on Mero in Brazil, Ikike in Nigeria, and our entry in the Ratawi oil field in mid-August in Iraq. Speaking of projects, Mero II should be online by the end of the year. Production also benefited from our entry in January into the SARB and Umm Lulu concession in Abu Dhabi.

On the gas side, production benefited from the startup of Block 10 in Oman and Azerbaijan and in Azerbaijan of the Absheron fields. Although production was flat quarter-to-quarter, exploration and production posted strong quarterly results, with adjusted net income of $3.1 billion and CFFO of $5.2 billion. The 34% increase in adjusted net operating income quarter-to-quarter was primarily driven by higher oil price and a lower effective tax rate, which is a result of two effects. First, it results from the lower taxation rates on new barrels, Brazil, Azerbaijan, Iraq, compared to declining historic levels, barrels, and it results also as a lower weight of North Sea barrels in the segment results this, for this quarter. Operating costs decreased to $5.5 per barrel this quarter.

For the integrated LNG segments, we continue to demonstrate our leadership as a top global LNG player. Integrated LNG production is up 18% year-on-year and stable quarter-to-quarter. LNG sales were down by 5% quarter-to-quarter due to decrease in spot traded volumes in a less volatile environment, and LNG price sales was down 3% quarter-to-quarter, linked to a certain environment. However, after our results have landed last quarter from the historic high exceptional results experienced in 2022, integrated LNG maintained this quarter robust results with adjusted net operating income flat quarter-to-quarter at $1.3 billion and CFFO at $1.6 billion, down 8% compared to previous quarter, in line with sales down by 5% and prices by 3%.

Despite entering the winter period with high natural gas inventories in Europe, in a tense market, gas prices remain at good levels and very reactive to production disruption, as we have seen over the last several months. Given the evolution of oil and gas prices in recent months and the lag effect on price formulas, we anticipate that our average LNG selling price should be above $10 per million BTU in the fourth quarter 2023. For the combined downstream, adjusted net operating income and CFFO increased sequentially to $1.8 billion and $2.2 billion, respectively. Despite lower petrochemical results due to the European environment, our results reflect higher refining margins in Europe and a higher utilization rate during the third quarter, which was supported by greater availability of our French refineries to be noticed for once.

The utilization rate on processed crude increased quarter-over-quarter to 84%, despite having an unplanned shutdown at the Port Arthur refinery in the U.S. For the fourth quarter, the utilization rate should be above 80% and includes the restart of Port Arthur in mid-November. Moving now to the second pillar. We continue to develop a profitable and differentiated integrated power model, building a world-class, cost-competitive portfolio that combines renewable assets, solar, offshore, wind, onshore wind, and flexible assets such as CCGTs and storage to deliver clean, firm power.

As mentioned by Patrick, this quarter we achieved a milestone in integrated power business segment, with adjusted net income and cash flow both exceeding $500 million, and we are well on our way to achieving our targets of generating $2 billion cash flow in 2023, having already generated close to $1.5 billion through the first three quarters. All the value chain contributed this quarter to this $500 million results, renewables, flexible assets, and trading, supply to customers as well. During the third quarter, we also acquired 100% of Total Eren, which contributed to the growth of our electricity productions and results. Early October, we signed a corporate PPA with Saint-Gobain in the U.S. to supply clean power from our Danish Fields solar farm in Texas.

The agreement is a good illustration of our strategy in integrated power, as it includes an upside sharing mechanism under which both companies share potential upside arising from spot market prices over the contract term. We recently achieved another milestone. Earlier this month, our Seagreen offshore wind farm in Scotland became fully operational and is running at the design capacity of more than 1 GW. This project was delivered within budget, only 5% cost overrun, and is TotalEnergies' biggest offshore wind farm globally. I'll wrap up with CapEx and shareholder returns. Year-to-date, net investments as of the end of the third quarter totaled $16.1 billion. As a reminder, we expect to receive cash proceeds from the sales of our Canadian assets and from the deal with Alimentation Couche-Tard in the fourth quarter.

Therefore, we reiterate full year guidance of $16 billion-$17 billion of CapEx this year. Our balance sheet is strong. Our gearing slightly increased from 11.1% at the end of the second quarter to 12.3% at the end of the third quarter. That is mainly due to the consolidation in our accounts of Total Eren debts. Proceeds from disposals should bring gearing back below 8% by end of the year. Over the last twelve months, ROCE was 20.1%, and return on equity was more than 22%. In September, we raised our annual payout guidance from 35%-40% of cash flow to more than 40%. We're on track for 2023, having paid out a cumulative 43% for the third quarter.

Our payout is a combination of ordinary dividends and buybacks, as we believe our stock, despite having reached its historical high this quarter, is still undervalued by the market.

We bought back $6.1 billion of stock through the third quarter, and so we are well on the way in executing our $9 billion buyback program for full year 2023, as the board decided to allocate $1.5 billion of Canadian sale proceeds to this buyback program in 2023. This concludes my comments, and now we can move to the Q&A.

Operator (participant)

Ladies and gentlemen, welcome to TotalEnergies' third quarter 2023 results conference call. We will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star and one on your touchtone telephone and wait for your name to be announced. Please kindly mute any audio sources while asking a question. If you wish to cancel a request, please press star and two. Once again, please press star and one for questions. One moment for the first question. The first question comes from Oswald Clint of Bernstein. Please go ahead, sir.

Oswald Clint (Senior Research Analyst in European Oil & Gas)

Thank you very much, both of you. Two questions. The first one on the U.S. offshore wind, please, Attentive Energy. It was a good press release this week, lots of information that that's not normally presented for these types of deals, and it helps us kinda get to the returns, I think. You know, with the 40% tax credit, we were getting to something like 13.5% on an equity basis. And I just wondered if that was anywhere close to your own expectations for a project like that? And perhaps at this point, you could say, you know, how much of your $20 billion of capital employed in integrated power is currently in production? That's the first one.

Secondly, I wanted to ask about geopolitical risk. You always have your finger on the pulse, and obviously, I wanted to get a sense of how you're thinking about the portfolio risk at the moment, especially Middle Eastern exposure, and whether any strategic changes or indeed M&A moves may be needed or may be considered if things were to worsen. Thank you.

Patrick Pouyanné (Chairman and CEO)

Thank you, Oswald. Thank you for the comments. Yes, as you know, the offshore wind industry sometimes is questioned. So in fact, these offshore wind, by the way, in our portfolio, we had two good news in fact for me, these last weeks, and so we wanted to share. First, Seagreen in Scotland, we managed to make that project within 5% only of our own cost, EUR 4 billion. So it's quite, it demonstrates that. And we have a good CfD on Seagreen, so we'll make money now from this project. So it demonstrates that you can execute a offshore wind projects when you are good team, good project team within the budget, and I would say, not much delay, in fact, in that case, which of course are linked.

