TotalEnergies SE
Q4 2016 Earnings Call Transcript

Published: 10 Feb 2017

[Patrick Pouyanné:]

Good afternoon. Welcome to our – this session. I hope you have been convinced that we are prepared based on the risk (00

[Patrick de la Chevardière:]

Good afternoon. Sorry. All the connections are (12

[Patrick Pouyanné:]

Thank you. And as a transition, the two last page (35

[Theepan Jothilingam:]

Hi. It's Theepan from Exane BNP. I had a – just a question on projects. Firstly, if you could just flesh out to the market. You talked about the financial flexibility of Total, and very much confirming that $15 billion to $17 billion on a medium-term. Perhaps you could give us a little bit of color on where or how the project spend on the existing asset base is sort of falling to give you that flexibility in the next couple of years? And then, secondly, I think you have a very differentiated metric, perhaps, versus your peers in terms of looking for sanctioned projects. I think you mentioned the 10 projects, seven of which Total operated. So I wanted to understand again perhaps or get reassurances in terms of how you can execute in terms of delivering your most-efficient projects since the organization have the capacity to really develop 10 projects successfully over the next three to five years or will we see some of the same mistakes we've seen previously? Thank you.

[Patrick Pouyanné:]

Okay. The first question is around – the answer is 50%. In fact, when we gave you the guidelines in September of $15 billion to $17 billion of CapEx for the next four years, 2017 to 2020, the existing developments, which are being developed, we are presenting around 50% of this amount. So we have room, that's why I can confirm you today, but we stick in this guidelines. We have room to launch new projects and we can add new resources in this portfolio. So this is the first point. Can we add – so I will give the floor to Arnaud to answer you that questions. Again, just so before – to give him time to think – I have two remark. First, you remember that in terms of human resources, we did not make any lay-off. We decided deliberately to work with less people but not to make lay-off in the company. Yes, some contracted people are gone but we have kept the core of the company intact, and we've done deliberately because we want them to work on costs, strangely, and we wanted also – we were sure that one day we'll need them. So it's time to have them in the company and we will use them. So, second question – remark is that all the 10 are now big projects. We have five big and five small, but Arnaud will probably complement that answer.

[Arnaud Breuillac:]

Just to complement quickly. It's clear that as you know we are starting our projects year-on-year and delivering them on plan. And so we are demobilizing our operated projects, and so we are actually getting off teams and ready to engage in new projects. I can share with you that in the last couple of years, we have questions internally in Total about what are going to be our next projects. Now they know where the next projects are coming from. I think there is another aspect to it, it's what happening in the industry because, as you all know, there was clearly an overweighting situation in the industry, which actually had impacted also a lot of the supply chain, and as we've mentioned before, today, it's clear that the supply chain today are contractors, engineering companies, are short of work. So there will be capacity there and this – clearly, all of them are trying to retain the best of their people, so we believe the capacity today to engage in new projects is better than it was three, four years ago.

[Patrick Pouyanné:]

Yeah. I would say that on the top, some of the big projects which were already being developed have stopped or are now ending, so we'll use the part of the staff which we develop – sorry. Now just to mention about, when you'll see the list amongst the giant ones, we have three operated and two non-operated, so the burden is less. It is not five operated even if you were right to remind. But 7 out of 10 are under our control.

[Unknown Speaker:]

Next question on the front.

[Oswald Clint:]

Thanks. Thank you. Oswald Clint of Bernstein. Could I ask a question about the LNG? You talked about adding 2.5 million tonnes of new demand, yourselves creating demand. Could you talk about that number? Is that something we could see repeatable each and every year? Do you see scope to create that type of magnitude for Total (1

[Patrick Pouyanné:]

Okay. First, the 2.5 million tonnes for Philippe. Explain where they are, especially in Brazil and Ivory Coast in Pakistan.

[Philippe Sauquet:]

Yes. Well first, welcome, and we ended 2016 – managed to contract around 2 million tonnes of additional LNG demand for ourselves. And for 2017 we are working, as Patrick mentioned, on several projects, at least three of them. Ivory Coast should turn up if it materializes by 1 million tonne per year of LNG demand for Total share. Pakistan should be closer to the same and Brazil should add a bit less than 0.5 million tonne for the short medium-term; over the long-term it might much more. So you see that only this project, and I can tell you that we are working on many others, we have the potential today within Total of generating this 2.5 million tonnes of additional demand each year. So we are – we feel safe, and as you've seen the real strength of the market that was shown almost everywhere including in China and India. It is giving us confidence that these countries will also contribute highly to additional demand for the whole market, but including for Total in the medium-term.

[Patrick Pouyanné:]

Yeah. In terms of can we repeat it? Yes, we have (1

[Arnaud Breuillac:]

Yeah.

[Patrick Pouyanné:]

35% lowered cost than we had one year ago. So the teams are working together, and they have many ideas. I mean, maybe you can describe some of them, Arnaud?

[Arnaud Breuillac:]

Yeah. One of the key characteristics of Libra is the productivity of the well. The expansion well stood at 50,000 barrel per day each well. So you have a very consultative structure. We sell about $3 billion to $4 billion a barrel, and this is the same treat (1

[Patrick Pouyanné:]

But to tell you, it works well because I visited myself Santos in Brazil, in Rio. Pedro Parente is coming to Paris to post soon. And Arnaud and (1

[Thomas Adolff:]

Afternoon. Thomas Adolff from Credit Suisse. I have two questions. Firstly, I want to start with just capital allocation or specifically the priorities around the excess cash, whenever you get to the excess cash. You have a framework in place, but often decisions can be taken in a more dynamic manner. And as far as resource replenishment is concerned, you've taken a conscious decision to go for the inorganic approach or the bolt-ons. But whenever we get to the excess cash and the priorities around the excess cash, the questions I had is should I think about you're going to do more deals to high grade the portfolio? Should I think about a removal of the scrip dividend if that's still part of the plan? Should I think about share buybacks if you get the gearing down to 20%? Or should I be thinking about setting your euro dividend at a level to keep the dollar payout unchanged? That's the first question. And I have a follow-up.

