PARIS (Reuters) -French energy giant TotalEnergies posted a 22% decline in first-quarter earnings, slightly less than expected, as good refining margins partially offset a steep drop in profits from natural gas.
Adjusted net income for the three months to end-March came to $5.1 billion, the company said on Friday, above the $5 billion in a consensus estimate of analysts' forecasts compiled by LSEG.
Cash flow from operating activities came to $2.2 billion versus $5.1 billion a year earlier, the company said. Net debt jumped to $14.2 billion from $6.3 billion at the end of 2023.
The higher gearing is a "modest headwind", said analysts at JPMorgan, adding the results were "fundamentally sound".
The shares were up 0.6% as of 1001 GMT.
Profits at oil and gas firms are still retreating from record levels in 2022, when natural gas prices spiked after Russia invaded Ukraine. Spot gas prices in Europe have tumbled 45% in the last year due to mild winter weather and easing worries over supplies.
Less volatility in the market also eroded trading opportunities, though Total expects natural gas profits to rise again over winter 2024-2025.
It forecast a winter gas price above $11/Mbtu, versus a current European price between $8-10/Mbtu.
CEO Patrick Pouyanne said he hoped to use the current dip in gas prices to sign new contracts with Asian buyers, who he said are eager to lock in supplies as growing demand outstrips available new capacity until 2027.
"We've seen in China more buyers coming back to the market at $8, $9, $10 per Mbtu, and going into $9 we will see (buyers in) India as well," Pouyanne told analysts on a call.
He added that the company was seeing increased buyer interest in gas contracts indexed to oil prices, in an effort to seek stability from volatile spot gas market prices.
Spot gas-linked contracts are currently cheaper for buyers than their oil-linked counterparts, though the reverse was true during the gas price highs following the invasion of Ukraine.
"Let's sign some oil-related medium term contracts, oil might remain stronger, so that's what we can do," Pouyanne said.
But the higher Brent crude price -- currently trading around $90 per barrel -- means lucrative oil refining margins from early this year are set to fall, with TotalEnergies expecting its refining business to be less profitable in the second quarter and beyond due to geopolitical tensions and decisions by OPEC+ countries to limit production via quotas.
Hydrocarbon production was roughly stable versus the prior quarter at 2.46 million barrels of oil equivalent per day (mboed), but is forecast to drop to 2.40-2.45 mboed in the second quarter of the year due to planned maintenance.
The company also confirmed it plans $2 billion in share buybacks in the second quarter, and retained net investment guidance of $17-$18 billion this year, with $5 billion going to its growing Integrated Power business.
Total is investing in renewables alongside growing output of oil and gas, a strategy that has found favour with U.S. shareholders but come under criticism in Europe, leading to the company exploring a possible primary listing in New York rather than Paris.
(Reporting by America Hernandez and Benjamin Mallet. Writing by Dominique Patton; editing by Jason Neely, Elaine Hardcastle and Louise Heavens)
By America Hernandez