So first comment. Second comment on, in New York, you know, yes, that's true, but we, and I think the analyst said, even if we're not allowed to disclose what is the level of our price, you know, they mentioned an average price of around $145 per MWh nominal. And so, you know, you change the range compared to previous ones. And I think it is a lesson I explained to you last time, but offshore wind, you need to, to have a to be pragmatic about what would be the cost, and then you enter into a discussion. In the US, in particular, this type of price plus the 40% IRA are giving us a good support, and honestly, you are quite good in your math.

I would say, I would have answered to you 12-15, so you are quite good in your math. Congratulations. So we can indeed develop a profitable offshore wind project based on equity. And one of the key, by the way, people might be surprised by the level of price announced by the state of New York, which is much higher than before. I can tell you, one of the key has been to have amount of partnership. As we announced, we have introduced in the partnership, Corio, which is our worldwide partner, but also LS Power, which is a US company, very well established in New York. And again, for me, very strong lesson, when you have a local partner, well-implemented, it helps a lot in these discussions with local authorities.

We would have been alone, TotalEnergies, in front of New York State. I'm not sure we would have achieved the same results. So that confirms my strong belief, renewables require to identify local partner. And by the way, LS Power is a very interesting partner for us in the future, including to develop maybe more business in the, PJM area. So that's, that's this one, so for offshore wind. On the geopolitical risk, our exposure, you know, when you look to a portfolio, we have many countries, but there are two countries fundamentally which are contributing to the cash flow. By the way, yes, to come back on the...

And the second question, capital employed out of $20 billion under production or in offshore wind, I think it's less than two today, probably, like $2 billion, probably 10%. 10% of the capital employed are in offshore wind today out of the $20 billion of the integrated power business, just to give you an idea. And more or less, you know, in our prospection to prospective to 2030, 10% is more or less what we expect from offshore wind, more or less. So, geopolitical risk, two countries for us, which are key, are Abu Dhabi and Qatar. In fact, when you really see where the cash flow is coming from today, we have over- you have also Libya, which is out of it, or to, to the area.

To be honest, in Abu Dhabi, the things, the geopolitical risk is limited there. It's well controlled, and Qatar also, I would say. So I'm not so, I really not when I think to what the situation, which is a dramatic situation, I don't see too many, I would say, consequence for that. Of course, we need to manage the situation to be fair in Iraq, of course, in Lebanon, but it was only exploration. And so, and Egypt, I would say, our exposure is very limited in Egypt, so I'm not considering that it's an issue for TotalEnergies, maybe for others. So that's, I would say, where I'm there.

M&A move, if things are worsen, you know, if things are worsening, the price of oil will go up, and then we'll have to see what we'll do, but there's no M&A move linked to that situation for me in my, in that period.

Jean-Pierre Sbraire (CFO)

Super. Very clear. Thank you.

Operator (participant)

The next question is from Christyan Malek of JP Morgan. Please go ahead.

Christyan Malek (Equity Research Analyst)

Hi, good afternoon, gentlemen. Thank you for having me ask this question. The only question I would like to ask is just around your views around consolidation, Jean-Pierre, in terms of what we're seeing in the U.S. How would you read two parts: one, their sort of opportunistic chasing of growth in terms of volumes through their balance sheet, as opposed to building organically? And then two, where does that position TotalEnergies in the upstream medium term, particularly if, based on what they're doing, it suggests that they are looking for oil as well as backing the back end of the curve, so to speak. So do you feel like you have a little bit of FOMO, or are you very comfortable with your upstream growth?

And I guess the question I'm asking is, why don't you feel the need to do consolidation, particularly given you're building these two pillars and, and building it through scale? Thank you.

Patrick Pouyanné (Chairman and CEO)

To be honest, as you know, we don't have any, we are not a position in the US, so I think I understand there might be consolidation in the US, it's quite a spread-out industry in the shale industry, so I have no comment, but it's not our case. Historically, you make, you make consolidations when you have low price of the barrel to gain synergies. That's the history of our industry, you know, you are driven by a low price of barrel. You try to synergize, and scale, obviously, generate synergies, and so you are trying to... But the history of our industry, we are not at all in that situation today. Price is brilliant. We are even at, for most of us, at the top of our historical value.

So I would say, that's not what I would look for, honestly. I don't sign, and for TotalEnergies, we would not have diverse synergies in terms of, operations or, or nor in terms of cost. So I think that's not, for us, the type of things we are looking. By the way, we have a quite, strong and deep, we have a deep portfolio of projects in oil and gas. I think it was what we presented to you, end of September, so I don't feel the necessity to add more on this one. Again, we mentioned that we might have to look to, more, shared gas in the US for feeding integration to the LNG, which we mentioned in September, but so what I mentioned. So I observe, this move.

It means that, my colleagues are thinking that the price of oil will go, will remain high for improvement, so I'm happy. That's, what I can comment to you, but for us, I think we have a clear strategy. We execute the strategy, and, let's, let's be consistent.

Christyan Malek (Equity Research Analyst)

Thank you.

Operator (participant)

The next question is from Lydia Rainforth of Barclays.

Lydia Rainforth (Managing Director and Senior Equity Analyst in European Integrated Energy)

Thank you, and good afternoon. Two questions, if I could. One, just following up on the virtual power plant acquisition from this morning. Can you just walk us through why that whole idea works in terms of virtual power plants, and just any indication on price on that? And then secondly, I mean, just in this, we're clearly seeing a lot of volatility on the gas market. And could you just walk through what you think might happen over the winter period for us? Thank you.

Patrick Pouyanné (Chairman and CEO)

Okay, now, a virtual power plant, what is it? It's just integrated... But, you know, you can build assets, you can also aggregate some assets. And I think it's the idea that this Quadra Energy has established is very strong. We are number 2 in the German market. We have been able to connect with 4,000 wind renewable developer in Germany, quite a large base, aggregating 9 GW, which is a big volume, of course. With that, you can trade it, or you can, even, if you are pricing it, and you make 2 EUR per MWh of margin out of it, it gives you access to something. You don't have any capital employed, almost nothing. You know, it's a pure acquisition, I would say, of people with the know-how and the knowledge. There is no assets.

So, I can mention to you that the price that we acquired is around 200-250 million EUR. So it's not very expensive, but you have a lot of skills. You are, you have access. It's a complement to our model. You know, we have some assets, and we try to complement it with, again, low capital employed base in order to develop the business. And gave us, again, we explain you, in the integration, it's important to have to have sources of supply, and when you have customers, you may be intermediation. It gives you a more flexibility for our trading platform in Germany. Germany, again, is for us, a very, it's an interesting market.

I repeat it, this is, for us, one of the key target because it's really the mix will be renewable and gas, plus ETS, so that means quite a good price, a lot of potentials. So we are building, step by step, our position in Germany. And this one is interesting because we enter in a big way. Again, it's a number two obvious market, and with a large base, 9 GW, some PPA, some more short-term. So I think it's a, it's an interesting way to progress in the integrated power strategy on this important market. On the second one, volatility gas market for the winter? I don't know if it will be cold today, it's a little cold in Paris, to be honest, since the beginning of the week.

