TotalEnergies expects to improve its second-quarter profits thanks to the increase in oil and gas prices caused by tensions in the Middle East.
The French oil company anticipates better performance in most of its business areas. However, the liquefied natural gas division is expected to record a marked decline due to weak gas trading in Europe.
Rising oil prices boost TotalEnergies’ accounts
During the quarter between April and June, the average price of Brent crude was near $97 per barrel. This figure represents a 45% increase compared to the $67 recorded a year earlier.
Therefore, TotalEnergies expects its exploration and production activities to receive a significant boost. The increase in the price of oil improves the value of produced volumes and strengthens the revenues of the upstream business.
Even so, part of this positive effect would be limited by accounting adjustments. The company explained that a proportion of the additional production obtained in the Middle East could not be exported due to disruptions in the Strait of Hormuz.
Upstream production approaches 2.4 million barrels per day
TotalEnergies estimates that its hydrocarbon production reached nearly 2.4 million barrels of oil equivalent per day during the second quarter.
Additionally, profits from the upstream division could increase by around $1 billion compared to the first quarter. The improvement would be linked to the resumption of operations in several Middle Eastern countries and higher production in the United Arab Emirates.
The company also reduced its estimate regarding the impact of the conflict with Iran. It now calculates an impact of 210,000 barrels of oil equivalent per day, compared to the 360,000 barrels indicated during the previous quarter.
Likewise, the recovery of part of the regional production allowed for the compensation of some logistical restrictions related to maritime transit and crude oil exports.
LNG business loses momentum in Europe
The main exception within TotalEnergies’ forecasts will be the liquefied natural gas area. The company expects a considerable reduction in profits from this division.
The oil company attributed the result to a lower-than-expected commercial performance in a stable or declining European market. This trend contrasts with the results of other energy companies that managed to better capitalize on the volatility of LNG trading.
The lower performance of liquefied gas shows that the general increase in energy prices does not benefit all segments in the same way. Regional conditions, contracts, and commercial capacity remain decisive factors.
Refining and oil trading improve their margins
In processing and distribution operations, TotalEnergies forecasts a significant increase in profits. Higher refining margins and the strong performance of oil trading would support this improvement.
The company had already recorded high commercial results during the first quarter. Now, the rebound in prices and increased market activity could expand that contribution.
On the other hand, the integrated energy division expects strong growth in cash flow. This progress is related to the closing of the deal with EPH, which doubled TotalEnergies’ European portfolio of gas-fired power plants.
The market maintains a cautious response
Despite the favorable forecasts, TotalEnergies shares fell 1.9% to 69.28 euros during early trading on Thursday. The decline was greater than that recorded by the European energy sector as a whole.
However, the company’s shares have gained nearly 25% so far this year. This performance reflects the support received by energy companies in the face of rising oil and gas prices.
JPMorgan analysts considered the earnings preview to be solid overall. They also noted that TotalEnergies could increase its share buyback program from $1.5 billion to $2 billion.
The final results will reveal how much high crude prices, the recovery of upstream production, and refining margins contributed to the company’s quarterly performance.
Source: Reuters
Photo: Shutterstock
