Ladies and gentlemen, thank you for standing by, and welcome the Total Second Quarter 2020 Results Conference Call hosted by Patrick Pouyanne and Jean-Pierre Sbraire. [Operator Instructions] I must advise you this conference is being recorded today. I would now like to hand the conference over to Mr. Patrick Pouyanne, Chairman and CEO of Total. Please go ahead, sir.

Hello, everybody. Good afternoon or good morning. I hope that all of you are well and staying safe. At Total, we are almost all of us back to Paris office, 75%, 80% of the staff, taking, of course, all the appropriate precautions, consistent with our safety culture. But it's good to be, again, together. We are more innovative when we are collectively at the office not in front of screens. And in the fields, all the business units are fully operational today. And that's, of course, of big priority, our main priority, keeping people safe, but at the same time, maintaining all our business operational. I'm happy to welcome you this afternoon together with Jean-Pierre for this earnings call. I'm joining you today because we felt important that in – with unprecedented times, the Chairman and CEO of the company can directly give you the big picture of where the company stands. And Jean-Pierre will explain you in detail all the Q2 results how resilient we had been before we go to the Q&A. So during this quarter, I will not be very original, we faced some very exceptional circumstances, the worst since 2014. The COVID-related lockdown led to unprecedented global demand destruction, and this was made worse by the drop in oil and gas prices. The Brent fell by 60%, dipping below $20 per barrel in April and averaging less than $30 per barrel for the quarter, with high differentials – negative differentials between the Brent marker and the real crude prices, around $5 to $6 per barrel, because of low demand. And the natural gas prices in Europe and Asia dropped by 60% to historic lows. Of course, the production was strained mainly by OPEC+ countries, helped lead the way to the market recovery, but as seen Brent…

Thank you, Patrick. So for the first – for the second quarter, Total resisted an exceptionally weak environment and reported positive adjusted net income. And I think more importantly, the cash generation was good, even better than expectations. Indeed, we generated $3.6 billion of net adjusted cash flow, a decrease of 50% compared to the same quarter last year despite, as mentioned by Patrick, a 60% drop in Brent as well as in European and Asian natural gas prices. Net debt was limited – net debt increase was limited to $1.2 billion. This reflects the successful implementation of the action plan that Patrick mentioned that helped to drive the organic cash flow breakeven to less than $25 per barrel in the second quarter. Let's look at the results by segment now. Operationally, the group's Upstream production in the second quarter was 2.85 million barrel oil equivalent per day. That means a decrease of 5% – of 4%, sorry, compared to the second quarter last year. New start-ups and ramp-ups, mainly Culzean in the U.K., Johan Sverdrup in Norway, Iara in Brazil and Tempa Rossa in Italy, were more than offset by reduction linked to OPEC+ production discipline, notably in the Emirates, in Nigeria, in Angola or in Kazakhstan as well as the curtailment in Canada, disruption in Libya and natural declines. As highlighted by Patrick, we fully support the production discipline particularly by OPEC+, recognizing the positive effect it has on the oil price. Given this OPEC+ quota as well as the situation in Libya, we now anticipate production in the summer season during the third quarter will be the low point. So we now expect to average between 2.9 million to 2.95 million barrels oil equivalent per day for the full year 2020. For the iGRP segment, Integrated Gas,…

[Operator Instructions] Your first question today is from the line of Irene Himona from Societe General. Please go ahead.

Thank you. Good afternoon and congratulations on these numbers. I had two questions, please. First one for Patrick. Perhaps in relation to the Board's review of stranded assets in the portfolio, I wonder if you can share with us your views on the risk of stranded refining assets and indeed, refining margins long term through the energy transition in relation to Total, but also in relation to the European industry in particular? And my second question for Jean-Pierre. In the second quarter, your Upstream tax was, in fact, a little bit above the first quarter. I wonder if there is some guidance for full year expectations on that front, and also, if you can please remind us of your full year expectation for working capital? Thank you.

Okay. Thank you, Irene, for your comments. The refining assets, I would say, you have noticed that – and you know, obviously, that we have committed, I would say, to Europe climate neutrality by 2050. So we have to be consistent. And we know that in Europe, refining is, I would say, oversupplied. We have – you'll notice that we have divested one refinery this year – this week, Lindsey refinery. It took us quite a long time to divest it. I would say that we are left with not so many assets. You know also that in our road map – and we'll come back on this road map by September or the strategy meeting, but in the road map – in the European road map, there is quite a strong willingness from the policymakers to develop biofuels, renewable fuels, I would say, biojet, biodiesel. We have made a first positive experience, in fact, in La Mede. The only positive refinery in France during the quarter is La Mede. It's no more a refinery, it's a biorefinery. And despite the specificity of the French market, which does not allow us to use palm oil, we are able to make positive results. So this gives us obviously the willingness, and Bernard Pinatel will come back on it, to develop, I will say, more aggressive strategy to develop the bio business, in particular by converting some European refinery to these biofuels. We have an advantage. It's not – from this perspective, not at all a stranded asset; on the contrary because when you convert brownfield assets, you have – I would say, you spend $500 per ton to make, in CapEx, a biorefinery instead of a greenfield project to make – above $1,000 per ton. So part again of our climate ambition. As we told, we want to decarbonize all assets by developing biofuels. So that's my answer to you. And so I'm not – we have reviewed these assets definitely. We are – the Board is not – has some answer about refining assets from a stranded point of view. I leave the floor, to the complex second question, to Jean-Pierre.

