(Seeking Alpha, 30.Oct.2020) — Details of Total’s third quarter earnings conference call on 30 October 2020 can be found here.
Company Participants
Jean-Pierre Sbraire – Chief Financial Officer
Conference Call Participants
Oswald Clint – Sanford C. Bernstein & Co.
Lydia Rainforth – Barclays Bank
Biraj Borkhataria – RBC Capital Markets
Michele Vigna – Goldman Sachs Group
Christopher Kuplent – Bank of America Merrill Lynch
Thomas Adolff – Crédit Suisse
Christyan Malek – JPMorgan Chase & Co.
Paul Cheng – Scotiabank
Lucas Herrmann – Exane BNP Paribas
Operator
Ladies and gentlemen, thank you for standing by and welcome to the Total Third Quarter 2020 Results Conference Call hosted by Jean-Pierre Sbraire. At this time all participants are in listen-only mode. After the speakers’ presentations, there will be a question and answer session. [Operator Instruction] I would now like to hand the conference over to Jean-Pierre Sbraire, Chief Financial Officer of Total. Please go ahead, sir.
Jean-Pierre Sbraire
Thank you. Good morning or good afternoon. Let me start by saying that I hope that you are all doing well and keeping safe even more as we have entered the second wave of the COVID-19 pandemic in Europe and are not yet over with the first wave in the United States. So let’s move to the results. Total reported fourth quarter result that reflects the resilience of the portfolio and demonstrates again, the good ability to capture the benefits of improving oil prices and market conditions.
Adjusted net income rose to $848 million or $0.29 per share. Net adjusted cash flow this year increased to $4.3 billion. Leveraging strict capital discipline we’ve strengthened the balance sheet and reduced gearing to 22%. Based on the strong fundamentals of the company, we confirm the group’s support for the dividend with the announcement of our third interim distribution maintained at €0.66 per share. We saw mixed signs of recoveries in the third quarter and we note in particular that volatility, particularly in oil prices was lower than in the second quarter.
Brent rebounded from less than $30 per barrel in the second quarter to more than $40 per barrel in the third quarter. Thanks mainly to OPEC+ production discipline. Sales in our European marketing network came back to nearly pre-crisis levels. However, refining margins collapse to negative levels during the quarter. Gas prices remained low but we saw the higher levels in September in Europe and Asia. And as it is traditional the case for the winter season.
The group is continuing to execute and deliver on the strategy and objectives presented since the start of the COVID crisis. We have kept the organic breakeven below $25 per barrel, reduced OpEx to $5 per barrel equivalent and we are on track to cut cost this year by more than $1 billion objective. In this environment, capital discipline is key. And we’re limiting CapEex to less than $13 billion this year, $1 billion lower than previous guidance while still continuing to invest $2 billion for our fast-growing renewable power generation business.
Operationally, oil and gas production decreased to 2.7 million barrels of oil equivalent in the third quarter. Mainly this reflects full compliance with OPEC+ quotas, as well as the voluntary reduction in Canada and disruption in Libya. To a lesser degree, there is also the net effect of seasonal methanol natural declines and asset sales, which were partially offset by ramp-ups on new products. Based on the level of OPEC+ compliance and the return of Libyan production only since October, we now anticipate full year 2020 production will average less than 2.9 million barrels of oil equivalent per day.
Turning to the results like segment iGRP, Integrated Gas, Renewables & Power segments reported $285 million of adjusted net operating income and close to $700 million cash flow in the third quarter. These segments includes our integrity that in the business as you know, where we are the second largest player worldwide and well-positioned to participate in the global energy transition. Energy sales volumes were 8.1 million tons in the third quarter, a 9% increase year-on-year, mainly due to growth in our trading activities. Energy prices average $3.6 per million BTU reflecting mainly the three to six-month lag effect on oil-linked contracts. But this effect is beginning to reverse and we anticipate a rebound in LNG prices to more than $4 per million BTU in the fourth quarter.
We’ll continue to grow LNG business from 28 million tonnes of sales through the first nine months of this year to 50 million tonnes per year by 2025. From projects already in our portfolio all under construction. Our Integrated electricity business is a fast-growing part of the IGRP segments. Gross install renewable power generation was 5.1 gigawatts nearly doubled compared to a year ago. Worldwide electricity production increased by more than 40% in the fourth quarter, and we are continuing to expand the number of gas and power customers in our European network.
We are accelerating the growth of our renewable power generation, notably with the acquisition of a 3.3 Gigawatt portfolio of solar project in Spain, plus agreement to develop more than 2 gigawatts of offshore wind in South Korea and France. We also announced that we have signed the 65 watts power purchase agreement, the luxurious corporate PPA to date to cover all of our electricity needs for the groups industrial sites in Europe by 2025 using solar assets in Spain that we will develop.