[Patrick Pouyanné:]

Okay. Maybe will have the right to ask the question. I think we say, actually, the – in terms of – if we have excess cash flow standing, we don't have much excess cash, to be honest, $55 compared to – and since we don't – we gave you, we don't have much. But gearing is clearly our first objective. We want to deleverage the company. We want, clearly, Patrick told you, and it's the first objective. We never said that we will remove the scrip dividend. We say that we will end the discounted scrip dividend; we confirmed it today. And again, it's mainly back, the take up will be less than 20%, so it's not far from a full dividend but we want to keep the flexibility in case of a volatility. And we won't end them. If we have more than that, we can see we will buy back shares. But for the time being, I don't have that cash. So it's beyond it, it's beyond at this point. Patrick, want maybe to continue to complement my answer?

[Patrick de la Chevardière:]

No. It's a question for rich people.

[Patrick Pouyanné:]

Maybe we are richer in the industry, but we are not so rich today.

[Patrick de la Chevardière:]

No, but we'll be glad you asking this question again in three years' time when we have plenty of cash available on us. But this is not the case today.

[Patrick Pouyanné:]

But remember, I believe that the best strategy is to maintain a sustainable level of CapEx and investments. So you will not see me – I told you last time, and I told the board of directors, if you see me asking for more than I would say $19 billion of CapEx, stop me. It's a mistake. So return it to the shareholders. It's better.

[Thomas Adolff:]

The second question I had is, last year in September, you showed a chart that by 2020, based on your demand and supply forecast, that there will be a big deficit. I'm not sure whether that's still your base case. But let's imagine a world that is slightly different, that OPEC can produce more, maybe Libya and Nigeria will divide Iran, Saudi Arabia will pump more, Russia can certainly produce more, the U.S. shale can potentially produce a lot more, and Brazil will also contribute. Now when I look at your portfolio, you do have decent exposure to the Middle East. On my numbers, the cash margin is a little lower. Brazil is great. You went into Brazil. Russia you're not there apart from LNG, the margins are fairly attractive. And U.S. shale, U.S. shale can surprise significantly on the upside, and you don't really have exposure to that. So I wonder in the wells where that deficit don't exist, so that shale is a much better swing producer at much lower cost, how should I think about Total's hedge against that? How should I think about the big resource base that Total has in its portfolio? And how should I think about how much of it you would work say at a $50 oil price? Thank you.

[Patrick de la Chevardière:]

This idea of shale oil being the best asset because it is a flexible investment, it's on and off like this, it might be correct but as far as I see, even in the U.S. – well it was extremely successful, most of the small E&P companies are facing trouble. There are some very good guys, I won't give you names but you know them, but this industry is facing trouble. So it is not so easy to make money on this matter. I would remind you also that we do have very large resources in the Vaca Muerta. I know that this is in Argentina, that Argentina is not in the U.S. It might be more difficult; there is a political risk attached. You don't have the same economy of industry available in Argentina. But it is important, and we are currently developing pilots in Argentina and our capability to produce, and we are reorganizing our self within the industry to cope with such a development, and one can imagine such a development with this report of the World Bank for instance in order to mitigate the political risk.

[Patrick Pouyanné:]

Okay. Very clear. The U.S. shale is too expensive for me; I will be very straight. I studied – we spent, both of us, a lot of, with Patrick, a lot of files. I don't want to buy assets at $80 per barrel or more. I feel we have more opportunities to add value to investors by doing a deal like the one we've done in Brazil, and we have override this, that spending and buying assets were to justify it. And I've studied all of them even $80 per barrel. So maybe I'm wrong but at the top of it, I repeat, I will be a financial investor; I don't have human resources; so what is best for my company? Is it to be a financial investor or is it to use our industry, our capacities and our people in order to leverage and allow the company and to create value? So, again, this is the situation today, and we work on it. I'm not fully convinced that at $50 per barrel is the best edge for the company.

[Unknown Speaker:]

We have a question at the same table.

[Bertrand Hodée:]

Bertrand Hodée, Kepler Cheuvreux. One question if I may. Coming back on slide 21 where there is a list of the 10 FID over the next 18 months. Where do you see a risk on those FID as political or as I would say in terms of cost? What are the project where you are extremely confident that the costs are already right? What are the project where you think you still have some work to do in terms of cost? And also, finally, can you elaborate more on the Vaca Muerta opportunity? Is it gas? Is it liquid? And also are the costs right or the fiscal terms right there? Thank you.

[Patrick Pouyanné:]