Thank you very much. The guidance for the tax rate for full year, of course, it depends on the crude price and the global environment. But I would say that that's currently around $30, $40 per barrel. We could expect group tax rate around 15%, and the contribution of E&P in that tax rate will be around 25%, 30%.

That's an average of $35 per barrel, I think, which is – for the year. We are a little above today, and it's quite sensitive to the oil price, so be careful.

And for the working cap, it's a matter of prices as well because the [indiscernible] is impacted particularly by the stocks. But we are very satisfied to see during the second quarter that we managed to cash in more or less $400 million this year. So it's a cash in. So I can tell you that we'll continue to monitor this working capital. All the teams are mobilized to limit the working cap. And we hope that if we maintain – if we are around the current level of prices, we could have a positive impact on the [indiscernible] for the full year, so cash in.

Thank you very much.

I remind you that we stated in the Q1, in May that we have an objective of a release of $1 billion.

At $30, $35 per barrel.

At $30, $35 per barrel. So we are on this way. Okay. But it's clearly a priority. And to be fully honest with you, we have put, as an incentive to all the executive of the company, cash – working capital release before year-end. So it seems to work. So the focus on cash is strong in the company.

Thank you very much.

Thank you. The next question is from the line of Michele Della Vigna from Goldman Sachs. Please go ahead.

Thank you. Patrick, Jean-Pierre, congratulations on strong results in a very difficult macro environment. I had one strategic question on the low-carbon business. Until now, it's made perfect sense to develop most of the businesses unconsolidated, associated with project financing, in this way limiting the CapEx and the corporate gearing. But I was wondering, at a time when investors are very focused on seeing this business gaining scale and also with rising frameworks like the European green taxonomy that focus on revenue and CapEx exposure, perhaps wouldn't it be better to have a consolidated low-carbon business and show separately the debt, the CapEx and the unlevered and levered returns and in that way, offer greater visibility on the growing scale of that business and on the underlying economics?

So you have to be patient until September 30. We are – no, but to be clear, we are working on it, obviously. And we will be – I will tell you why we'll do it. As you noticed during the – since the beginning of the year, we have made a lot of progress in terms of acquiring – of growing the portfolio. We have grown project in India, the project in Scotland, projects in Qatar, projects in Spain. So we have today a much stronger visibility on what will be the development of this business, low-carbon electricity business between today and 2025. And by September, we'll be able to provide you not only projects but consolidated vision of – and financial figures, but – like we are doing today in E&P with what is the target of production, what is the target of financial returns. So Michele, please wait a little for that. But it's clear, and I'm fully – I fully support your view. And we all noticed that the market today is very keen and is giving a much better multiple to this type of businesses than, I would say, our heritage business. And so the only way to track part of this multiple on the company will be to give more visibility. But to do that, we need, of course, to grow it, to make it sensible. So this will be, I would say, one of the main objectives of our strategy presentation in September, will be to give you, I would say, more than a flavor but to give you some insights on what is this new energy business for Total, this low-carbon electricity and – so that you can be convinced that there is – it's a growing business. It's a profitable growth, I would say. And of course, as you said, of course, this is sustained by the capacity to make some project financing to leverage the financing. But we'll come back in detail on it. So I fully support your analysis, and we have – we are on the same, I would say, understanding. And by September 30, you will have all that you want – maybe not all, at least what we can deliver to you because we always keep a certain thing for us. But honestly, the progress has been strong. And in fact, we are clear – Jean-Pierre told you that we are on the road map of delivering this 25 gigawatt gross capacity. We can do more than that. And I mentioned that the ambition is at least to produce as much as we sell. So I can tell you, we'll give you high production figure. It would become quite sensible in the company.

Thank you.

Thank you. The next question is from the line of Christyan Malek from JPMorgan. Please go ahead.

Hi. Thank you. And thanks for taking my question. Two questions, if I may. One regarding the oil price outlook. I mean clearly, the revisions are sort of prudent. And I wanted to understand better, Patrick, how you see the macro backdrop, particularly with the comments around underinvestments and the supply and also just how that compares to where demand – and the trajectory for demand. I know it's an impossible question, but it's clearly something that speaks to – something you've been talking about in this analysis you've done. So just a guidance around what your views are on the supply outlook. And that sort of segues into the second question, specifically around how you plan for FIDs and the priorities around FIDs over the next 12 to 18 months. If you are to sustain your production over the medium term, how should we think about the priority around projects, particularly with the discoveries in Surinam?