Even if I hope it will not be too cold for the final of the Rugby, Rugby World Cup tomorrow, but or the day after tomorrow. No, but, more seriously, you know, it's very volatile, you know, it's clear, the market is in tension. I know, I'll be clear. There is no margin in this market, so each time you have a hiccup, you know, the strikes in Australia, then you had the stoppage of the Tamar field in in Israel, which was going to Egypt and back to LNG to Europe, then you had the, of course, this Baltic, this Baltic pipeline. And so each time you have a hiccup, poof! The market is taking almost 30, 40% in the day. So that's full, but it's super tension.

So we always said that, for this winter, by the way, the forward, more around $16 per million BTU will still remain high. If, yes, the storage are full, but we don't have enough storage in Europe to go through the winter, if the winter is cold. It's not only me, it's repeated by the IEA recently. So in any event, in these conditions is pushing the is putting the price up, knowing that you noticed as well, that the Asian buyers are back in the LNG business, huh? They are back, today, the JKM is TTF plus $2-$3, which means that, in fact, they are ready to buy. And today, most of the cargos are going to Asia, because the spot market is in favor of Asia.

So you might have, in this type of market, more call for LNG coming from Asia, so it put an additional tension on this LNG market. So let's see, okay, the weather will be important again. And again, if there is any... It's clear that if you have like, one year ago, or one or three years ago, an event like a rupture on one plant, this will be obviously immediately reflected in the, in the gas market. So but while again, generally we are long on the future, but this, the tension, I'm sure there is a market, a gas market in tension today.

Lydia Rainforth (Managing Director and Senior Equity Analyst in European Integrated Energy)

Thank you.

Operator (participant)

The next question is from Michele Della Vigna of Goldman Sachs.

Michele Della Vigna (Head of European Natural Resources Research)

Thank you very much. I wanted to ask two questions if possible. The first one is back to M&A, but thinking of it more countercyclically. Energy prices are quite high, a lot of companies are consolidating. I was wondering if this could actually be a good time to dispose of some of the EMP assets that may be more marginal to your portfolio, and maybe again, going countercyclical in some of the energy transition assets that have substantially derated over the last year. And then remaining on the theme of clean tech and renewables, congratulations on the very consistent delivery of earnings of cash flow.

I was wondering if you could perhaps unpick a little bit for us, the $500 million you make in integrated power per quarter, between renewable CCGTs and trading, definitely highlighting the integrated nature of that business, but also perhaps helping us to understand a bit more the scale of those different moving parts? Thank you.

Patrick Pouyanné (Chairman and CEO)

Yeah. On the second question, I think Jean-Pierre mentioned that it was coming from three segments, renewables, flexible asset strategies and trading, and also a marketing business, by the way. So the supply business to customers is also for the... So consider that it's coming from all of them. So everything is contributed to this integrated power and, in a positive way. But, that's what I can just explain to you. On the first question, it's clear that you know that I'm a strong believer that in M&A, it's better to be countercyclical than to be procyclical. That's, like, clear. But for me, in this business, the commodity business, where you have cycles, I mean, you take a risk when you make an acquisition at the top.

So, yes, you are right on EMP, but by the way, we've just done it. I remind you, Michele, that we just divested our Canadian oil sands assets at the top of the market, and we received $4.4 billion, plus an extra earn-out next year of $400 billion. So I'm happy, you know, it's a good value for this asset, and so we've done it. We've just done it. We have cleaned a lot the portfolio, you know, in the last since 2015, we rotated a lot. We have cleaned a lot, but that's not mean that I don't think we have a lot of wants.

We might have, as I said, some quite, you know, but some exposure which are high on some countries, like, for example, Nigeria, and where we want to continue to invest. So we might be willing to use that environment to reshape the Nigeria portfolio. I'm not today the oil onshore in Nigeria; for me, it raises many issues about the type of assets, and it's a good environment to monetize them, if we find some buyers, of course. But that's part of things we could do, but we have cleaned, I would say, the portfolio in terms of most of the portfolio today are in the definition of low cost, low emissions; [they] have been really the work has been done.

So it's more optimizing things in some countries where we could do, and I would prefer, for example, to be a higher stake when we are operator and maybe lower stake when we are non-operated. So if we are non-operated position, to diversify them, to reinforce, I would say, when we are operator in control of our future, I like to be more in control of our destiny rather than just being a non-operated company, even if it's operated by a large peer. And then, the other question, of course, that you mentioned is about the transition asset. You know, today our priority, and I think what we've done this morning with Quadra illustrate, is more, as I explained to you in September, to complement in some key markets through some targeted acquisitions.

I mentioned either Texas, flexible assets in Texas, gas pipe power plants will come one of these days. Or what we've done in Germany with this Quadra, we might look to rather than making a big acquisition, because if it even if it's derated, it's still high. So I think it could go even lower and lower. So, and honestly, when you think, for example, to offshore wind, I mean, I'm very happy to build ourselves for portfolio with exactly the one in New York, where we control what we do. We are a part of the will be covered by CFV, part of it will be merchant. So that's better for it, because again, our strategy is not to acquire a portfolio of fully secured renewable assets with no upside. It's not what we described to you.

So I think it's better to continue and to deliver our strategy the way we explained to you end of September.

Michele Della Vigna (Head of European Natural Resources Research)

Thank you.

Operator (participant)

The next question is from Irene Himona of Société Générale.

Irene Himona (Equity Research Analyst)

Thank you very much. Good afternoon. Two questions, please. You formed a new joint venture with Adani Green in India during the quarter. Earlier this year, when there was the financial crisis with the Adani Group, I think you had said that you would likely slow down that Indian expansion and wait for the outcome. Can we presume that you're satisfied with that group's financial situation, and therefore back to normal in terms of Total continuing to invest in Indian renewables? And then, the second question on chemicals, where obviously it's a weak industry, your nine-month volumes are down. When you look at the balance of new capacity versus this weak demand picture, what is your expectation for that business over the next year? Thank you.

Patrick Pouyanné (Chairman and CEO)

Okay. On India, I think, again, what we said in the beginning of the year is that we wanted to have a clarity on the situation. We have engaged with Adani Group. You have noticed that what we've done, in fact, from for me, you should make a difference between... We are shareholder of Adani Green, not of Adani Group. Adani Green, Adani Green is a strong company with a large base of assets. The question for us is, how do we continue to contribute to the development of Adani Green? We could do, we, we, we were we, what we have elected is to do it through a JV between Adani Green and ourselves. So let's be clear, this is a venture where we have direct access to the assets, which is fundamental.

So it's not putting, we didn't put more money in Adani Green as a shareholder, but we made it, and we help, and we contribute to the development that it will be, making access direct to the asset. So for me, that's Adani Green as a portfolio, we share part of this full portfolio, the equivalent of 1.4 GW together, but 50% of it being owned by TotalEnergies. So TotalEnergies is protected, and I think it helps our goal to consolidate Adani Green to continue its growth, which is as a shareholder of Adani Green, our interest. That's the first point. And we are, I would say, in the conditions in which we have discussed that deal are attractive, in terms of metrics for TotalEnergies, as a, as a company.