Okay. The main risk of course is South Pars in Iran. If I don't answer you that, you would be surprised. To be clear on South Pars, the timetable is quite clear to me. The U.S. President and the U.S. Secretary of State will have to sign some waivers, renew the waivers by April and May if – in order to stay within the scope of the treaty with Iran, either they do it or they don't do it. Our own timetable is to finalize the contracts and to take the FID by middle of the year. So it's doing well from our point of view. We'll have the answer. So either U.S. continue or we don't continue. If they continue, we can – we will move on because, again, we have all the economic terms and the contract is very good. We want to sanction the project. If the U.S. decide not to stick on the treaty then we'll have to obey to the international laws. That's clear to me. For the others, Libra, one, I will say that you know that there is an issue about local content. The Brazilian authorities that we have met several times, myself, Arnaud with the minister told you that we will have a positive answer, a good surprise, a nice surprise in the coming two months. So I'm trusting them. But again as soon as we have this local content regulation being lifted, it will move quickly because we have – all the partners are dedicated to that. Lake Albert, it's the north end. Bonga South West is operated by one of our peer, but it's working hard on the modified project. We've announcing very good – very competitive costs. The satellite projects are all in our hand. And a word about Vaca Muerta, Vaca Muerta, we have developed – we have, in fact, quite right, Patrick told you, a huge domain. There is a limitation with the difference which is linked to the history of economic governance in Argentina. We have to face the reality but we have a gas domain which is very easy to develop for us, and we have a first development tranche that we have released a sanction of more than $500 million because we have already the surface treatment capacities. They are there because it was all conventional domain. Conventional position has declined and so we have available capacity. So it's a matter of drilling and connecting. So this is quite profitable. We are waiting – the Argentinean government has announced what they call, I don't know, a gas plan with quite good prices, around $7 per million btus, and we told them if you confirm that by writing, but we want the paper. We are – in Argentina, sometimes you need to see the papers. We have been paid for that. We will launch the project. And then we have another area which is more with liquids which we'll just appraise positively. But this one, we need to build the facilities, and probably this is what Patrick was suggesting together with other operators in order to be smart. So this is a matter for me of at which pace do will be developed there, Argentina, but the first tranche is ready. We sanctioned it internally, subject to having the papers.

[Unknown Speaker:]

I think Irene has a question over there. Irene Himona - Société Générale SA (UK) Thank you. So Irene Himona, Société Générale. The downstream is continuing to pay all of your cash dividend costs. So I had two downstream questions, if I may. Firstly, in Marketing & Services, not new managers but conventional Marketing & Services, you mentioned it's a non-cyclical business, it's very stable, et cetera. But surely if you're growing your volumes 4% a year as you did last year, and you're growing into high-margin businesses like lubes, surely the outlook for that business is improving rather than stable profitability. So I was wondering if you can give us some guidance on the outlook. My second question is on Hutchinson, especially again proceeds. Clearly non-core, it's a sizable business. I wonder if you can share your thoughts about the potential for Hutchinson to free up some capital for you to use in your core business.

[Patrick Pouyanné:]

Momar, you'll take the first question about M&S, and going the M&S and the reserve and the cash flow.

[Momar Saliou Nguer:]

Yes, you're right. We've delivered on the growth of 4%. We've had good results in Europe, I mean, that's our base. We've had good results, good margins. We've had good results in Africa. There's probably the on lubricants, the marine lubricants have been quite difficult here because of the freight – the situation of the freight market where we've had pressure on prices, stiff competition. But otherwise we are delivering. And the 4% – and we are fairly confident that in the coming years, we will deliver on margins and on volumes.

[Patrick Pouyanné:]

On Hutchinson, I will repeat what I mentioned already. It's a sizable asset. There is, in each and some, some capacities which could be advantageous for us in terms of manufacturing if we want to develop other businesses like our battery business. So we see some synergies from manufacturing our oil somewhere. I think that you are right, Irene. It's not core, but I'm not sure but Saft is core as well from this point view. If you go to oil and gas, oil and gas is clear but frankly with the balance sheet we showed you, we don't need to sell Hutchinson. I don't want to sell Hutchinson; there is no reason to sell it. And I prefer to keep these type of assets if we face a downturn, once I we'll be happy to trade. So it's a big asset. It's not easy to sell. It's much bigger in terms of value than Atotech, and we managed to sell Atotech at a very high price, but the bigger it is, the more complex it is also to monetize these type of assets. And so, frankly, it's not on the agenda at all you've seen. With the $10 billion we have executed them, like Patrick told you, with 80%. We have few assets that we will announce soon that we will – is down. And we don't need, in terms of financial strength of the company and balance sheet, to sell more assets for the years after with the breakeven we have done. So Hutchinson will remain in Total even if it's not core unless we have some other big plans.

[Unknown Speaker:]

Okay. A couple of questions at this side. Iain first.

[Iain Reid:]

Yeah. Hi. It's Iain Reid from Macquarie. Just a couple of questions on some of the projects you mentioned. The write down you took on Surmont was interesting me because Surmont is, well it seems to me is a quite good asset. And Fort Hills, which is the poorer asset, you don't seem to take a write down on. So I'm just curious as to what the kind of cost or, in fact, breakeven oil price situation is on Fort Hill? So I know you are attempting to get out of that, if you can. Also on the Elk-Antelope, that used to be one of the projects in your calendar about to be FID'ed or certainly in the next 12 months or so, then it seems to dropped off there. I just wonder what you're seeing there now which has kind of pushed that one down the pecking order a little bit. And the last is on your oil price sensitivity. You've made some changes to the PSCs or you negotiated some changes to PSCs in Angola, et cetera. I just wonder whether that has enhanced the oil price sensitivity of those projects or has dampened it as oil prices move up?