Okay. Thank you, Christyan, for these two questions. The first one is not fully impossible because I gave a sort of answer in our price scenario. We didn't – as you noticed, we have been very prudent, obviously, for the next three years, but we also kept in our scenario, the average on the next 30 years is around 30 – $56.8. But you noticed that we kept part of the scenario we published by beginning of the year, which is between $25 and $30, a rebound which could go up to $70 per barrel. Why? Because we had before this crisis – and I think, again, this crisis reinforced this feeling today, is that the supply will be damaged. In all business, when you don't invest, you have a natural decline. Of course, in the last year, this was offset by the increase of the shale oil production. But – we can be wrong on it, but we have the feeling that this crisis is pushing investors to have an overview of the investments in the shale oil. You have the drop today from 13 million barrel of oil per day to 11 million. Next year should be around 11 million barrel per day in our views. Of course, it could come back, but I think investors and shareholders will be more prudent. So that means that this effect could be less efficient in the next years. And at the same time, as you noticed, there is less and less FIDs, and so we come to the second question, for most of the players. So it was not good before 2020, but it was – the balance was coming from shale oil. I would say that today, it's even worse. Less FIDs and less shale oil could lead again…

Just sorry, can I just follow up very quickly on – if I may, on the second point in that – sort of in terms of the plan? So hope for the best, plan for the worst. I mean with your dividend set at $40, it's hard not to ask this, but if oil does stay below $40 on a sustainable view, what are the tools you have in order to mitigate? Because it sounds more like a half glass full strategy in oil over the next three years.

No, but at $40, the dividend is sustainable. And again, look, this quarter, I mean, there is an arbitration among our capital expenditures. So we will arbitrate between the different projects. It will be a matter of value over volume. But the best projects, like the one I mentioned will be financed, for sure, and we don't intend to – and if we have to arbitrate, we'll more arbitrate on the short cycle if we don't have the quick return. So again, I cannot tell you more than that, that one I just told you about the sustainability of the dividend at $40 per barrel. About Surinam, Christyan, you have to – it's a matter of let's be a little patient. We have announced three discoveries. We are still making some logs. And as you noticed, we are finding oil. We are finding some oil with gas, with light oil, with condensate. So we are quite convinced that a development – at least one quick development should be put in place. We are drilling a fourth exploration well on Kwaskwasi soon. After that, Total is becoming operator. So this could be for us a new very high – large oil province, which will concentrate a lot of efforts of the company. But I want to have all the data before to be – to give you more, I would say, figures about the capacity of all that.

Thank you.

Thank you. The next question is from the line of Lydia Rainforth from Barclays. Please go ahead.

Good afternoon, everyone. Two questions, please. The first one, Patrick, the moves that we've seen this quarter and this year, whether it's selling Lindsey, Gabon, buying into Seagreen, they're all very consistent with the strategy that you set out, but it does seem to be moving very quickly. And is that – has that sort of change in strategy accelerated since the start of the year effectively? Are you seeing more opportunities in low carbon relative to what you did at the start of the year? And actually, sorry, linked to that one, the stranded assets review; did the results surprise you from that? And then one last question, if I could. On the Downstream, can you just give us an idea of where you expect the cash flow contribution to be? Because, clearly, refining margins have been very weak over the last three months or so?

Okay. The last one is quite clear. I mean the cash came quite, of course, obviously, from the trading. The trading business, when I tell you that trading has overperformed by around $500 million, the beauty of trading is that when I give you a result, you can translate it in cash. So that is easy to do, and the tax rate is almost – is quite small. It's why, by the way, that we have a low tax rate globally. So can it – is it sustainable? What Jean-Pierre told you is that at the first half despite the terrible second quarter, we have generated on the Downstream $2.6 billion. So we gave you a guidance of $5 billion to $6 billion. That means that if we double it, you are in the range. Again, it's very difficult. That's true that the margins – refining margins are very low, but the marketing business has reached, I think, it’s very low point by the second quarter. So it's giving better cash since June, more normal ones. Of course, the trading cannot reiterate because it was linked with – capture of strong performance was linked to the very high volatility. And frankly, I hope we'll not have such a high volatility in the first – second half. But – so all in all, I'm confident with the guidance, which was given to you by Jean-Pierre. We'll see. The other assets – did the review surprise you in stranded asset? No, I mean, I would tell you, the main point was for us to be very comfortable to say, okay, we have made this statement in May or June. We want now to be clear and consistent with the climate strategy. Let's do the review. When I had the one-to-one road shows,…

Perfect. Thank you very much.

Thank you. The next question is from the line of Jason Gammel from Jefferies. Please go ahead.

Thanks very much, gentlemen. I just wanted to ask a couple of questions on the LNG business. You mentioned deferring quite a few cargoes in the third quarter. And I'm curious right now where prices are at, if it's even profitable, to lift LNG from the U.S. Gulf Coast. I know that your shipping fleet and regasification capacity could potentially have some benefit there? And then the second question is really more on the medium term and the supply and demand balance. You talked a little bit about oil fundamentals moving forward. Could you maybe spend some time on the LNG market as well? I mean, obviously, spot prices are pretty bad right now. But you are investing in quite a bit of capacity for the middle of the decade?

Jean-Pierre, why don't you...

Yes. So concerning the deferred cargo, I mentioned to you that during the Q2, we decided to defer nine cargoes coming from the U.S. and mainly from Freeport. Given the flexibility we have on the contracts for the third quarter, we can imagine and can anticipate that we will have more deferred cargo than in the second quarter depending, of course, on the time line in the formulas.