On the chemicals in Europe, you know, we know that chemicals in Europe are clearly quite linked to GDP. You know, the GDP in Europe is softening more than that, so you have a less demand in Europe. So like it was very good two years ago. Today, it's the reverse of it. So that's part of the value chain. Our exposure to Europe in chemicals is not so strong. I mean, let me be clear, for us, the polymers part are compared to the other part, because in fact, we make more money on refining and on naphtha. We make less money on the petrochemicals in Europe. All our strategy, by the way, is not to develop any new capacity in Europe, to be clear.

We did not announce, I think since I've been in charge of refining and chemicals 12 years ago, I don't think you announce a single extra capacity in chemicals of TotalEnergies in Europe. I think you have even more likely to either closing or selling some of them, so I don't think it's the best place to invest, to be clear. All the strategy in chemical TotalEnergies has been more either based on cheap feedstock, either in the U.S. or in Saudi Arabia with Amiral, but Amiral is targeting markets in China, India, on the East. So that's where the demand is. So I would say for TotalEnergies, in fact, it's more managing the historical portfolio in the best possible way.

Again, when I'm looking today to my, to our position, refining petrochemicals and polymers in Europe, all that is quite positive today. By the way, it contributes to a good return on capital employed, so that's what I could comment. For next year, I don't expect much more, okay?

Operator (participant)

The next question is from Biraj Borkhataria of RBC.

Biraj Borkhataria (Equity Research Analyst)

Hi, thanks for taking my questions. Two quick ones, please. The first one is on your debt profile. Could you just confirm what proportion of your gross debt is on sort of long-term fixed interest rates? And then the second question is on the recent U.S. wind bid. You know, there's a provision in the PPA that suggests it goes up with industry-specific inflation.

I was wondering what you assume inflation wise for that kind of project, from here to FID? Thank you.

Lucas Herrmann (Managing Director and Senior Analyst in European Oil & Gas Equity Research)

Yes, perhaps I will take the first question. More than 80% of our debt has been fixed a couple of years ago, so that mean that we benefited on that portion from very low coupon, around 3%, and so the remaining is flexible.

Patrick Pouyanné (Chairman and CEO)

Clear answer. Second answer is quite clear, but you know, we have, between today and the FID, we have more probably three years to work, so you will have inflation of the next three years. So it might be, I think, let's say 5%-10% probably, in the, in the three years, we'll see. But again, there is a provision which provide, which I would say, protects us until the FID. Then, of course, we take the risk of execution, but I think it's a fair, fair protection, which is offered by the New York State to, to the investors. So we were, it's one of the, element of the, of the bid and of the discussion negotiation we managed to obtain, so we are, we are satisfied.

Again, we'll see if it's higher than that, but we don't expect much more than that.

Biraj Borkhataria (Equity Research Analyst)

Okay. Very clear. Thank you both.

Operator (participant)

The next question comes from Martijn Rats of Morgan Stanley.

Martijn Rats (Managing Director in Global Oil Strategist and Head of European Oil & Gas Equity Research)

Yeah. Hello. I just wanna follow up on the question that Brad actually just asked about the debt. Because interest rates continue to rise and rise, and Total bonds are not escaping that. Some of the longer term debt that you hold is now sort of yielding 6%, and I was wondering in addition to the mechanical impact that this may have on the interest expense every quarter, how this affects possibly sort of any investment decision making, particularly in the new energy areas? I mean, the question has been put to me, can we have an energy transition when U.S. Treasury yields, the 10-year U.S. Treasury yields are 5%? And it's kind of a sort of an intriguing one. Therefore, can I ask you, how are these rising interest rates impacting your investment decision making?

And also, what are you seeing in others, particularly in sort of CapEx-intensive areas like renewables? What’s the impact that you’re seeing?

Patrick Pouyanné (Chairman and CEO)

Well, the answer is quite clear, right? You transfer the interest rate to the customer. I will tell you, at the end, So the question is, does it affect the space of the transition? It might, but it's clear that, it's against the idea that any con- which contribute maybe, by the way, to have a segment which will, stop going, price going down and down. But it has already an impact, in fact, I can tell you. You know, we, in fact, in the US, you know, I take the US as a good example, you have the IRA on one side, which helps, but we also have the obligation to make, projects with, solar modules being manufactured in the US. It has an impact on the cost of the project.

So this cost of the project today, when we discuss and renegotiate, by the way, we negotiate PPAs with our customers, it has an impact on the, on the high side, you know. So today you sign the. The last PPA we signed with, recently with Saint-Gobain in the US, is reflecting, let's be clear, a higher cost of manufacturing in the US and a higher interest rate. Because when we bid, we don't use the 3% of TotalEnergies, for when we price a project in the, in the renewables, you know, we are pricing a higher one, which makes me, makes us more profitable. We compete with people, we have competitors which have, in fact, a higher cost of debt.

So we use their cost of debt, and we will maybe benefit from that to win the deals, but we keep the difference from, for us, in fact, as a company. So I would say, yes, you're right, it might affect the pace, but you know, I think, because we are back in a normal world. It's much better for the world economy to have a 5% interest rate world rather than 0%, I think, in particular for oil companies, oil and gas companies with a strong balance sheet and cash delivery. I think it's a... We have, it was, for me, the anomaly, where during five, 10 years, having the 0% world after the 2008 crisis, was a way to absorb it, and then the COVID.

But for me, it was more the anomaly than the contrary. So I think for me, it's a new normal. We have to integrate it. It will have an impact, probably, of course, on the competitor, which have a very, we have more leverage than us. And from this perspective, the strength of the balance sheet of TotalEnergies is an asset, and I think that's why we continue to, part of the cash flow, we continue to strengthen the balance sheet.

Martijn Rats (Managing Director in Global Oil Strategist and Head of European Oil & Gas Equity Research)

Very clear. Thank you.

Operator (participant)

The next question is from Lucas Herrmann of BNP Paribas.

Lucas Herrmann (Managing Director and Senior Analyst in European Oil & Gas Equity Research)

Yeah, thanks very much, gentlemen. A couple of straightforward ones, I think. Firstly, just on your reporting, for the last, as far as, as long as I can remember, actually, Patrick, 20-odd years, divisions may have changed, but your reporting method has always been consistent on a quarterly basis, and yet today you've elected to alter it. And I just wondered whether there was any particular reason that you're disclosing more around cash or other items with the things that you're trying to emphasize to us? And the second question, just staying with that, some of the adjustment items. In integrated power, I noticed that there's a EUR 420-odd million asset impairment provision charge taken this quarter. Just if you could provide some further detail on, you know, what that impairment concerns.

That's it. Thank you.

Patrick Pouyanné (Chairman and CEO)

On the second one, it's written. I think it's written, but we have impaired some of the goodwill when we made some acquisition linked to customers, in fact. Because in fact, when we made the acquisition of some of these small companies, there was part of the goodwill was allocated to the-

Lucas Herrmann (Managing Director and Senior Analyst in European Oil & Gas Equity Research)

Customers

Patrick Pouyanné (Chairman and CEO)

customer portfolio, but the customer portfolio has a churn which is quite high. So at a certain point, we, when we reviewed the situation, which we do regularly with our auditors, we decided that this goodwill might be, it would be, it's better to impair it. I mean, I-

Lucas Herrmann (Managing Director and Senior Analyst in European Oil & Gas Equity Research)

Yeah, that's exactly-

Patrick Pouyanné (Chairman and CEO)

That's right.

