TotalEnergies’ Profit Drops More Than Expected on Refining

(Bloomberg) -- TotalEnergies SE reported a bigger-than-expected drop in profit for the second quarter as weaker refining margins in Europe and the Middle East and lower gas prices more than offset gains in oil.

The French energy giant faced lower fuel demand in Europe, while prices of natural gas were subdued by high stockpiles. Earnings were cushioned by gains in crude prices due to supply curbs from OPEC+ and tension in the Middle East. The weakness in refining is expected to have a similar impact on earnings from other major oil companies reporting next week. 

Adjusted net income was $4.67 billion in the period, down from $4.96 billion a year earlier, the company said in a statement on Thursday. Analysts had expected profit of $4.92 billion.

Shares of the company fell 1.2% to €61.70 as of 9:43 a.m. in Paris in a broadly lower market for oil and gas producers.

The results “are a bit disappointing, though it’s a small miss” that may be partly due to corporate costs, said Ahmed Ben Salem, an analyst at Oddo BHF. “However, the outlook for LNG prices and the refineries’ utilization rate is reassuring, while the exploration and production division is performing very well.”

Refining margins, which have dropped since the end of the first quarter, continue to be affected by low diesel demand in Europe, TotalEnergies said. This also reflects the fact that profits from making fuel are returning to more normal levels after a period in which they were elevated by disruption to Russian exports. 

Gas Markets

The utilization rate of TotalEnergies refineries should rise to about 85% in the third quarter, thanks to the restart of a French plant.

Sales of liquefied natural gas dropped by a fifth in the second quarter from a year earlier amid lower European demand, notably from gas-fired power plants. Moreover, gas trading “did not fully benefit in markets characterized by lower volatility than during first half of 2023,” TotalEnergies said.

The company’s average selling price of LNG should be slightly higher in the third quarter compared to the second as greater demand in countries such as China and India offsets lower seasonal demand in Europe, Total said.

Hydrocarbon production fell 1% in the second quarter from a year earlier as the sale of its Canadian oil sands assets offset the contribution from the a string of new projects. Output should be little changed in the third quarter, when the startup of the Anchor project in the US Gulf of Mexico is expected.  

The company announced a second interim dividend of 79 euro cents per share for this fiscal year, an increase of almost 7% from a year earlier and in line with expectations.

TotalEnergies will buy back as much as $2 billion of its shares in the third quarter, in line with the first two quarters of the year. It also reiterated a plan to invest $17 billion to $18 billion in 2024, including $5 billion in its power business.

(Updates with analyst comment in the fifth paragraph.)

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