No, I think our trading team clearly are thinking to cancel and to cancel around 30 cargoes from the U.S. The U.S., obviously, today is less profitable. It's very clear. It depends. We had some deals like the one – it depends on the – which provenance it is, I mean which – the deal we've done with Toshiba last year gave us a much lower dollar per million BTU cost of production than some other ones. So we arbitrate. But clearly, today, this U.S. LNG is not very profitable. So that's reality. Again, that's today, short term. It does not change what we think fundamentally. Fundamentally, this LNG business is a business we will continue to grow. There is – you don't make the energy transition in this planet, shifting from coal to gas without involving LNG market. And so that's a fundamental. And so we'll keep it. Having said that, coming back to your second question, I think first, this crisis has sometimes benefit. And one of the best benefit from this crisis is that I think there were many LNG projects who are not far from being sanctioned. All of them are stalled, which is good because we were a little afraid by having too much supply by 2023, 2024, 2025, 2026. Today, what is happening is that we'll not have too much supply. And all three projects we have, Arctic 2, Mozambique LNG and LNG train 7, which will come into that window will come at a time where we can expect, on the contrary, to have a much more balanced market. And so we are – I think, even if today we suffer, in three, four years, we will benefit from the situation. I think this is a wake-up call for everybody, what is just…

Thanks very much.

Thank you. The next question is from the line of Thomas Adolff from Credit Suisse. Please go ahead.

Hi, good afternoon. A couple of questions please. I mean, firstly, considering your comments on gas, and obviously, you're also investing a lot in gas, called gas switch driving growth, is Europe making a mistake with the green deal? I'd be interested to get your views on that? And then secondly, you talked about low carbon being high multiple and your legacy business, fossil fuel, oil and gas currently being low multiple. But is it now getting interesting for you considering your slightly more positive medium-term view on oil to actually be more active in M&A in fossil fuel? Or are you just generally happy with what you already have in the portfolio? And if I may, finally, just on gearing. I know you do have a target or an ambition to be at around 20%, pre or post IFRS 16, but is there a soft or hard ceiling for that ratio?

Good question. Now Europe, obviously, I mean, I'm more – I think when you look and listen to the green deal and in particular to Frank Zimmermann, the Vice President in charge of the green deal, I think he has understood – and the last speech he has delivered on the hydrogen ambition, it was very interesting because I think that Frank Zimmermann has clearly understood and the commission understands that you don't make a transition in Europe without natural gas. And people want to jump immediately to green hydrogen, and he explained that we had to go through blue hydrogen if you want to be efficient. So I think – and for most of the countries and Germany in particular, natural gas is part of the – is obviously the only way to move from coal to gas, if you don't take nuclear. So I think – I know that people in Europe try – tend to put all the hydrocarbons in the same basket. But I noticed since – and maybe because they want to put more money in all this green deal, but the political leaders are becoming more and more realistic about the space for natural gas in this transition. And by the way, for – I already said it, but along the good electricity business, today, we have this gas-fired power plant, which are running at a very high level, and we generate quite a good business. So I think it would be a mistake obviously, to answer your question, if Europe was putting aside natural gas. But I think it's not the case. Of course, they will ask us to, I would say, make the gas greener by injecting some biogas, and we are looking to develop ourselves a business in biogas, to make…

Thank you.

Thank you. The next question is from the line of Biraj Borkhataria from RBC. Please go ahead.

Hi. Thanks for taking my question. I just wanted to touch base on chemicals following the impairments yesterday and your change of view on oil prices, but this is been a bit of a focus for Total. And you do have a few growth projects there. So I was wondering if you could talk about over the last six months, has your long-term or medium-term view on the chemicals market changed in terms of attractiveness and how you think about mid-cycle margins for that business? And then the second question is on the comments you made on oil trading. I think you've mentioned $400 million to $500 million this quarter. Just for a reference point, can you say what your oil trading business typically generates in an average year? Just to get a reference point for that. Thank you.

The Total trading is a secret, and I just gave you, that we've done $500 million or more than usual, but you will not have the usual figure. So sorry for the second question. You tried, but it's a good try, but it's not. I tried as well to answer you or not to answer you. Chemicals let me say, no, we have projects in chemical but petrochemicals. I mean we have been always very clear and selective in the petrochemical role. We say primarily and this doesn't change, we want to invest in feedstock-advantaged projects, which means mainly on natural gas projects because we want them to have an advantage on the feedstock compared to naphtha. So of course, in an environment where everything is low, the advantage for nat gas cracker is less obvious than the naphtha cracker. But the fundamental is that for me, is that even on the medium and long term, I see a disconnect between the oil and the gas price. So that's where we are. So we have not changed our views. We have a certain level of projects. We are working – our cracker in the U.S. will start next year. It's an integrated. And the other fundamental petrochemicals for us is that we are integrated between monomers and polymers. When we make a cracker, we want to have a polymer capacity coming together. Otherwise, you could fail. So to answer to your question on medium-term view and long-term view, no, it does not change because we look to be, I would say, integrated margin between monomer and polymer. And so we have the U.S. coming or we have our projects in Korea, where we continue to grow and develop our Korean platforms together with our Korean partner. And the other big project is the one in Saudi Arabia with Saudi Aramco, Amiral, on which we progress, we will launch the FID by, I think, September. So we have progressed despite the COVID. It's a very big plot projects. So all these projects are moving forward. There is also a project in Nigeria. So we don't change our view on it. I would say it's a selective growth based on projects which really fit with the fundamental characteristics, advantaged feedstock; and secondly, integration, monomer and polymer.

Okay. Understood. Thanks.

Thank you. The next question is from the line of Jon Rigby from UBS. Please go ahead.