Lucas Herrmann (Managing Director and Senior Analyst in European Oil & Gas Equity Research)

The case, yeah.

Patrick Pouyanné (Chairman and CEO)

So that's what we've done.

Lucas Herrmann (Managing Director and Senior Analyst in European Oil & Gas Equity Research)

It's a normal review that we have to do, and so we-

That's, yeah.

Patrick Pouyanné (Chairman and CEO)

Okay. Then it's again for the CFO, but I think it be clear, transparent with you. It's we had some exchange, like other companies with the SEC about the, as you know, we are using non-GAAP KPI, I would say-

Jean-Pierre Sbraire (CFO)

Indicators, yes.

Patrick Pouyanné (Chairman and CEO)

Indicators. We have to reconcile the GAAP and the non-GAAP, so it was quite a formal exchange during the last month, and Jean-Pierre has spent some time, but honestly, nothing fundamental. At the end of the day, we concluded that with them, that they wanted to have a clear reconciliation between the GAAP and the non-GAAP, and so some of the tables has to be just complemented. I mean,

Jean-Pierre Sbraire (CFO)

Some have to be removed, and some have to be complemented.

Patrick Pouyanné (Chairman and CEO)

So that's why you have that moving, that change, that changes. So it's honestly, we reviewed it with audit committee and the board, and there was nothing, no nothing major. It's more formal, but I think they are right. We have a GAAP, and we need to give clarity between the IFRS, I would say IFRS referential and what we use. So that's the reason why you have seen some moves, but it's thank you, Luca, because it demonstrates that you are very precise in reading all our reports, including all the pages and all the tables. So I recognize your longstanding position following TotalEnergies, but you know, I know you for almost 20 years, so that's why you are right to suspect.

But again, it's modernization in line with good practice, and we support it.

Lucas Herrmann (Managing Director and Senior Analyst in European Oil & Gas Equity Research)

Yeah, it's sadly also modernization of an old model as well, Patrick, so, thank you. That's a lot of work, but there we go. Thank you very much.

Patrick Pouyanné (Chairman and CEO)

Thank you. Thank you, Luca.

Operator (participant)

The next question is from Kim Fustier of HSBC.

Kim Fustier (Head of European Oil & Gas Research)

Hi, good afternoon, and thank you for taking my question. Firstly, I wondered if you could talk about the 3.5 million ton SPA with QatarEnergy on LNG volumes. Some people have noticed the 27-year duration, and it seems like other off-takers have signed shorter term contracts, and it also takes you well beyond 2050. So I just wondered whether this was a requirement from QatarEnergy, and also the LNG will be delivered in France, I believe. Can you say whether there was a destination clause or whether you can redirect the volumes? Secondly, I wanted to ask a broader question on climate. I wondered if you could share your expectations of what Total and the broader oil industry could potentially announce at COP28 next month.

You've already got a target of reducing methane emissions by 80% by the end of this decade, and that's Paris aligned. So could the ambition be to share your best practices on methane monitoring and emission reductions, and encourage other oil companies to do the same? Thank you.

Patrick Pouyanné (Chairman and CEO)

Good question. Thank you, Kim. The first one, no, we are not alone. The 27-year duration, in fact, is for all the LNG offtakers, all the partners of North Field East and North Field South, which were the last new ventures, were asked to take their share of offtake on the 27 years. So we are not the only one. All my colleagues, and you will see, by the way, I think they issued one or two press releases with European companies. It's only the German companies, which are not part of the of the ventures of the development, which have managed, which have decided to elect for 15 or 20 years. So that's clear. By the way, honestly, 26 plus 27, it makes 2053. It's not so far beyond 2050.

By the way, in our portfolio, and in the net zero company that we described in our last sustainable and climate report, about TotalEnergies in 2050, you still see in the mix of our in our portfolio, we can be some LNG being there, even quite a large share of LNG. It's a gas is there in the transition, so we have no problem. Will it go in the end to France or to Europe? I think, yes. I think, I don't see how you could manage again a complex inter power electricity markets in Europe with a lot of renewable without any flexible assets. So I'm on that, I'm quite clear.

So it's not France, by the way, who committed, it's TotalEnergies, so we are comfortable, and if we need to redirect part of this LNG to other our country, I think the Qatari and ourself, if it's our interest, we'll do it, you know? So no, in fact, this 27 years is aligned on the duration of the concession into which we enter on NFE and NFS. It's just a pure alignment between we invest, we take 3 years to invest, and then we have 27 years remaining. Covers, in fact, the full concession, which is I think a 30 years concession. And I can tell you, we are very happy of the conditions in which we have joined this NFE, NFS, NFS venture in Qatar. So there, that's where. So can we redirect?

Yes, if it is the interest of both parties, we will have in the agreement, we can redirect with Qatar agreement, and might be the case. Climate methane, yes, we have strong targets. So we are leading it with recently. I can just confirm to you that we have entered into make our job, you know, what Total and Al Jaber would like to do in COP28 is to have most more national companies, in fact, joining the IOCs. Because TotalEnergies and the others, all, I would say, the OGCI companies, we are at the forefront of this fight. We have already set the target, you know, on methane, my motto is near zero methane by end of 2030, in fact.

Which means stop flaring, stop venting, and in particular, using technologies to detect fugitive emissions with drones, which we do in all our assets. And we are just in the way to share these technologies with some national companies... and we are signing some agreements, which will be disclosed before COP, so we are, we have signed one or two already, but it's, we have to respect, you know, the will of the countries to announce them. So it will be done. So we are on the TotalEnergies, committed, in order to propose these technologies measuring with again not only Level 5, but with directly emissions to cover assets, and not only from Total, but larger assets from national companies.

So we promote this technology, we do our job, and we'll be able, I think, to announce, I'm sure, to announce some of these in some countries where we have also, where obviously we are operating, and we have good relationship with national companies, we will offer them and deploy this strategy. So we are doing our job on this perspective, and I think it's very important for the natural gas industry to engage more national companies in these efforts.

Operator (participant)

The next question comes from Alastair Syme of Citi.

Alastair Syme (Managing Director and Global Head of Energy Research)

Thanks, Patrick. Any updates on Namibia you want to share? I know you updated at the recent capital markets day, but, you know, you're right in the middle of your assessment, and so I guess, how's the production test at Venus-1A looking? And then secondly, can you just, you know, on the question of debt, can you just remind us on the hybrids? I mean, they are perpetual, but I think as they start to be callable, the coupons change. So can you just talk a little bit about that mechanic, please?

