TotalEnergies trims spending plans but sticks with key energy transition targets

TotalEnergies trimmed the upper end of its near-term capital spending plans on Sept. 28 but said it remains on track to grow its LNG and renewables business to become a major low-carbon energy company.

In a corporate strategy update, TotalEnergies set a capital spending target of $13 billion-$15 billion a year in the 2022-25 period, down from a previous target range of $13 billion-$16 billion given a year ago. At the same time, it committed to spending $3 billion/year, or nearly 25% of its investments on power and renewables, from a previous range of $2-$3 billion/year.

The Paris-based company said it plans to allocate about a quarter of its planned capex spending on growing its "new energies" portfolio, mainly in renewables and electricity, with the other 50% to expand natural gas, essentially LNG. The remaining half of the capex budget will go to maintain its base activities including upstream oil production.

TotalEnergies said it will boost its combined energy production by 30% from now to 2030, with growth coming half from electricity, essentially from renewables, and half from LNG. It also reiterated a previous target to evolve to 30% oil, 50% gas, 15% electricity and 5% biomass and hydrogen in its sales mix by 2030. Over the decade, petroleum product sales will fall by at least 30% compared to 2015 levels.

"TotalEnergies affirms its strategy as a multi-energy company active in oil, natural gas, renewables & electricity, biomass and hydrogen, benefitting all its stakeholders," the company said in a statement. "TotalEnergies is confident in its ability to combine energy transition and shareholder return, thus creating long-term shareholder value."

CEO Patrick Pouyanne said the lower total capex range reflects a more conservative oil price assumption of $50/b over the period and includes some lower spending on the hydrocarbon business such as downstream fuel networks.

Oil slowdown

In the upstream division, TotalEnergies said it expects oil and gas production to grow by about 3% per year by 2026, driven by LNG-focused natural gas which should grow by 6% per year. Presentation slides accompanying the targets suggest TotalEnergies sees its oil production slight higher by 2026 compared to 2021, but level or lower than its liquids production in 2019.

Europe's No. 3 energy major has outpaced bigger rivals BP and Shell in recent years with a slew of new projects, boosting its oil and gas output by 40% over 2014-2019 to more than 3 million boe/d. But last year, output slipped 5% on OPEC+ output cuts, and this year Total said it expects its production to be flat compared with 2020, when it pumped an average of 2.87 million boe/d.

In February, TotalEnergies -- which expects global oil demand to peak before 2030 under its central long-term scenario -- said it was targeting growing its oil and gas production to reach 3.3 million-3.4 million boe/d in 2025, despite an acceleration in spending on renewable and low-carbon energy.

Pouyanne said the company will continue to explore for more oil but will be more "selective" in its oil projects. In picking new oil and gas projects, he said the company will target combined capex and operating costs of less than $20/boe or post-tax breakevens of $30/boe.

"My team doesn't have a mandate to stop looking for oil, it has a mandate to look for low-cost, low-carbon oil," Pouyanne said.

LNG growth

The company said it expects the global LNG market growing on average 5%-7% per year, with its own LNG production increase by 30% by 2025 and sales of 50 million mt/year, equivalent to 10% of the world market, at that time.

TotalEnergies, which wants to become one of the world's top five renewable power producers, also confirmed an objective of producing 35 GW by 2025, with more than 10 GW in operation by end-2021 that will grow by around 6 GW per year from 2022 to 2025. By 2030, the company is targeting 100 GW gross installed capacity.

The company also wants to scale up biogas, targeting 2 TWh/year production by 2025.

Downstream, TotalEnergires said it plans to continue adapting and downsizing its refining assets to match an expected 30% fall in European fuel demand by 2030. Europe's biggest refiner, TotalEnergies has shut 700,000 b/d of refining capacity since 2010. Its downstream growth spending is focused on polymers, including recycling and bioplastics, and in new markets, such as biofuels or electric mobility, to generate cash flow growth of around $1 billion over the next five years.

Pouyanne said the company's capital discipline will be maintained with an objective to deliver more than $1 billion of additional cost savings by 2023 compared to 2020. The higher revenues and discipline is expected to improve return on equity above 12% in a $50/b environment by 2025.