TotalEnergies’ Profit Drops More Than Expected as Oil Prices Fall

(Bloomberg) -- TotalEnergies SE reported a bigger-than-expected drop in profit for the third quarter as refining margins and oil prices fell.

Following a period of unusually high oil and gas prices in recent years, earnings at the French energy giant and its peers are now normalizing as weak economic growth in Europe and China undermines demand. That’s putting pressure on the balance sheets of these companies, which have been rewarding investors with hefty payouts.

TotalEnergies’ adjusted net income was $4.07 billion in the quarter, down from $6.45 billion a year earlier, it said Thursday. Analysts had expected profit of $4.27 billion.

The results reflect the “very sharp decrease in refining margins in Europe and the rest of the world,” Chief Executive Officer Patrick Pouyanne said in a statement. He also said gas trading hasn’t been “fully benefiting from markets characterized by low volatility.”

Company shares sank as much as 3.3% in Paris trading.

TotalEnergies plans to buy back $2 billion of its shares in the fourth quarter. Earlier this month, the firm pledged to continue that quarterly pace “assuming reasonable market conditions” and to increase its dividend by at least 5% next year while raising oil and gas output.

European rival Shell Plc also said Thursday it was maintaining the momentum of buybacks.

The company’s cash flow this year could amount to about $30 billion, which is $4 billion less than anticipated at the start of the year, Pouyanne said on a conference call. The shortfall is mainly due to lower-than-expected refining margins and gas prices, as well as receding revenue from liquefied natural gas trading.

“It does not change all the guidance we gave,” including on the share buybacks, during an investor day at the start of October, the CEO said. The company should benefit from selling stakes in renewable-energy projects and by a “working capital release” of $2 billion in the fourth quarter, he said.

TotalEnergies’ net debt expanded to $17.6 billion at the end of the third quarter from $16.7 billion a year earlier.

Despite weak oil-processing margins during the period — with the so-called European Refining Marker averaging $15 a ton — TotalEnergies pointed to a subsequent rebound to about $25 a ton. The company expects its refinery utilization rate to remain above 85% in the last three months of the year. 

Hydrocarbon output fell 1% from the second quarter to 2.41 million barrels of oil equivalent a day as outages at the Ichthys LNG plant in Australia and disruptions in Libya offset the boost from a ramp-up in Brazil.

Oil and gas production may increase slightly during the fourth quarter, TotalEnergies said. Next year, production will grow by more than 3% thanks to the recent starts of projects in Argentina, the Gulf of Mexico and Brazil, Pouyanne said.

(Updates with share price, CEO comments beginning in fifth paragraph.)

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