Patrick Pouyanné (Chairman and CEO)

Okay. Jean-Pierre will come back on this hybrid to explain you, give you all the detail. What I know is that the cost of the hybrid is quite interesting, but so, but Jean-Pierre will give you some details. Continuing in this world of, I would say, higher interest rate. On the other side, in Namibia, no, we don't have any updates, and I can tell you that we started the Mangetti well, which is a discovery in the exploration well, sorry, not a discovery, it's exploration. So well drilling has started, seventh of October, I think, beginning of the month, so it's on its way, so no, nothing to report today. It takes two, three months to drill.

The test on the second well on Venus, I just started, the test will start this day, so this week. So sorry, but, it's not ... Our drilling operations did not follow our quarterly course, so you will have to wait for more news. But again, as I said recently, let's be clear, we will develop the Venus discovery. There is a development, so it's a matter for us now to try to assess the full size of it, and then to find the right scheme of development, considering that there is quite a good IGGL. But again, it's optimizing the development that we are looking for, the oil development, again, on Venus.

So we'll come back with you, I think, probably in February, when we'll have the annual results, we'll be able to disclose more information about it. And having, I think we'll have the results on both these wells, and to have more clarity on Venus expansion. We plan to do a third well after in the north, but we'll have a lot of data. Okay, hybrid?

Jean-Pierre Sbraire (CFO)

Hybrid, yes, that's who we benefit from, very competitive hybrid bond portfolio, because on average, the coupon is 2.3%, so very, very low, very, I would say, cheap equity. So the problem now is that, as mentioned by Patrick, the refinancing has become more expensive, 6% more or less, for a maturity of 7 years. So we used the flexibility offered by S&P to be able to reduce by 10% the global portfolio without losing the equity treatments. We use this flexibility because in the second quarter, we have one tranche maturing, and so we decided not to refinance this one.

So now we have to say, we have to see in the future how we can continue to lower this portfolio, hybrid portfolio, without losing the equity treatment. So it's,

Patrick Pouyanné (Chairman and CEO)

But, so-

Jean-Pierre Sbraire (CFO)

that I have on my agenda for the coming months.

Patrick Pouyanné (Chairman and CEO)

Fundamentally, we will use a 10% flexibility, quarter after quarter or year after year, in order to, at the end, I would say to-

Jean-Pierre Sbraire (CFO)

Eliminate.

Patrick Pouyanné (Chairman and CEO)

to respect, of course, the rules.

Jean-Pierre Sbraire (CFO)

Yeah.

Patrick Pouyanné (Chairman and CEO)

We'll do it year after year, considering the law. Yeah. Is it clear?

Alastair Syme (Managing Director and Global Head of Energy Research)

Sorry, Jean, Jean-Pierre, just to be clear, the bit that's callable, does the coupon change on that element, or does it stay the same?

Patrick Pouyanné (Chairman and CEO)

No, it is stable.

Jean-Pierre Sbraire (CFO)

Yes.

Alastair Syme (Managing Director and Global Head of Energy Research)

Okay, thank you.

Operator (participant)

The next question is from Henri Patricot of UBS.

Henri Patricot (Director or Equity Research in European Oil & Gas)

Yes, sir, Patrick and Jean-Pierre, thank you for the update. Two questions from my side. The first one on, on the outlook for, oil demand and refining margins, because we've seen quite a sharp drop in refining margins within the past month, obviously from a, a very high, level. Just wondering if you're getting a bit more concerned about the outlook for oil demand and, and refining margins at the moment? And secondly, I wanted to ask you about, wind, and this time more on the European wind industry. We've seen, the commission this week, setting out more actions to support the European industry. Wanted you to have your initial assessments of, these actions and what will you see potentially, better dynamics for, for European wind and acceleration, in, in wind over here. Thank you.

Patrick Pouyanné (Chairman and CEO)

Well, two general questions, complex one. Oil demand, you know, the oil demand in 2023 is strong, an increase of almost 2 million barrels per day, mainly coming from China, by the way, more than two-thirds, 70% more from petrochemicals on one side and from as well, kerosene, jet fuel, you know, the pace in the airline activity is back almost to normal, not fully. So you still have, in fact, in 2024, some demand from the airlines in the world to come back. So we are not yet fully to the level pre-COVID on the jet fuel demand. So I don't see why it would stop, to be honest, because it's there is a call to move in this planet.

Secondly, I think the IEA has announced an additional 1 million barrels of oil per day increase for next year. So I take this point, I think all traders agree with it. So it's not 2, but it's 1, so continuing to see a demand increase. Again, by the way, what struck me is despite the doubts that some have on the Chinese economy, you see this year we have +2.7, again, 70% of it coming from China. So when China will come back, I read yesterday that the Chinese government is thinking to make an incentive package, a macroeconomic incentive package, raising more debt in order to give impulse to their economy. By the way, we complain about the growth in China, but it's 5%, and it's not 1% or 2%.

So I think I'm still a believer that Chinese growth will drive again growth. And in fact, you know, when you look to... By the way, on oil demand, I will give you a clue. It's not very complex. You take the last 20 years, you look to the increase of the population of the world, plus 1.2%. You look to the increase of the oil demand, and since 2019, because you have a gap, it was exactly plus 1.2%. In fact, the oil demand is not related to GDP, it's related to the growing population, because it is a fundamental factor. And it's why, by the way, transition will be complex. A growing population, because this 1.2% or 1% is still announced for the next 20 years.

So 1% on the planet, it requires more energy, a better way of increasing their life standards, and that's more energy. So it's very aligned, you can see that. We will make a presentation soon on the TotalEnergies outlook on November 13, and we will explain that again. So that's the demand. Refining margin, refining margin is different, it depends on the market, supply and demand. We've seen them going through the roof during one or two months. During summertime, everything was under constraint. I think you still have, and honestly, in this downstream business, an impact on the ban of Russian products, because all that has put a Russian crude oil on one side. So the quality of the crude oil is different in the refining system, and also on the products.

You know, you have disorganized, I would say, the transportation. Transportation costs are more expensive. And so today, what we face is that you still—the gasoline demand, the gasoline spread is down, quite low, because, again, the gasoline demand in Europe is, I think, impacted by the high price. You know, you have an elasticity of the demand to the price. So when in the third quarter you've seen $90 per barrel, $95 per barrel, plus a high, a strong margin of refining, the customers, you know, when price is high, they save energy. They reduce their consumption. So which is what we have observed, and so today, the gasoline demand is softening, so the spread, the crack is softening.

But the diesel crack is still high, very high, $30, because there, on this side, you have an impact of the fact that we have less heavier crude, so it's more expensive to produce diesel. And so you had some warning, which I think are exaggerated from the IEA, but we might have a lack of diesel. We'll not have a lack of diesel, for sure. You know why? Just because the refiners are smart people, huh. When you have a strong crack on diesel and a low crack on gasoline, you adapt your refinery and you make more diesel and less and less gasoline. So it's quite easy business, you know, and we have flexibility. So today, our machines are running to make diesel, and so no, no, no fear, but a good benefit.

So yes, it has suffered, but I would say, I would expect, a margin around $70-$80 per ton for the next months. I think it's a good, good, good bet. I would be surprised to see them coming back very low, because again, you have some, inefficiencies in the system because of the Russian ban, not only on oil, but also on products. That creates some, I would say, increased costs. On the wind, yes, the wind, the European Commission, and it's, it's more the European wind manufacturing industry which is complaining, if I'm reading, carefully, rather than the European wind development industry. The developers are still willing to, to develop with lowest cost, because, that's a good question to the commission, I think.