[Patrick Pouyanné:]

Okay. So first the reserve write down. There are rules; the rules are the rules. It's a difficult exercise, by the way, because you have to understand what we have to do in the company. We have to imagine a world which will stay forever at $42.8 per barrel, and that means that, for example, we have to decide which level of OpEx we will take at $42.8 per barrel if the world was permanently at that level, so we take assumptions. Of course, there is some – it's not a view of OpEx; we have to project that from 20 years. So on Surmont, we work – and we did not work alone, by the way, we have a partner there as well, as you know, an operator – so we exchange data, and we took some assumptions about growing the OpEx but we considered that it was more reasonable to write down the Surmont 1P reserve being down, to be clear. They will come back next year. So next year we'll have the 300 million barrels will come back unless we have again at an average of $45, less than $45, so it did not disappear. The proven reserves are developed, they are even produced but the SEC has some rules, and we are observing the rules, and we have decided with the operator. We'd welcome that. On Fort Hills, we worked also on the operator. There is difference between both projects, is that on one side you need to pay for the gas, if you remember; on the other side the OpEx per barrel is more I would say is less expensive. So we have the NPV zero for Fort Hills would have – if we had been under $40 per barrel more or less, we would have add it to the books. So there was a difference when we took that. In terms of margins per barrel for the future, we'll see what will be best. So, again, it's a little theoretical exercise, and we work with both operators on both assets. We took some assumptions, but was a reserve value calculation. We have done it honestly, and we are ready to answer two more questions. Elk-Antelope, by the way, it's a good – I will – why is it not because we saved the list of 18 months FID, so, maybe 24. By the way, you know the situation is a little more complex there because for the time being we have a partner which is supposed to be bought by somebody else; it's not done, so we are a little obliged to wait. Even if we work, a remark that I want to do is – but some people were wondering why we were giving up on Elk-Antelope. One of the reasons why that in our portfolio we are thinking on the start that time also to Brazil already. And so the decision we have to take internally was do we continue to have a bid on Elk-Antelope or do we prefer to put the money on the Brazilian deal? And the decision was also this one. So it's part of the discipline that we had internally. We stopped, but again we have met with a potential buyer together with the previous CEO and the new CEO, and we all agree that we'll find a way to be smart together and to make the most efficient project but we need to have them around the table. So maybe 24 months, and not 18 months but we'll work on it, its part. We did not mention the whole list, I could've added that of course, I would say the discovery in the Gulf of Mexico, North Platte, is part of the projects that we'll have to develop, maybe not in 18 months but 24 months, 30 months. Overall, in Nigeria as well, we have a discovery. So, we have overemphasize. But we wanted to show you what was the list of the projects on which we work immediately as soon – we have for the next 18 months on the table of Arnaud and his team there, a lot to do. We have also to maintain the discipline to continue to maintain the cost-saving program. So, last question about oil price sensitivity, improved sensitivity, yes, I would say, yes I know. The move that we've done on the Block 32, it has an improvement on the sensitivity. But it was more to cover the low surprise under $60 per barrel. There was no change in sensitivity above $70 per barrel. The PSC was unchanged globally for the price at which we sanctioned the project. We did not ask for anything. We have negotiated new terms in order to cover the low price where obviously, the project was not profitable enough. So, from this point of view, it helps us to have a better sensitivity between, I would say, $40 and $60 per barrel.

[Unknown Speaker:]

Okay. One at the back on the same side. Christian? (01

[Unknown Speaker:]

Hi. Good afternoon, gentlemen. Christian Meyer (01

[Patrick Pouyanné:]

I think I answered the first one, so Patrick will answer you, but maybe in his own word and his own vision of CFO of the company.

[Patrick de la Chevardière:]

To make it clear, I think we make it clear today that we wanted to maintain the scrip because we are facing a very volatile environment. So, as at today, facing this world and we do not foresee in the near future another world than the one we are facing today, the scrip will be maintained, maybe with a 0% discount if we face a $60 per barrel oil price, but the priority is to maintain this flexibility. Dividend is a must. We have maintained and continuously increased the dividend for the past I think 30 years. I think Patrick made it clear that it is not our intention to reduce the dividend. We increased slightly, I recognize, 1.6%. This is not 10%, but this is to give a sign of comfort. We are able to slightly increase our quarterly dividend. And as I mentioned to you, the dividend for us is a must. We have to pay a dividend, and it's part of our cash flow allocation. And we have established a level of CapEx, $15 billion to $17 billion including $2 billion of asset renewal, which we believe, thanks to our OpEx cost reduction, lower breakeven, enable us in the current oil price environment to finance from cash flow from operation both CapEx at this level plus a dividend partially or marginally in cash depending on the discount that we will use on the scrip.

[Patrick Pouyanné:]

To continue on that, I think we will – I hope, anyway, we probably go very shortly to the 0% scrip dividend. Again, it lends its flexibility to take up really less than 20% but if we're facing again a downturn in the cycle, we could react easily to that. By the way, we have met some investors. For fiscal reasons, in some countries of the world, there are people, investors who are interested to have the optionality of having the dividend in shares and not much but you have some and you can find investors with interests. So, we can enable the 0% scrip dividend, and again, there is no contradiction with that tool and increasing the dividend. That's important to have in mind. Of that IPO of Saudi Aramco, change the work for you.

[Patrick de la Chevardière:]

I have been offered a position but that's not true.

[Patrick Pouyanné:]

Me not. Me not. Me not I will stay at Total. Now, frankly, we will see what will really happen with this IPO and what is the value of the company. I'm not sure it's changing a lot of things for us. But we'll see. Now, if we speak about 5%, I didn't know that the value of an oil company was a multiplicator of the reserves of the company. I had the feeling that was discounted factor somewhere. So, we'll see what will be the value of the company. Now, I don't see the change, the world changing for us from that perspective.

[Unknown Speaker:]

Thank you.

[Unknown Speaker:]

The following questions will be Brendan and Jon.