Thank you. Hi, guys. Can I ask two questions? First is on the impairment charges from yesterday and the discussion you had on the Canadian projects. I'm sort of intrigued by your methodology because it seems somewhat artificial. Are you saying that you don't think the 2P resource base will get produced out or you won't produce out the 2P resource base? And either way, given your reluctance to sanction any more as a non op, wouldn't it sensible just to sell-out of these projects? And if that's the case, would you expect to realize a price that's above the carrying value from – on the balance sheet? Because presumably, when you come to negotiate a disposal, you want the buyer to pay for the 2P resources, I would have thought, or that would be some odd? Question two, just on your working capital. Can you just confirm there's nothing funky going on? You're not sort of selling receivables? If you can bring the balances down, this is a structural benefit to the balance sheet going forward, not just a one-off in 2020? Thanks.

No. Jon, let's be clear. By the way, all impairment calculations are artificial. So it's not a – the methodology, there is a – the scenario, the price scenario has to be set by the Board. And it's not – each company has its own scenario. So you have also the discounting rate, which can – may be different. So I can't give you – I can't tell you this matter of impairment is not – we don't find the answer and the methodology in a book, precise one. First comment. The second one, regarding the way when we came to Canadian projects. I mean again, it was a matter for the Board to be consistent with the vision, which we put in our, I would say, the climate ambition. But we have a vision, maybe we can be wrong, obviously, that the oil demand will plateau and will decline. And then if it is the case because we have a lot of oil of this planet, that means the pressure on the oil price by 2040, 2050 might be stronger like today. And then what will happen is that the assets with the highest production cost will be in trouble. So we made that review. We had a 2P profile of our assets. We are going until 2068; I think, some – one of them. And we said to ourselves, okay, if we don't believe by the pacing today and 2068, but the price of oil will remain at a level which might be enough to produce all the assets, we have to make something. So then it was a conclusion of methodology. Of course, the 2P reserves are proven and probable. I'm are not certain, proven and probable mean it's proven for 1P and probable for 2P minus…

Working capital, yes, of course. Managing the working capital is key for us to preserve our cash. And as already mentioned during the call we had with you in May, we mentioned in the action plan that we target, it's to cash in $1 billion through working cap at $35 per barrel end of this year. So for doing that, we use all the different tools we have and selling accounts receivable through programs with different banks, of course, is part of the way we manage the working cap. There is nothing bizarre.

By the way, it's not this quarter. It was done by the company for many years.

Yes, so we do that on a regular basis.

The President of Refining & Chemicals few years ago decided that it was a good time to be a little more innovative in this way because the burden on the capital employed was so high that we have sometimes to take – that's part of what this financial market with zero interest rate credit is giving possibilities. So that's nothing I call.

And nothing bizarre.

And nothing bizarre. And obviously, the cost is almost nothing. So everybody is happy there, so banks and us.

Thank you.

Thank you. The next question is from the line of Oswald Clint from Bernstein. Please go ahead..

Thanks you. Yes, two follow-ups, I guess. I'm just thinking about the big upstream pipeline of projects you had, Patrick, the 800,000 barrels a day and the 15% internal rate of return that you had at $50 oil. So you've obviously got a little bit of a square root going on with your oil price changes last night and going forward. So I'm just curious if you could give us a sense of how that number may have changed post the price resetting, please? Thank you. And then, yes, you talked about chemicals there, which was interesting. I was just curious, it's difficult for us to see chemicals, obviously, on a quarterly basis. But given your more balanced monomer-polymer ratio, and given your very high ethane input. I think it's well over 60%. But is your chemical business outperforming peers in the first six months of 2020? Is it possible just to talk about that, please? Thank you

On the second one, to be honest, I don't have all the peer figures. What I can tell you is that clearly, the petrochemical business was very resilient. And in fact, it was not far to be in line with the budget session. We put – budget figures we put last year. So why? In particular, because in the polymer business, we benefited from more demand on all the Elf segment. Of course, we suffered from less demand from the car manufacturing businesses. But on the contrary, we had more demand on the other part. So of course, we have to be prudent because we also observed that there is a weaker business today in the U.S. than in Europe. Europe has quite well resisted. And I would say, our Middle East business is also well resilient. So compared to our peers, I mean it's difficult because, honestly, none of us have really the same size of petrochemical business. Two of our competitors have a very large ones. We are, I would say, a middle-sized business, and some others do not have any business. So on the upstream pipeline of projects, I would say that there is no – I mean, the main influence between today and when we announced the 800,000 barrels per day of 18% is that I think – it's 15%, we were taking into account, I think, the acquisition of Algeria and Ghana in this figure, which, of course, are not there in the profile today. Having said that, as you noticed, Oswald, our scenario is coming back to $50 by 2023. And we told you that we sanctioned projects at $50 per barrel. So I'm sanctioning projects at $50 per barrel. The scenario that we just put to make impairments is coming back to 50-plus…

Thank you.

Thank you. The next question is from the line of Christopher Kuplent from Bank of America. Please go ahead.