You know, like on solar, do they want to protect the consumers by continuing to have access to the lowest possible cost of renewables, or do they want to protect the manufacturing industries? That's the question. Until now, in the last 10 years, it was always the EU has favored the consumers, in fact. I've seen a call from the solar developers calling for not protecting them. I will see. Again, for us, honestly, at the end of the day, in the U.S., when we are asked by the IRA to use U.S. goods, we are using U.S. goods. You know, in the offshore wind project in New York, we have made a deal with GE.

We secured the price and the cost, by the way, of the turbines with GE, which will build a new manufacturing plant in New York, creating local jobs. All that has a cost, but it has been integrated in the CfD, which has been accepted, you know, and agreed and negotiated. So I think, so up to... We will adapt ourselves, we are flexible, you know? That's why, by the way, we should not anticipate too early this type of CfDs in insurances, because if you take the insurances too early, then as the environment is moving, you could be trapped in something which become less profitable. So it's because wind-offshore wind is taking more time.

Having said that, at the end of the day, I can confirm to you that I see more and more Goldwind, Chinese wind farms being built in Europe and in the world.

Operator (participant)

Good. Thank you. The next question is from Bertrand Hodée of Kepler Cheuvreux.

Bertrand Hodée (Equity Research Analyst)

Yes, hello. Thank you for taking my question. Two very quick ones, if I may. The first one on Namibia, you disclosed that the first dual DST test on Venus was in line with expectation. But can you share a bit more color on that? You've hinted that if it was, you know, 5,000 barrels of oil equivalent per day, it was not good, it was 15, it was okay. So can you give us a bit of a color, and whether it was above 15 or below 15? That is essentially my question. And then on U.S. offshore wind in New York, can you disclose, in dollars per megawatt, what is your current CapEx estimate, before any inflation provision?

Patrick Pouyanné (Chairman and CEO)

No, I cannot fill your full Excel file, my dear Bertrand. Sorry to tell you that. I didn't know that 15 was a threshold. It depends from. No, honestly, I think we told you the truth. It's in line with our expectation. That means that it's in line. We have the assumptions we have taken to plan the development. So if it's in line, that means that we are happy. We get the data, they confirm the productivity and the production per well, and we know that this, with this level of production per well, we can make a profitable development. So I mean, and I don't want to comment more one test, because we have plenty of tests coming.

And so let's continue the job, and you will have to rely on what we say, but as we are a listed company, generally, we say the truth. And then on the second one, I think it's something, it's something that I don't remember, to be honest. So $ per megawatt hour, before any CapEx provision, no, we don't work like that. So we have a CapEx, including contingencies. This is the way we work. You know, we work in offshore wind in the same way that in oil and gas on our side. We have an experience of offshore wind of projects, offshore projects. And we know that when you make an offshore project, you don't stick with only the EPC contract, but you are taking some contingencies.

When we communicate in oil and gas on the CapEx, we communicate always including contingency. Because we perfectly know that in oil and gas, when you make a project, things will not be exactly the same as would be EPC contracts. This is one of the mistake which is done in this industry by some of the competitors, which believe that you make the EPC, and it will execute rightly, the EPC. It's why today you have some EPC contractors which are facing difficulties, because then they have huge pressure on them, and they are obliged to announce losses. No, it's not the way.

You know, if the sustainability of this model, business model, like we've done in the oil and gas industry, is to understand that you make a project because your EPC contractors are also surviving, you know, and not just surviving, making profits. And that's why when we execute a project in oil and gas, we know that we have contingencies. I remember the first time our offshore wind developers came to the executive committee, we were mentioning it was 2% of provision. We were laughing. We thought, "No, no, offshore, it's at least 10%," you know, and we know that by experience. And I will tell you even that, our experience in Seagreen instead installing 100 wind turbines offshore is much more complex than installing one big offshore oil platform.

It's including provision, and we make all our projections and negotiation with the right provision within our CapEx. Thank you.

Bertrand Hodée (Equity Research Analyst)

Thank you.

Operator (participant)

The next question is from Paul Cheng of Scotiabank.

Paul Cheng (Equity Research Analyst)

Thank you. Good morning or good afternoon. Two questions. One is really short, maybe it's for Jean-Pierre. Third quarter E&P effective tax rate, they call it round number 45%, seems a bit low, even taking into consideration of the lower contribution from North Sea. Is there any one-off benefit in tax in the quarter? And also, more importantly, that based on the current market condition, what is your expectation for the division effective tax rate in the fourth quarter? Second question, I think this for Patrick. The... We have seen a pretty substantial reduction in the renewable diesel margin over the past several weeks, and that the wind price in the US has been dropping, and we have also seen the LCFS price remain relatively low.

Does, though, this market condition in any shape or form impact your thinking of the investment in the alternative fuels, like, renewable diesel and SAF? Thank you.

Patrick Pouyanné (Chairman and CEO)

in fact, as Jean-Pierre told you, the first question, it's not only the mix, lower North Sea, is the fact, and it's more important, and we'll come back to you, I think, in February, that the new barrels that we are producing, like in Brazil, like in, in Iraq, like I think there was another example in Europe.

Jason Gabelman (Equity Research Analyst)

Azerbaijan?

Patrick Pouyanné (Chairman and CEO)

In Azerbaijan.

Jason Gabelman (Equity Research Analyst)

Yeah.

Patrick Pouyanné (Chairman and CEO)

In fact, have a lower fiscal burden than the declining barrels from the North Sea. So it's interesting for you, because that means that there is a trend in our portfolio-

Jason Gabelman (Equity Research Analyst)

Yes.

Patrick Pouyanné (Chairman and CEO)

With new barrels and higher, higher margins, so lower tax. To give you the real figure for Q4, I mean, it's premature. I cannot guess on that. As you know, we are making quarterly results, and generally, the last quarter, you have some alignments. But to come back, is there anyone on tax? No, no, Jean-Pierre confirmed that-

Jason Gabelman (Equity Research Analyst)

I gave you the two main factors in my speech. So once again, the weighted average, high barrels versus high tax barrels versus low-cost barrels, and the fact that we are now more attractive barrels in our portfolio.

Patrick Pouyanné (Chairman and CEO)

So there was no one. On the second one, the U.S. refining market and LCFS, as, obviously, as you notice, as you probably noticed, Port Arthur was not really running in the Q3. We had some issues. So we have more work here on restarting Port Arthur with long haul, and it will restart by mid-November, but taking care of the margins in the U.S., because unfortunately, when the refinery is not working, there is no margin to capture. So I think for me, from my, I mean, I will dig, thank you for the question, but I still see every day, quite a high margin in the U.S., even if it's lower, again, like in Europe.

