TotalEnergies stays the course to tackle transition with its multi-energy strategy

France’s energy giant TotalEnergies has set its course for the energy transition journey by creating a balanced multi-energy strategy, which it plans to follow to diversify its portfolio, cut its emission footprint, and reach low-carbon and net-zero aspirations. This strategy brings into play not just oil, gas, and LNG as a centerpiece but also renewable energy, enabling the oil major to pursue more energy, with less emissions, while growing its cash flow.

Illustration; Source: TotalEnergies

While presenting TotalEnergies’ strategy and outlook in New York on September 27, 2023, Patrick Pouyanné, the firm’s Chairman and CEO, and the members of the Executive Committee reaffirmed the relevance of the company’s balanced multi-energy strategy, considering the developments in the oil & gas – primarily LNG – and electricity markets, which are believed to be the pillars of the energy at the heart of the energy transition. These are serving as anchors for the oil major’s multi-energy strategy.

Source: TotalEnergies

The French giant is adamant that its strategy places it in “a very favorable” position to take advantage of changing energy prices, as it is able to work on implementing its transition strategy while offering an attractive shareholder return by refocusing the oil and gas portfolio on assets and projects with low breakeven and low greenhouse gas emissions and diversifying into electricity, notably the renewable kind, through an integrated strategy from production to customer.

Chasing low-cost, low-emission oil & gas

Furthermore, TotalEnergies plans to grow oil and gas production by 2-3% per year over the next five years, predominantly from LNG, thanks to – what it deems to be –  its rich low-cost, low-emission upstream portfolio. Simultaneously, the oil major will work on drastically lowering the emissions from its operations.

The French player points out that it will develop “a top-tier pipeline” of LNG projects – such as Qatar North Field Expansion, Papua LNG, ECA LNG, Rio Grande in the U.S., and Mozambique LNG – while leveraging its “competitive advantage” with “leading” positions in Europe’s regasification and U.S. exports.

In addition, TotalEnergies will focus on developing its portfolio of high-return oil projects in Brazil, the Gulf of Mexico, Iraq, and Uganda, which were recently enriched with exploration successes in Suriname and Namibia. According to the company, its oil and gas business is expected to generate more than $3 billion of additional underlying cash flow in 2028, compared to 2023 at constant prices.

Clean power to become ‘future cash engine’

Moreover, TotalEnergies is set on replicating its integrated oil and gas business model into electricity to achieve a ROACE of around 12%, equivalent to upstream oil and gas ROACE at $60/b, above the utility model traditional returns. To this end, the French player is developing a profitable and differentiated integrated power model to create the company’s “future cash engine.”

With this at the forefront, TotalEnergies is determined to build “a world-class cost-competitive portfolio,” combining renewable – solar, onshore wind, offshore wind – and flexible assets, like CCGT and storage, to deliver clean power to its customers. The French firm highlights that it is leveraging its purchasing power to optimize its investment costs and industrialize its renewable assets through digital to lower operating costs.

Source: TotalEnergies

TotalEnergies also aims to capture additional value from price volatility through merchant exposure by utilizing its balance sheet. The oil major plans to grow its power generation to more than 100 TWh by 2030, investing $4 billion per year and increasing cash flow from about $2 billion in 2023 to more than $4 billion by 2028, becoming net cash-flow positive.

Meanwhile, TotalEnergies expects to distribute about 44% of its CFFO in 2023 and increase shareholder distribution guidance to more than 40% of CFFO beyond 2023 through the cycles keeping net investments between $16-18 billion per year over 2024-28 to implement the transition of the company. The French player’s board of directors has decided to allocate $1.5 billion of the Canadian assets’ divestment proceeds to share buybacks in 2023, to reach $9 billion.

Balancing act called into question as pressure mounts for faster decarbonization

As the energy world intensifies its efforts to respond to the growing demand for emission reductions and greener sources of supply, activists and environmental organizations still do not consider the current level of activity sufficient, thus, they push for an end to fossil fuel developments and call for a swift phaseout of existing oil, gas, and coal projects. In contrast, others claim that oil and natural gas will continue to have their place in the energy mix as long as companies can decarbonize their operations.

However, activists are not giving up, even though it is doubtful that a binding global agreement on fossil fuels will be reached any time soon, primarily due to energy security concerns and the intermittent nature of renewables, which are still nowhere close to overtaking coal, oil and gas as the largest source of energy supply. The zest of NGOs and environmental activists for the removal of fossil fuels from the energy mix has been brought home by a new report from Reclaim Finance about TotalEnergies’ energy production diversification strategy, attempting to cast doubt on the French giant’s commitment to the energy transition journey.

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The report claims that the company’s fossil fuels extraction will increase between now and 2030 with solar, wind, and low-carbon sources of energy – such as hydrogen, biogas, and biofuels – expected to account for just 20% of the firm’s energy mix by 2030, compared to 80% reserved for oil and gas. In addition, a 40% boost in liquefied natural gas production is anticipated between 2020 and 2030.

Antoine Laurent, Advocacy Lead at Reclaim Finance, commented: “The claims, often repeated by investors, that TotalEnergies is genuinely diversifying its activities to make a real contribution to the transition do not stand up to analysis. It intends to increase its fossil gas business in both relative and absolute terms. Investors cannot credibly justify their support for TotalEnergies on the basis that they are supporting the company in its transition. This argument has no basis in fact.

On the other hand, the rise in TotalEnergies’ shares seems to suggest that the French player’s balancing act between fossil fuels and renewables is paying off, as its shares have jumped to an all-time high level, surpassing the peak set in 2007, after it disclosed the changes in its strategy, which reflects a firm focus on oil and gas, driven by LNG growth.