Thank you very much. Patrick, just two quick follow-ups. Firstly, on dividend, of course, we're going to wait for Q3 and hear whether you can tell us more then. But just wanted to ask a conceptual question. You used to refer to a 40% payout ratio of CFFO. Do you think that can be a model in the future rather than to highlight a progressive dividend policy? So maybe I'm too soon asking that question, but I'm going to ask it anyway. And secondly, you mentioned earlier, you obviously have made – you've grown your appetite for more offshore wind. So in terms of gross capacity, that's now a bit more than ones gigawatt in your pipeline. Can you perhaps give us an indication how much offshore wind do you think will play a role in your 25-gigawatt target for 2025? Thank you.

So yes, not – no, Chris. You are not too soon. You will never have the answer on your first question because there is one lesson for me is there is no way for Total to be trapped in any mathematical formula about the way to calculate the dividend. That, I think, is a mistake. I think we must keep a certain flexibility because it's not only a question of a short-term calculation. It's a short term of confidence in the future and what is the vision of the company, and what is the vision and the trust we have in the capacity to deliver additional cash flows. And this is a way that – I explained you that in May that the Board of Directors has thought – has had this long discussion about dividend. It is a matter of not being too overreactive because we have suddenly a drop in the oil price and a drop in the cash flow. And when I would apply a percentage of 40% or 40% or 60% and plus, I can make – I think it's not the right way to manage it. I think – and by the way, for the time being, I'm quite satisfied that we took time because price is coming up back to above $40. And above $40, again, we can maintain our dividend. And I think this capacity to build the trust with the shareholder is very important in our eyes. So I would not be – I will not come back to this type of mathematical formula. That's not, I think, the best way to maintain to give the vision. The most important for us is to explain you how we can continue to grow the cash flows in the future coming from oil and…

Very good, thank you.

Thank you. The next question is from the line of Henry Tarr from Berenberg. Please go ahead.

Hi, and thanks for taking my question. Just had one on the growth in low carbon. I know you've talked a lot about that business today. But how do you see the most attractive way of growing in that business? So is organically the best way or you looking at M&A as well? If you look at M&A, how do you assess the prices in that space? And I think you referenced earlier that valuations there have definitely run quite hard. And then have you got all the expertise you need in the company today across those different areas? Or are there – is there an area where you would like to add some expertise, whether it's offshore wind or somewhere else?

Okay. To be clear, in M&A, you have two different types. Something which I think is almost impossible for us is to buy an existing asset with a return of 5%. I'm not – so buying, making M&As on existing producing assets, I think, is almost no way. I'm unsure here, and we are not an infrastructure firm or an insurance company. So I mean, that's competition, we don't go. But in M&A, what we have done, like, for example, in Spain, and we have other projects, which we work, is to acquire some pipeline. We have development companies on the ground in many countries where people are developing, acquiring rights, connecting rights, land rights, and then they don't have the financial capacity to develop. Then Total is coming. And this M&A, I can tell you is a few million – few tens of millions of dollars. So it has nothing to see. And this makes sense because, in fact, it's a way to have a sort of nonorganic business development teams. So we are doing that in Spain. We are looking to do that in another country, a big country where we are not very present, which is the U.S., because we want – but then we will develop the projects together with the development team. So it's, I would say pipeline, acquiring some pipelines might be the right way to grow quicker. Internally, we have quite a lot of expertise today with all the teams which we put together. So we are able in many areas to evaluate properly. I mean the quality of the products are good. And so with the – because one plus one plus one plus one begin – we begin to acquire some – we continue to recruit in that segment because we…

That's great. Can I just ask a quick follow-up, just on net acquisitions. So obviously, there's a lot of moving parts in and out. Do you have a view on sort of where net acquisitions might come out for this year and next? Are you looking to be flat? Or...

This year you have under $14 billion guidance for net investments. And so at the end of the year, you will do the math.

That’s great, thank you.

Thank you. The next question is from the line of Martijn Rats from Morgan Stanley. Please go ahead.

Yes, hello. I wanted to ask you the following. So when it comes to the number of customers that you now service in Europe, it starts to become sort of quite a lot. And I'm not quite sure, I've sort of lost count here, but it's either 8.5 million or 8.5 million plus the other sort of 2.5 million that you just acquired. And I was wondering what the – sort of what the attraction of that business is sort of going forward? How does it fit in the overall picture? And the second thing I wanted to ask you is about the returns on Seagreen. Look, us, sort of we've mostly been looking at oil over the last 10, 20 years, often find it quite a struggle to kind of really appreciate what kind of IRRs are available in the new energy space. But clearly, you are making this investments sort of expresses a view. At the same time, also your oil price assumptions have come down. So perhaps you could argue that perhaps the balance of returns in oil versus these renewable areas is moving. And I was wondering how you currently compare these two areas from a – purely from an IRR perspective.

Yes. Okay. The second question, we said already last year that fundamentally, when we have accepted to sanction renewable projects on a target on a double-digit IRR, which begins at 10. So it's more than 10. But this is done, this calculation is done on an equity basis because, obviously, there is – you have to use – you don't make these PPAs. Long-term PPAs are financeable. You can make some project financing, so you have the leverage. And so by the way, I do not understand the debate which seems to appear in some of the papers that you should be listed as a green company to have access to low cost of capital. No, you don't need to do that. I can tell you, it's easy to have access to low cost of capital by project financing when you have a long-term PPA. And it's even a lower cost of capital. So I mean, I'm a – so that's the type of IRR. Why did we accept it? Because that's clear also, but this type of projects do not give the volatility. When I'm investing in a project like this one, I have – I mean, of course, I'm taking the risk of the counterpart, which is the UK government figures. Should the UK government change its mind, it could be at risk. But otherwise, I have a contract for difference for 15 years. I know the figure. So I put it in the figures. So compared to the oil price, yes, I don't go to the high 15 or 20s. I don't have the, I would say, the upside, but I don't have the downside as well. So it's one I was selling. This, somewhere, this type of business is giving more stability if the business model…

All right, thank you.

