TotalEnergies’ TTE diverse assets across the globe, systematic investments, cost-reduction initiatives, expanding renewable asset portfolio, presence in the entire liquefied natural gas (LNG) value chain and start-up of new projects will help to boost its performance. However, strong competition from other global integrated oil and gas companies is a headwind.
LNG and Acquisitions Act as Major Catalysts
TotalEnergies has the lowest exposure to the mature North American region among the oil super majors. The company’s upstream assets have lower natural decline rates and longer productive lives, giving a significant competitive edge over its peers.
TotalEnergies’ presence in the entire LNG value chain as well as the ongoing global expansion of its LNG portfolio is acting as a tailwind.
TotalEnergies continues to make strategic acquisitions and agreements with the existing operators in high-potential areas and divest assets that are not in sync with long-term objectives. In the first half of 2022, it acquired $3.9 billion worth of assets and sold assets valued at $866 million.
TotalEnergies strives to be a net-zero carbon emission company by 2050 and has been taking steps to achieve the target. It aims for a portfolio of gross installed capacity under construction and in the development of 35 gigawatts (GW) by 2025.
TTE is gradually building a portfolio of low-carbon businesses that could account for 15-20% of sales by 2040.
With improving hydrocarbon prices, TTE’s net cash flow at the end of second-quarter 2022 was $8.4 billion compared with $3.2 billion in the year-ago period. The improvement was primarily due to increased operating cash flow before working capital changes.
TotalEnergies is utilizing the funds to buy back shares, which is boosting its earnings. TTE aims to repurchase more shares in the upcoming quarters.
Political Instability and Competition Pose Challenges
TotalEnergies’ oil reserves and production are located in some politically unstable areas, which may affect its operations and hurt profitability.
TotalEnergies’ global presence exposes it to competition from national and international oil and gas majors. TTE has to compete with ExxonMobil XOM, Shell SHEL and Chevron Corporation CVX, among others, to acquire assets and licenses for the exploration and production of oil and natural gas, as well as the sale of manufactured products derived from crude and refined oil.
The long-term (three to five year) earnings growth of ExxonMobil, Shell and Chevron is currently pegged at 23.7%, 9.2% and 14%, respectively. The Zacks Consensus Estimate for ExxonMobil, Shell and Chevron’s 2022 earnings per share reflects year-over-year growth of 135.5%, 137.8% and 125.9%, respectively.
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