We went to the roof, it was around almost, not far from $200 per ton, I think, which we never seen since I am in this company, during one quarter. It's softening today, but it's softening, remaining around 120, 150, so it's still very high. Does it affect the renewable business and ETS? No, because, you know, in fact, all these businesses today, they are regulated, in fact, now they are somewhat regulated, and somewhere, you are in Europe in particular, you know, at the end, the ETS price is more guided by the penalty that somebody will pay if he does not fill the mandate, rather than the demand and supply. Because today, in fact, on the ETS, the supply is short of the demand somewhere, so you're still running behind.

So it's more, it's a regulated business somewhere, and as the penalties are quite high, it does not impact this directly, the business. In the US, we don't make SAF today, so I'm not able to come back to you on this one. We plan to produce SAF in the future in Port Arthur, but we don't do it today. So I cannot help you to understand this market in the US today, specifically.

Jason Gabelman (Equity Research Analyst)

All right, we do. Thank you.

Operator (participant)

The next question, sir, is from Jean-Luc Romain of CIC Market Solutions.

Jean-Luc Romain (Equity Research Analyst)

Hi, good afternoon. Thank you for taking my question. It, it relates to your acquisition in Germany. I was wondering whether the electricity that you will purchase on medium-term contracts will be accounted for in your power capacity or in your power sales, or will that work? Or will it be only an intermediary margin?

Patrick Pouyanné (Chairman and CEO)

It will be a sale, but not a capacity. We don't own the capacity, we manage the capacity. As you know, we are honest people, so, we don't invest in the capacity, but we have access to some capacity, which is a good thing, and then we'll bring in the sales, because we are selling it for sure. We are selling it to customers, and we might have even, I think in the portfolio, we have 2, 2 gigawatts out of the 9, which are under medium, long-term PPA, so that's sales. Which will be reported as sales, but not as capacities, because we not own the capacities. So that's the way it will, it will, it will work. You know, like, in LNG, you know, you have some reporting in the sales, and we don't report when we have...

It's like a long-term PPA, SPA, that we have with U.S. LNG Cheniere. You know, we don't account for the capacity in our production because we don't produce it, but we count, we account in the, in the sales. Same, same mechanics, same mechanics, whereas parallel is the right one, by the way.

Jean-Luc Romain (Equity Research Analyst)

Thanks very much.

Operator (participant)

The next question is from Jason Gabelman of TD Cowen.

Jason Gabelman (Equity Research Analyst)

Hey, good afternoon. Just one follow-up on CapEx. I think you mentioned both the oil sands divestment and the sale to Couche-Tard would close in Q4, which implies about $6 billion of divestment proceeds coming in, and in light of that, it seems like reiterating the $16 billion-$17 billion CapEx range for 2023 would be a bit high. So I was hoping you just could square those two. Thanks.

Patrick Pouyanné (Chairman and CEO)

Well, no, it's not high. No, because, it's not so high because you, we spend organically 5-6 billion per quarter. We are today, at the end of the quarter, 16. We spend 5-6 billion per quarter, we'll divest, but we have one or two acquisitions that I mentioned, which are coming in the quarter as well. So 16-17 seems to be... It's not 16-18, by the way. We specified 16-17 this morning. So we, I think, the 16-17 seems to be, to us, the right range. But, we will, we will explain you that, in the annual quarter. So take it as it is. I think we have a, a good view on where we should land.

Irene Himona (Equity Research Analyst)

All right, thanks.

Operator (participant)

The next question comes from Alessandro Pozzi of Mediobanca.

Alessandro Pozzi (Senior Equity Analyst)

Good afternoon. Just one question on the micro side, and I guess in a way, it's linked to the recent offtake agreement in Qatar. This week, the IEA has published the World Energy Outlook, and they downgraded again the gas demand for 2050. I think if you look at the APS, it's down 40% gas demand. I was wondering, is this versus 2022 a concern for you, locking such long-term contracts, or do you think the IEA remains far too bearish on gas demand?

Patrick Pouyanné (Chairman and CEO)

No, it's. I would tell you, I don't know who is right. It's not a matter of IEA, it's a matter of positioning of your project. In fact, for me, all that is driven by the position of in the cost merit curve of investment in Qatar. In Qatar, you are first quartile, so I can tell you producing LNG in Qatar, even by 2050, will be more efficient than in many places around the planet. So even if there is a reduction of 40%, you still have 60%, and in the 60%, Qatar will be perfectly positioned. So in fact, let's be clear, and this is the whole strategy of the company, to protect oil, because you need to make long-term investments in energy, and in particular, energy.

But in all, the philosophy, all our portfolio is guided by low cost first quartile assets, because there, whatever will happen on the demand, either the demand will diminish as planned by the IEA, we are protected. You, as investors, are protected. There is no problem. So my answer to you is not is, yes, there are certainty of the demand on oil, on the demand of gas, on the demand of electricity. The key driver of the world strategy is, driven by the cost merit curve, and we are having first quartile projects, and I can demonstrate the Qatari projects are among the best of the world, if not the best. And everybody knows that, because it's a huge gas field, produced 50-meter water depth, conventional, with quite a high content of condensate, as you all know.

So at the end, it makes this project very resilient, and even in 2050, they will produce, and even beyond. Because the IEA does not tell you there is no gas. There is still maybe 60%, maybe 70%, maybe 50%, we'll see. But so that's, that's our answer-

Alessandro Pozzi (Senior Equity Analyst)

Yeah.

Patrick Pouyanné (Chairman and CEO)

There is no stranded asset in the portfolio of TotalEnergies.

Alessandro Pozzi (Senior Equity Analyst)

Okay, so you're happy for such a long-term agreement on Qatar.

Patrick Pouyanné (Chairman and CEO)

Yeah

Alessandro Pozzi (Senior Equity Analyst)

just because the cost of

Patrick Pouyanné (Chairman and CEO)

Exactly.

Alessandro Pozzi (Senior Equity Analyst)

Maybe not on some of the other projects, you prefer maybe a shorter duration?

Patrick Pouyanné (Chairman and CEO)

No, no, but, you know, systematically, when we invest, we invest in a oil project or LNG project in only if they are-

Alessandro Pozzi (Senior Equity Analyst)

Low cost

Patrick Pouyanné (Chairman and CEO)

in low cost, less than $20 per barrel CapEx plus OpEx for oil, and for LNG, they must be first or second quartile. So that's a protection, and otherwise, we don't do it. We don't do it. We just, we have a large portfolio of energy projects, and we select them if they are on the right side of the cost merit curve, because this uncertainty of the demand, we admit it, it's part of. So the answer we give you is low cost.

Alessandro Pozzi (Senior Equity Analyst)

Thank you.

Operator (participant)

There are no further questions registered. Back to you, gentlemen, for conclusion.

Patrick Pouyanné (Chairman and CEO)

Thank you very much for your attendance. We will give you the next meeting point with you will be on January, on February 7. We'll make the annual presentation in London, in presence, because we would like to meet you again. You know, COVID is behind us, so it will be probably seventh February in the morning. Renaud will give you all the details. Thank you for your attendance, and as always, you are not surprised by TotalEnergies, even, in fact, you are surprised always positively, so we'll continue. Thank you.