Thank you. The next question is from the line of Peter Low from Redburn.

Hi, thanks for taking my questions. The first was just another one on the criteria you used to determine which oil assets would be classified as standard. Was that solely based on the production costs and reserve life? Or did the fact that oil sands or high carbon intensity for production also factor into your decision? The second was just you mentioned that you're looking to sanction Uganda as soon as possible to take advantage of the current contracting environment. How much deflation are you seeing in service costs? And are there any other projects we're looking to accelerate to try and take advantage of that?

No, I think we are clear about the stranded assets. It was based not on a, I would say, CO2 content criteria. It was fundamentally based on an economic approach, which was giving the vision that we put – that we have on, I would say, a decreasing demand, a plateau and decreasing demand by 2050 and because climate change will be put into action. And the policies will come, then what could be the high cost reserves, which could be at stake. And we've done it like that. So we – and of course, it has to be long reserve. So it was above 20 years of reserve, and I think about $25 per barrel. And so I think with that, of course, when we made, I would say, when I made the calculations about the impairments, we put into action our assumption on CO2 price. So it had an impact on the impairment levels because we said that we use $40 per ton and then we tested $100 per ton. So it can influence the impairment – the results of the impairment came as had embedded the CO2 pricing. But honestly, there is, I think, no mystery at the end that the stranded assets are the oil sands. I mean... It's not a surprise to us. I mean – and again, that's true, but as well. Okay, Uganda, we made the tender. So we'll see what will be the result. Yes, we want the cost deflation across the whole – I think what I can tell you is that before last year, we had only two consortium bidding. This year, we have three or four. So a lot of people are looking to order. So more competition. We have introduced new competitors, by the way, Chinese ones as…

Thank you.

Thank you. The next question is from the line of Jason Gabelman from Cowen. Please go ahead.

Yes, thanks for taking the call. First question, just on the $40 Brent outlook and the ability to pay the dividend at $40 Brent, that also includes an assumption for gas prices and refining margins, both that are probably currently below whatever you're assuming longer term. So can you just discuss what you are assuming when you say you could sustain the dividend at a $40 Brent? What those gas and refining – the gas price and refining margins are that you're including?

For the U.S., I think, is around $3 or $2.8, if I remember, $2.8 to $3, $2.7, exactly. For the Asian price, it's around $6. No, yes, $6, we think. And I don't want to make a mistake. I know usually something longer. And on the European price, I think it's around $5, something like that. Maybe I'm wrong on the Asian price. I have a doubt suddenly in my head.

[Indiscernible]

No, I think I'm not so wrong. I think it's around that. It's $5 for Europe, I'm sure, $5 for Europe that we use. But again, and for the refining margin, I think, is around $35 per ton in MCF.

So I mean...

But let's keep – you can keep in mind, keep in mind, $40 Brent. It's enough.

So in the end... Yes.

Because that’s actually why did I answer that. Because, look, when – even if the rest is volatile, the things that – this company is an integrated one. And so you have plus and minus coming from, I would say, from one part, but the other part is compensating. So I think – and this is what is happening this quarter is a good demonstration. So with a $40 barrel Brent, which is driving, I would say, 75% or 80% of the revenues of the company, you have a good metrics of what we need. So – okay, that's enough. Yes. If I come back to you, and the average price is $41, and I tell you I cut the dividend, you can kill me. Unless the dollar is at 1.6 compared to euro. Because there is another assumption which is more fundamental to the $40 Brent is a euro-dollar rate because our dividend is expressed in euros. And so the euro-dollar Brent rate has obviously an impact. And – but again, at 1.1, final 1.2, at 1.25, we have no project. So it's why I say 1.5, 1.6.

Got it. And then just a second question on oil price realizations. It seems like those have been trending lower. I think, the past few years, you realized something close to 90% of Brent on your oil price realizations. Last quarter was 88%. This quarter, it's 80%. Can you just discuss what's driving that? And if you expect it to trend consistently at this 80% with lower oil prices or if you expect it to move back towards to 90%?

No, we expect to come back to 90%. I think there is something which is clearly today. When you have a very – market which is very strange, it's not only the number of supply, but it's a very low demand. Clearly, the marker like Brent might be overestimated because at the end, people have to sell their crude. There are Nigerian crude, there are Guyana crude, we don't have that, unfortunately, or Asian crude. And so at the end, you have a weaker demand, which put pressure on the competition in the market, between the cargoes coming from Nigeria, from Angola, from Brazil or from North Sea. And so what we observed, in fact, and it was well confirmed to us by the traders, which helped, by the way, some trading business around this differential is that when you have a market which is very strange today because on the field of oversupply but lower demand, you can have some impacts on the differential between your crude price that you want to sell and the marker, the Brent markers, the vertical marker. We don't expect that to – I mean, we think this trend is, I would say, just very linked to the huge drop of oil demand, with dramatic oil demand we have experienced. When the oil demand will come back to 90% of the pretty to heavy – more normal way, I would say we should – this effect, with short-term effect will disappear. And so we think that we should come back to the more traditional, I would say, it's even above 90%. The 90% you observed in the first quarter was quite linked to the Canadian discount, the famous oil sands. Which have an impact despite where we have a lot of beauty in this one. One of them is discounts, why we are waiting for the pipeline. Now so honestly, I think you don't take the 80% as a normal. I mean it would be a – it's clearly linked to the specific market condition of this quarter.