[Brendan Warn:]

Thank you. So, it's Brendan Warn from BMO Capital Markets. Thanks for confirming about the ADCO change in terms. Now just to confirm whether there is any retrospective catch-up or windfall from those change of terms? We've been there for a while now. And then just my second question relates to – you've got a couple of very big LNG projects coming on at the back end of this year. Australia, I apologize for asking where we started strong and we often finish quite poorly most projects, which I think nearly every project in Australia in LNG has been overscheduled in that part of the world. What are sort of the key risks and concerns and worries do you have going into commissioning certainly in this (01

[Patrick Pouyanné:]

The terms were applicable at the date where they were signed. So, they were signed. We were already in the concession. So, we benefited from the terms immediately. That's all. Nothing else to add on that, but I will not disclose the terms to be clear there are some confidentiality on it. The second question I think was on Yamal and Ichthys. So, maybe, Arnaud, you can answer on Ichthys first about where are we in terms of completion of Ichthys, the timetable, (01

[Arnaud Breuillac:]

Yeah. So, Ichthys, the offshore part of the project is almost completed now in terms of all of the subsea system installation, preparing for the arrival of the two offshore structure that will come, the CPF and the FPSO. Both of these units actually are still in Korea, ready to sail away according to the operator in March or April. They've actually used the season of monsoon, of storms to complete commissioning a bit further so they have advanced – so that they reduce the amount of work that will be done offshore. And in Darwin, last in the LNG plant, work is progressing. There has been, as you know, some difficulties with one subcontractor but it is on the power plant and it's not on the critical parts of the project. So, according to us, we are still in line for a start-up before the end of the year on this project.

[Unknown Speaker:]

Okay. I think Jon had a question.

[Patrick Pouyanné:]

Yamal, I can tell you that Mr. Nicholson (01

[Jon Rigby:]

It's Jon Rigby from UBS. I've got a question about the financial framework and then just a portfolio question. So, on the financial framework, just wanted to go back to this dividend decision. It seems extraordinary to me that you start moving the dividend before you rightsize the financial structure of the company in reaction to the change in oil prices. And I was trying to figure out why that would be the case because it's clearly, the cycle, the first part of the cycle showed yourselves and your peers unable to fund both CapEx and dividend commitments. And yet before we got to the end of the cycle, you're already upping your dividend commitments. So, I just wondered whether you could just again walk through that decision to sort of preempt the delivery of the efficiencies by lifting the dividend. And does it actually imply, if I take away from your answers to some of the questions, that the scrip portion is effectively a permanent feature of the dividend now in order that you are well below your expectation of oil prices? That's the first part of the first question. The second is one of the other features is the fact that you are running a cash shortage over the last three or four years is you put about $10 million of hybrid debt into equity. Is there an intention to deal with that at some point as free cash flow starts to rise? And then to move away from the financial framework, just on portfolio, you've talked in fairly glowing terms about Brazil. Is there an appetite to deepen further into the Brazilian deepwater pre-salt if the opportunity exists? Thanks.

[Patrick Pouyanné:]

To be clear, yes, the plan is when the gearing will be at 20%, we will buy back the hybrid debt. Yeah. It will depend on where the interest rates are. The average is a fixed rate, right? If I remember, it's a fixed rate. Maybe in two, three years, it will be good. If interests are high, you will see. We are conscious of what we have done, but yes, if we have to buy back it, we will buy back it. There's no problem with that. Is scrip permanent? What I told you is that the tool at 0% scrip is not a big issue for the Board of Directors. So, take-up will be minimum but it gives us some flexibility. So, can we keep it? Yes, we can keep it. But again, somebody asked me the question if we have plenty of cash, what will we do with if we need to. If the market is moving up again and we have the feeling that volatility is more on the outside, we could remove it. But for the time being, with the perspective that we see, one of your peer told me, what happens if U.S. share increased, the world is going back to $50. I prefer to have to keep it in place. We prefer to keep it in place in order to be able to react. And this is why we decided and with no contradiction between a 0% scrip dividend and moving on the dividend. Looking bigger to Brazil, let's finalize the first deal. It's a strong alliance. There is potentially some of the steps. I want the first step. And if you want to marry with somebody, you have to give the proof of love before to enter into a longer duration. So, I think on both sides, frankly, I would say, the marriage is well on its track, and the two, the husband and the wife, I don't know who is who, are quite happy to be together, so we'll see. I mean, again, for me, it's as I told you, it was quite an involvement of many people around this table at the top level of the company to be able to convince our peers at Petrobras that we could do better with negotiation. And this type of – it's a good basis to be able to develop it and it's up to us, of course, to be able to prove. But the trust they gave us will be well deserved, but yes, I told you, deepwater, I can – where can I exercise my competencies? In deepwater Brazil. So, we move it. We move there.

[Unknown Speaker:]

Okay. Then it will be Martijn and Lydia.

[Martijn P. Rats:]

Hi. Hello. It's Martijn Rats with Morgan Stanley. I wanted to ask you two things. First of all, about Saft, I've heard you say in the past that to start understanding the electricity value chain in these new energy businesses, you sort of have to be in some of these companies. You can't just learn about it just standing by the sidelines. And I was wondering now that you have the company for, well, a good number of months and you've seen the books, whether the investment is living up to expectations and were there are any lessons you learned so far. The second thing I wanted to ask is about tax, particularly with the ADCO contract getting in, could you perhaps help us guide a bit to what the tax rate could be in 2017 both from a P&L as well as from a cash perspective?

[Patrick Pouyanné:]

Take this. Tax rate for Patrick maybe?

[Patrick de la Chevardière:]

Okay. This is a very simple question. As you can imagine, using $50 per barrel, our average tax rate for 2017 should be in the range of 40%, something like this, but it's extremely volatile. There are countries – due to the gas price mainly, which is not reflected in the $50 oil price scenario, where we are close to paying or not paying taxes. So, my figure may be completely wrong, but that's my best estimate at the moment.

[Patrick Pouyanné:]

Philippe on Saft.

