TotalEnergies Stock – TotalEnergies Projects 8% Decline in Cash Flow for Q3 Amid Lower Liquids Prices

TotalEnergies Stock – TotalEnergies is set to report weaker-than-expected third-quarter results, primarily due to a 66% decline in refining margins compared to Q2. The multinational energy giant anticipates an 8% quarter-over-quarter (q/q) decrease in cash flow from operations (CFO) as lower liquids prices and weaker trading conditions weigh on performance.

Q3 Revenue Forecast: A Challenging Landscape

In its preview for Q3 earnings, TotalEnergies revealed that its European Refining Margin (ERM) benchmark has fallen to $15.4/ton, a significant drop from $44.9/ton in Q2. This represents the lowest levels seen since late 2021. While BP and Shell also highlighted similar weaknesses in refining, TotalEnergies is experiencing a more pronounced impact, with margins expected to decline approximately 50% and 20%, respectively, at its competitors.

The anticipated decrease in CFO is projected to be around $0.6 billion, with approximately $0.4 billion attributed to weakened refining margins and $0.3 billion from lower upstream liquids prices. TotalEnergies expects EBIT to decline by $0.4 billion compared to Q2, projecting around $10.5 billion in Q3 earnings, which includes roughly $1 billion from its Integrated LNG segment.

Midterm Growth Potential Remains Strong

Despite a weaker Q3 forecast, TotalEnergies’ management remains optimistic about the company’s midterm outlook. The company is guiding for a ~7% free cash flow per share (FCF/sh) compound annual growth rate (CAGR) through 2030, substantially higher than its competitors, Shell and BP. This outlook is supported by the expectation that Total’s Integrated Power segment will become FCF-positive by 2028 and that production will grow at an annual rate of ~3%.

TotalEnergies’ strategy hinges on its dual focus on both exploration and production (E&P) and renewable power. The company is targeting a production growth rate of approximately 3% annually, positioning itself to potentially become the largest European energy major by the end of the decade.

Key Developments: Suriname Project and Cost Management

TotalEnergies recently sanctioned its first development in Suriname, known as GranMorgu, with first oil expected by 2028. The project will support a 220,000 barrels of oil equivalent per day (boed) floating production storage and offloading (FPSO) unit and is projected to cost around $10.5 billion. While costs are slightly higher than previously estimated, they remain competitive compared to recent offshore developments by peers, with TotalEnergies aiming for ~$14/boe over the project’s lifetime.

Competitive Advantage in Costs

TotalEnergies estimates its development costs at about $48,000 per barrel of daily production, making it $3,000 cheaper than Exxon’s recent Whiptail FPSO project in Guyana. The company’s favorable unit economics in the Guyana basin highlight its competitive positioning in the market, especially when compared to projects from BP, Shell, and Eni.

Investment Rating and Future Expectations

The company reiterated its Overweight rating but adjusted its price target to $70 per share, reflecting a weaker outlook for Q3 results. This new target implies approximately a 12% total return potential, factoring in 5% dividends.

Despite short-term challenges, TotalEnergies is committed to maintaining a robust growth trajectory. Analysts project that with its strategic focus on E&P and renewable energy, TotalEnergies is well-positioned to deliver substantial returns over the mid to long term.

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