Great, thanks very clear. Thanks.

Thank you. The next question is from the line of Lucas Herrmann from Exane. Please go ahead.

Hi, thanks. Good afternoon. Patrick, two quick ones if I might. I'm not sure how quick the second one is, but the first one, just intrigued that the UAE and the project, there's a very large solar project that EDF was just a part of, just intrigued as to whether you'd expressed an interest into that. And any comments you might make around price and competition. And secondly, I just wanted to ask how your thoughts around hydrogen and integration into the electricity chain in your business have evolved over the last course of the last six months. The commentary seems much more constructive when I read comments that you've made on the web. Tell us your observations, please. Thanks.

Thank you, Lucas. You observe a lot what we are doing, I say. Of course, we compete on UAE. We win in Qatar, we lost in UAE. There is a certain limit, I mean. Honestly, these projects in the Middle East are big, but if we're competitive I would say, and the profitability. Again, I answered to Martin I think before, but there is a certain level under which we don't go. So we don't go at a certain level, that's all. So we win in Qatar with that level. We didn't win in Abu Dhabi. And if we win, that's life, I think. But honestly, I think if you want – there are other places – what I observed in the Middle East, they are offering very large projects, so you make volumes. It's a little like oil, by the way. I can make a sort of parallel between the way the business is developed in the mid – in the oil business, you have very large fields with low margins. And in solar business, very large fields, but low business, low margins as well. So you have other places like India or Spain, which results are – returns are better. But again, we are competing, and we'll continue to look to other countries. We participated as well to the tenders in Saudi Arabia. We did not win again with it. Hydrogen, I think hydrogen clearly is – everybody, I think, is looking to that. It's not an easy topic because the question mark you all have today is how much capital allocation should we put in that. There is a very clear logic to me, but the bigger will be in the renewable business. And so if we have more renewable capacity of production, then there is a…

Okay thanks Patrick, I’ll level with that.

Thank you. And the next question is from the line of Jason Kenney from Santander. Please go ahead.

Can you remind me of the carbon pricing assumptions that you're using, particularly in light of the rethink on your oil and gas pricing? I'm just wondering if there's been a change in the carbon assumptions by 2025, 2030.

It's $40 per ton. $40, four-zero.

And just flat real terms?

No, it's not. It's 100. It rises to 100.

No, it's 100 beyond 2030. I was answering to Jason between 2025 and 2030. So this was a question of Jason if I understand. And I think it's real term.

Okay, thanks.

I'm sure it's real term actually. I don't think. I'm sure. For 2025, if you want to know everything or from 2028, so $40 per ton. And the dollar per term beyond 2030. Jason, it was your last question?

Yes, that's it for me. Thanks.

Okay. If you are satisfied, I’m fine.

Thank you. And there are no further questions. So I'll hand back to the speakers.

Good. So you are lucky because I didn't push a wrong button this time to stop the discussion like last time. So thank you for all your questions. And I think I'm happy to be in road with Jean-Pierre to answer to you, and thank you for your comments. We will have, as I told you, the next meeting that we we'll have with you is in end of September. We think that we'll have two sessions end of September. You have already been invited, I think, to – on the 30 of September, it will be the strategic session. It will be on one day. It will be in Paris or virtual, but if you can come to Paris for the European ones, you will be welcome. We will take all the precaution that we need to take to invite to, of course, to have you with us. If you are there, we'll be able to have also a live discussion. We intend to have, I would say, that day, I think we'll have the strategic presentation like our custom and probably some focused presentation in the afternoon on different topics, biofuels. And you will see – I mean we are preparing that. And the day before, we are planning, and I think we'll be inviting you to have a sort of market views. In February 2019, we presented you what we call the Total energy outlook. We have spent some time to Helle, in fact, Helle Kristoffersen have spent some time with the teams to develop our new vision. We have introduced a number of things. And we intend to present that virtually by a virtual presentation so that everybody can be connected on the afternoon of September 29. It's not directly linked to the strategy of Total. It's a broader view of the market of the oil, natural gas and electricity market. Of course, like we can have a vision by 2030, 2040, 2050. So long-term vision, of course, and I think it's good for Total to develop and to share with you our own vision of the market. So Helle will lead that presentation on the afternoon of September 29, virtually, again, not in person. But on September 30, we'll have this strategic outlook, and we – and so you will have more answers to all your questions. So I wish you good holidays for the one who will take. We are taking holidays because we are a little tired after six months of being closed in Paris and office is complex. So happy day. Happy holidays to all of you, and stay safe and see you in September. Thank you.

Thank you.

Thank you.

Thank you. That does conclude the conference for today. Thank you for participating, and you may now disconnect.