[Philippe Sauquet:]

Well, Saft has been now with us since less than six months. And so, we are still in the process of discovering what is in this company and what is its potential, its additional potential with Total. What I can tell you is that it's even better to what we have imagined, and we on our side are learning a lot about the potential of different battery technologies. And on the other side, we are starting and trying to study really a potential development that would combine the know-how of certain of our other affiliates with the one of Saft in order to entertain some new development. It's just a start, but so far, we are very satisfied with the ability to develop both at the same time cash and R&D programs.

[Patrick Pouyanné:]

Philippe is more happy with Saft. That means simple work (01

[Lydia R. Rainforth:]

Hi. Hey. It's Lydia. Two questions if I could. The first one is on the global business services unit. Can you provide the benefits you see from that and help us understand how they could change that really is for Total in terms of the way it operates? And the second one was going back to the slide that you showed on the FIDs and all those being mid-teens upwards, which are impressive rate of returns. Can you talk about the process as to how you made sure that they really are as good a return that they have really maximized the value coming out of those rather than just taking advantage of the market?

[Patrick Pouyanné:]

Thank you, Lydia. I see the solidarity between women. So, you will have the chance to hear the voice of Namita because she is doing many things in the company at the ExCom, in particular TGS. So, Namita, I give you the floor to answer to you.

[Namita Shah:]

You heard a lot today about how despite all the good news, we continue to talk about discipline and lowering our cost, and TGS is definitely part of that. We've initially talked about cost savings of around $500 million. TGS was put in place on the 1st of January this year. We've given the teams a little bit of time to breathe, to find themselves together. It's 1,400 people who find themselves moved from their original homes and put together into a new organization. It's very clear for them what their objective is. They're working on putting things together to start delivering cost savings by the end of this year for 2017. And just to give you an example of how different it is in terms of working within Total, just the procurement part of it was very distributed amongst the branches and amongst the affiliates, and it's been completely centralized with very few people in procurement left in each of the business organization because we realize that it was a huge level for us to reduce cost to start mutualizing things, to have or to speak with one voice to our contractors, to have the same kinds of technical requirements. And so, that's all very much on track, and we will definitely be delivering for 2017.

[Patrick Pouyanné:]

I think internally, it's a very strong change. In fact, I think we are creating a real group together and not having businesses side by side. And the Comex, by the way, the way we discuss together on many issues, we are working like that. We are now thinking to see how we will organize at the country level. We speak about concepts like caricatures which was impossible to discuss three, five years ago. So, there is still some efficiency on both sides. It's not only, by the way, a matter of cost. It's also a matter of business. For example, with regas terminal in Ivory Coast, I can tell you the success has been possible because of course, of gas (02

[Arnaud Breuillac:]

Just one point to mention about the continuous improvement that goes on in the company, we have also restructured our technical support division in E&P where we actually are studying conceptual design for new projects by reorganizing them in what we call product line so that we have a product line for deep offshore, one for offshore conventional, onshore conventional, LNG, and unconventional. And the focus is really for them at the conceptual pre-project stage to come up with the most optimum solution from the point of view of cost benefit doing value engineering. And by having a transformation from the traditional mix where we had the subsurface, surface, and putting them inside what is effectively focusing on the type of project that has to be sanctioned, we believe we will go further in optimizing the profitability of our project in the future.

[Unknown Speaker:]

You have other questions?

[Robert Alexander Aldrich West:]

Thanks very much. It's Rob West from Redburn. I like your slide on page 17 showing the targets and how you've realized them all, so like beating your targets. Particularly, I want to ask about your production target for this year and how much you think you could beat it if everything goes right, specifically, I mean, some contingencies that might be in that number. So, whether it's Libya or whether it's some of the projects coming on later or some of the volumes being impacted by the OPEC deal, so if you can give us more of a range, so 4% plus, what could that be? And maybe there's a second part of my question, allay maybe an alternative interpretation of that guidance, just to rule out, are there any assets in the portfolio where the production this year is not coming in maybe as you'd hoped or the production share in contracts are bouncing back quite steeply? Thank you.

[Patrick de la Chevardière:]

The first question, I mean, we say more than 4%. Frankly, I don't know if we will be able to do 4.5% this year. We'll see. I mean, keep in mind, for more than 4%, we did not think – when we made that figure, the OPEC quota were not in place. The OPEC quota would present potentially for us 20,000 barrel less which is 0.8%, but on the other side, we had good news because Al-Jurf field in Libya opened and represent more or less the OPEC quota. So, from this point of view, we are immune. If Libya maintained its production and HRR went up, it will compensate more as the OPEC quota. But it's the advantage. We have a large portfolio of fields. Some are going better. Some are going not so good. But as Patrick has told you, I think we are very confident about the production in 2017. You've seen on the chart that the size of the startup is quite small. In fact, it's mainly more beyond there. I was in Congo with Arnaud in December. Together, teams told us it will be started by March, April, and we are very confident. So, it's moving on those tasks as planned and the ramp up is planned as these figures ensure. So, we are this year, 2017, when we saw the prospection. And we have quite a little unknown, in fact, except the price of oil and the price of gas which are being announced, but in terms of execution, we have probably less chance, but what is more important is the delivery of the big projects, which are all coming by year-end but, of course, this will be important for 2018. The second question, I don't know what you – what was the question? What were production growth targets be I just answered to you. I mean, I'm not sure if we have taken the second question if I remember it rightly.

[Robert Alexander Aldrich West:]

It was just to say are there any assets in the portfolio that are not performing as you hoped that you could flag or the production sharing contract is bouncing back and taking more of the production away that you want to just rule out?

[Patrick de la Chevardière:]

No At this stage, again, you have plus and minus, but there are no major assets. By the way, the ones we include were already existing assets. It was made to price assumptions not because of problem of reserves or things like that.

[Unknown Speaker:]

Maybe Anish and Lucas at the front.