Consistent with the acceleration of the growth in renewables, we have added disclosures for our renewable business. We know report growth renewables capacities in operation and in development that benefit from long term power purchase agreements. This should help the market assign value to the business as it becomes more material. As you know, we have the ability to grow renewable power generation to 35 gigawatts of growth installed capacity by 2025.
We already have about 24 gigawatts, in our portfolio. Five gigawatts installed, four gigawatts in construction and 15 gigawatts under development. Installed capacity of 5.1 gigawatt adds at end of October is fully covered by PPA and out of the capacity in construction, or under development, I would say 20 gigawatts, nine gigawatts are already covered by long term PPAs. With our capital disciplines in our project selection and confident that we can generate long term double-digit profitability, while growing stable cash flows in this business. As our investors did last month, we concentrated on the transition of Total into broad energy company so I will not go into more details here.
Let’s turn to ENP. Our commercial oil and gas segments generated adjusted net operating income of $800 million and more importantly, I think carried the group with cash flow generation of more than $2.6 billion in the third quarter. Average realized liquid price recovered to $40 per barrel, a 70% increase quarter to quarter more than offsetting lower volumes and weak call natural oil gas realizations. We continue to put pressure on gas with OpEx at $5 per oil equivalent.
Cash flow increased by more than $800 million turn quarter to quarter thanks to our resilient ENP portfolio and our sensitivity to old prices. The downstream faced a more challenging environment in the third quarter with refining margins in Europe negative on average for the quarter, and the less exceptionally favorable environments for trading activity then in the second quarter. Recall we mentioned that trading and generating an exceptional surplus of around $500 million of cash in Q2 due to huge volatility. The third quarter was in fact very stable with brands remaining in the range between within 40 and 45.
Faced with operating losses, we reduced our refinery utilization rate to 57% in the third quarter from 59% in the second quarter. Petrol chemicals relisted well, despite weaker margins quarter to quarter in Europe and in Asia, as well as utilization rates that declined to 75% in the third quarter from 84% in the second quarter. Marketing rebounded from the second quarter low, generating more than $400 million of adjusted net operating income well above the pre-COVID third quarter of last month — of last year sorry, as lock downs were lifted in Europe and in Asia.
Down three as a wall generated $373 million adjusted net operating income and close to $1 billion of cash flow. With a low level on investment required, the [indiscernible] provided $2.4 billion of free cash flow to the group for the first nine months of the year. The trailing 12 months quechee for the downstream is 14%. Consistent with our outlook for oil product demand in Europe and the strong growth in the renewable diesel market, we announced in July, the sale of the Lindsey refinery in the UK, and in September the conversion of the Grandpuits refinery to zero oil platform producing renewable diesel and bioplastics. This further streamlines our refining footprint and build on the success with conversion of La Mède into biorefineries? These are steps toward achieving our net zero climate conditions that has the added benefit of improving the long term profitability and resilience of our downstream.
Finally, at the group level, in the third quarter net investments were $1.9 billion bringing the total for the first nine months to $8.5 billion. We anticipate that our net investment will be lower by $13 billion this year and because of that certainty, we’ll be prudent for 2021 budget and CapEx will be limited to less than $12 billion. Despite this difficult environment, and mainly due to our capital discipline, Total generated positive net cash flow of $1.9 billion in the third quarter and $2.7 billion in the first nine months.
Although the third quarter was more stable than the second quarter, the overall market environment remains [ph] the — and the way forward will depend on the speeds or the recovery in group as amount affected by the COVID pandemic. It is clear that heavy inventories of oil and refined products will have to be addressed before sustained rebounds can take place. We are prudent about the coming years. So we are using $40 per barrel as our base case.
Longer term we recognize that the growing world population will demand more energy of every type and the many years of under investment has set the stage for more conservative supply-demand balance. Our priority is to generate a level of cash flow that allows us to continue to invest in profitable projects, support the dividend and maintain strong balance sheets. And of course, we continue to concentrate on the things we control, safety, operational excellence, cost reduction and cash generation.
Now I’m ready to go to the Q&A.
Question-and-Answer Session
Operator
Thank you, sir. [Operator Instructions] Your first question comes from the line of Irene Himona of Societe General. Please go ahead. Your line is open.
Irene Himona
Thank you very much. Good afternoon. My questions — well, I had a number of them. First of all in refining and chemicals, Jean-Pierre, there was a $290 million asset impairment. Was it one particular one specific asset or if you can talk about it, it would be helpful? Secondly, in IGRP, we had lower LNG prices, lower net income yet I noticed that your equity affiliates’ profits in that division actually increased between second and third quarter. And I wonder what is driving that? Is it Novitec perhaps? Finally, in M&S volumes are obviously down quite materially. As you said, profit is higher now than a year ago. Can you talk about the changes to your product mix, perhaps which is driving this apparent margin expansion? Thank you.