[Anish Kapadia:]

Hi. It's Anish Kapadia from Tudor, Pickering, Holt. I had a question on the Downstream, first of all. I'm trying to get some sense of oil price impacts and OpEx cuts on the Downstream. So, first part is your petrochemicals business. I was wondering if you could say how much of your petrochemicals business is exposed to liquid feedstocks as opposed to gas advantaged feedstocks? And then on the Refining side of things, I'm just wondering what kind of sensitivity do you have to higher oil prices in that costs go up in a higher oil price environment but also, in terms of the OpEx cuts with the potential for light-heavy differentials to narrow. And then the second question is...

[Patrick Pouyanné:]

Bernard?

[Anish Kapadia:]

...on the impact of the marine fuel regulation changes. So, the falling sulfur for shipping going forward, just wondering how you think about it. Is it a bigger opportunity for the Refining business in terms of higher diesel demand going forward? Is it a bigger opportunity for the LNG business from a substitution perspective? And how is Total positioning itself to take advantage?

[Patrick Pouyanné:]

Bernard will answer the first question first. So, Bernard, about petrochemicals.

[Bernard Pinatel:]

So, as you saw, a large part of the projects we are looking after are projects which are based on gas, on ethane. As we showed in the slideshow, the platforms where we are growing the most industrials are platforms which are also based on ethane-based petrochemicals. So, clearly, the strategy we are going after is to grow the gas advantaged feedstock petrochemical part of the portfolio. Regarding the liquids, it's more on leveraging the integration between refining and base chemicals, which is what we have done over the last few years which has proven to be extremely successful. That's mainly for the European part of our portfolio. So, it is doing well, thanks to integration. And the target now is really to increase the proportion of gas-based petrochemicals versus liquids.

[Patrick Pouyanné:]

Fuels what we can. Okay. There are two people around the table who can answer, Momar and Philippe and Bernard. Everybody is concerned about it. But basically , you can provide them diesel. You can provide energy. And we are working on it. We had recently a good success. I think Momar with Brittany Ferries on energy. You can mention it.

[Momar Saliou Nguer:]

Yeah. Definitely, we've decided to go down the value chain on LNG especially on those markets. You've seen that we've signed with Brittany Ferries last week. And we've signed an agreement with CMA CGM. Patrick did that last week. What customers are asking to us now is okay, there is this cut coming in. You guys are energy providers. Therefore, we think of ourself as solution providers, and we are working with them on the best solution. Best solution scrubbers are not yet decided, but we will be there. That's the discussion we are having with them. We'll provide them with whatever solution is the best for the market, and for now, we signed those two deals, and definitely, we are going to be a big player on solutions.

[Patrick Pouyanné:]

So and it's not very clear today when you speak with the shippers, but we have engaged with CMA, which is one of the three largest on these studies together because they have three options, either to take diesel or to take bunkers, heavy fuel oil with scrubbers or to take LNG. And we have to better understand the way they themselves think of their own economics so we can offer the three of that, the three projects, the three things. And we have diverse interest. But we have decided to work on six months to see what will be the optimum from a shipper like them in terms of arbitration. And it's not very obvious what will be their choices. So, we will work with them. It depends probably also – when you speak about LNG, you need to have some rules because it's quite a lot of infrastructure. It's quite heavy. I can tell you if all the players begin to make LNG marine fuel, it will be a disaster from an economic point of view. We don't have the space for too many players. So, we need to probably coordinate logistics and all that. So, it's a start of the story, but we are definitely willing to not only to be part of the game as part of the integration.

[Unknown Speaker:]

Lucas had a question around the same table.

[Lucas Oliver Herrmann:]

Thanks. Thanks, Mike and (02

[Patrick Pouyanné:]

So, first question, yes, we say that we were targeting a growth at least in the present market 1% to 2%. Maybe we were not in that condition. I think we are probably more around 2% than 1%. If we can begin to add on the first year, the various projects that we – if we are able to sanction at the pace benefiting to the market, this could result maybe more in the higher range than the lower range. We'll come back on that to you in September. Sorry but we don't plan everything. But when I see and particularly know the success in Brazil is announcing us, so when we begin to put to it. But we didn't make the full exercise but already keep in mind 2% rather than 1% on this first point. And then the second point. First, I would remind what Patrick told you. For example, this year, the organic part of CapEx is $14 billion, $15 billion plus $2 billion of resource addition. So, what we call CapEx, organic CapEx level of development is more under $15 billion, and you have the $2 billion of addition of resource. Last year, we've done for less than that. We managed to renew our resource for less. Maybe this year, we could have more opportunities with this. So, this part could be, I would say, fluctuating. It was less last year. We spent I think around $1 billion to renew the resource because the deal in Qatar was very low cost deals to have access to our share. So, we'll see what are the opportunities. But again, I strongly have the feeling that with this type of market we have until the end of the decade, in particular on the supply chain side, we can execute all the projects in delivering 2% growth with a $15 billion on organic CapEx. And again, if there is something, a huge project which we'll have to defer, we'll come back to you, but for the time being, with the figures, again, I answered to Theepan I think that we have some room to take on both new projects. We knew that the bulk of the big projects will be delivered by 2018, so we have room to put in this range, in this $15 billion of organic CapEx the new projects we want to sanction, and we can take even more and not only the list that you have seen. So, we see the figures. And I think again, it's good to be disciplined at this level because otherwise, you will tell us you begin to spend the money, and then it's like a question back to your last question. If we have more cash, yes, I know but we have to return part of it to shareholders. I'm not able to put today in place a buyback of scrip shares. I would lie to you. I don't have the cash. But I know that will be dilutive to some shareholders in this period in time. It's already in mind. But promising you today something that I cannot execute is not my management style. So, I prefer to tell you when we will be ready, we have more cash, so we can reallocate it. So, today, what we think is that return to shareholders is important. We are very honest with you about the way we see the situation, the Board of Directors think to it. We are foreseeing in this type of environment, I would say $50, $60 per barrel, that we have a strong balance sheet, that the cash flow will grow. We will develop higher cash flows. So, yes, we may be by giving $0.01. It's a signal that we trust ourselves we are able to deliver. Board of Directors also had a strong feeling that our share is undervalued compared to our peers. When you make the price to cash ratio, I can demonstrate to you what is undervalued. And so, we'd like to share our trust and our confidence in the company deliverability, capacity to deliver these additional cash flows with our investors, and enlarging the base of our investors. What was the other question? Again, 0% discount, I mean, if we have such a success, we have a 0% rate but it's above 20%, maybe I will revise the impact of the dilution, but I don't anticipate that. I think there is a strong difference with our shareholders when they discussed with some investors between a 5%, even a 2% discount, and a 0% discount. The 0% discount, most of the investors will take the cash. If I'm wrong on this assumption and that there was a larger dilution, maybe we'll have to look at it more carefully. But we base this reasoning on the fact that a 0% discount rate should reduce drastically the dilution. If it's not the case because the investors love the shares of Total that maybe we'll have to monitor it differently but the basic assumption we have taken when we make this reasoning about the dividend. So, we didn't do it, but we think that there is a strong difference between 5% and 0% or 2% and 0%.

[Unknown Speaker:]

Any more questions here? I think Jean-Pierre.

[Jean-Pierre Dmirdjian:]

Yes. Hi. Jean-Pierre Dmirdjian from Raymond James. I have three quick questions, if I may. The first one is not that quick and it's on Argentina (02

[Patrick Pouyanné:]

Four.

[Jean-Pierre Dmirdjian:]

Four.

[Patrick Pouyanné:]

It's clear because we will maintain the scrip dividend even at 0% discount. So, it's only the year where we will eliminate the scrip dividend that we would have to pay for five. So, it's not in this year.

[Jean-Pierre Dmirdjian:]

Okay. And the third question, like we've done on production, if you could update us on the decline rates for your base, the assumption you're making this year in terms of the OpEx impacts given the production limitations for the first six months of this year and the sensitivity of PSC. Thank you.

[Patrick de la Chevardière:]

OpEx, I answer that it's around 20,000 barrel per day of impact potentially is mainly Abu Dhabi and Qatar, two big countries. The others are smaller cuts. I'll let you answer to the question on Argentina, Arnaud.

[Arnaud Breuillac:]

Yes. So, the license we are getting in Argentina are exploration licenses. And the commitment we made is to actually derisk the development phase. It is, of course, unconventional, so what we have to do is do some pilot. And then the morale is that if we are convinced that there is enough potential, then you get a 35-year concession. So, that's the limited commitment to make in a pilot phase. We think four years is more than enough for us to confirm the quite promising results we've had in some of the area.

[Patrick Pouyanné:]

So, the PSC price effect is less than 1%. I think it's very minimum, but people in the room will be able to answer more precisely to your question. There is a minimum impact on the dividends we give. So, we pay dividends in January, April, June and December because the general assembly is changing pattern. There is some effects.

[Patrick de la Chevardière:]

We have a six-month delay between the quarter and the dividend payment basically.

[Patrick Pouyanné:]

Any more questions?

[Patrick de la Chevardière:]

(02

[Unknown Speaker:]

From Kim in the center.

[Kim Anne-Laure Fustier:]

Hi. Thanks. It's Kim Fustier of HSBC. Just a quick follow-up in the earlier question on production. You've reaffirmed today the 5% production growth guidance all the way to 2020. Yet since last September, you've added big new producing assets in Brazil in particular. So, just wondered if these additions have been offset by negatives elsewhere. And I'm thinking of things like license expiries such as Mahakam in Indonesia, for example, or are you simply being conservative? So, any detail you could offer on that would be helpful. Thanks.

[Patrick Pouyanné:]

First, again, Brazil, so these are not fully closed. So ,we need to close them. Second, Mahakam, we told you in September I think that Mahakam extension was not included in the 5%, which is not down because we continue the discussion. There have been some moves recently. So, we see if clearly it's a matter of value, frankly. We have discussion with the Indonesian authorities. But we want to stay but for something material. If it's not material enough, we don't see why we should. Again, let's remember, we are not chasing for volume. It's a question of value over volume, of allocation of our staff. We have scarce resources of manpower human resources. Theepan rightly asked us do we have all the people to deliver the projects. So, we don't want to mobilize. Today, we have around 100 expatriates there I think. If we have to mobilize people for a small share even if it's for production, we have to have a real value out of these assets. So, again, no. But we didn't make – maybe we have – no, we don't make – we have plus and minus. Remember that in our 5% projection, Yemen is supposed to come back by before 2020. So, Brazil could replace Yemen if Yemen does not come back. And frankly, on Yemen, I'm just looking to the news on CNN every day, but I have no official news to give. So, it's a big upside. So, it's the advantage we have our portfolio. We have assets coming in and assets coming out. Let's keep the 5% as a good guideline but for example, these examples.

[Unknown Speaker:]

Last question maybe.

[Patrick Pouyanné:]

So, thank you. I hope you were satisfied. We are satisfied by the results of the company. We are satisfied by your question also. We took something maybe some people will say a bold decision. I see John in front of me and it was bold, but at least it's a proof that we are thinking too of shareholders hardly. We, on one side, delivered, and I think it's important for me, deliver what we told to investors in the last two years and good sets of results, and I'm convinced that the market will reward us for that. Thank you for your listening and for all your questions. I think we invite you now to have more questions or more answers from you (02