Jean-Pierre Sbraire
Okay, so good afternoon, Irene. Yes, you’re right. The impairment we recorded this quarter are linked to the R&C segments, refining and chemicals. It’s two assets and only I would say two assets. So it’s nice Lindsey refinery and Grandpuits. So, given that we announced that we divest our participation or oil refinery, we have to write off the assets and the same for Grandpuits. We have to impair the assets that will be discontinued, that will not be used by the refinery that we built in Grandpuits. So that is the $290 million you mentioned. The impairment on two assets. Yes, the lower LNG prices, so you’re right, and it’s mainly linked to the performance of our Russian energy assets and particularly Yamal LNG. On M&S volumes, it’s clear that the amount of growth during the first quarter and the second quarter massively in the road transport, in air transport of course as well, creates and of course, we suffer from the slowdown in the industrial activities as well. We saw at that time, retail sales down to almost minus 70% in France and between 30% to 40% in Germany and in the Netherlands. During the lockdown period, of course, customers try to take advantage of the low fuel price to replenish their fuel tanks at home. And so we witness high sales on b2b segments. Now moving to the third quarter, we observe rebounds, we sell particularly in Asia. We ourselves, we sell [indiscernible] More or less the retail sales are back to the pre-crisis in Western Europe but we are still lagging in Africa and nonfuel activities are still below expectation. Of course, the aviation will strongly be affected in in the Q3 and is anticipated to — this service trend is anticipated to continue in the fourth quarter. So only all in all, we’re seeing sales more stabilized minus 10% compared to 2019 levels. On top of that, of course, we benefited from higher margins because they [ph] were built at lower cost so all in all it’s rational behind the fact that we’ve a bit less volumes and benefiting from higher margins we’re able to deliver this performance during the third quarter.
Irene Himona
Thank you very much, Jean-Pierre.
Operator
Thank you. Your next question comes from the line of Jon Rigby of UBS. Please go ahead.
Jon Rigby
Thank you. Hi, Jean-Pierre.
Jean-Pierre Sbraire
Hi.
Jon Rigby
This strikes me that I just wonder whether you could just offer your observations on this is that you are making two statements that on the face of it are slightly contradictory. You’re not the only ones actually. CapEx is coming in lower than you were expecting this year, and it’s going down again next year and yet you are and I think quite rationally setting out a case for why markets will tighten and pricing will improve. So isn’t this exactly the right time to be kind of focusing on trying to get your projects out-of-the-door and through given, let’s say, as a three to four year time like. I get that there is a daily liquidity financing balance sheet issue, but can you just sort of talked through how you’re balancing those two objectives as to managing the short-term and trying to position yourself for the long-term, and this is what takes priority?
Jean-Pierre Sbraire
Well, it’s clear that we used flexibility we have in our portfolio, to preserve the cash if possible, but without jeopardizing the future; so it’s very important. So our main projects are not impacted by this level of CapEx. And on top of that, we are very clear that we will continue to invest more or less to $2 billion project on our [indiscernible] and electricity segment. So we play on the flexibility, that’s cool that now we announced that the CapEx — the net CapEx, so organic plus the net between acquisition and divestment will be below $13 billion for this year. As we mentioned during the last Investor Day; we are cautious regarding the prices, the prices for next year, and we will be built our budget using a $12 billion amount for net CapEx for the next year. But you noticed, John, that between 2022 and 2025, assuming your recovery, know prices, we announced a range between $13 billion to $16 billion.
Once again, we have in our portfolio, two main projects under construction, so mainly Artic 2 and Mozambique LNG; and these projects will not be affected by this level of CapEx, the — the project that will be affected is the short-term CapEx on which we can play on the flexibility. And given that the prices are not good, it’s not necessarily the right time to sanction this project with a very, very, short plateau in terms of production.
Right. And as you bring — as and when you bring back CapEx, and presumably there is some sort of view and positioning taken on the ability to sort of have some flexibilities should you bring it back on, because clearly, you know as everybody’s learned visibility is low. So, would we expect you to bring back CapEx very cautiously in the initial stages of any recovery.
Jean-Pierre Sbraire
It’s a matter of variant [ph], I don’t know. But again these 12 that will be starting B-General [ph] this year is clearly linked to the current price environment, the $12 billion for next year, we are clear that it’s linked to the essential, to the lack of visibility regarding the prices, and we need to be cautious. So $12 billion, $20 billion of CapEx next year; yes, you see the usurpation of this, the fact that we have no visibility on the purchases next year, beyond 2020-21; once again, prices could rebound and that’s why the torture node behind the fact that at that time, we have in mind CapEx guidance between $13 billion and $16 billion per year.
Right. Got it.
Jean-Pierre Sbraire
That’s a cool and flexibile CapEx, we are flexible but quick; so you can — we can be back here on budget, I believe, rent increase, of course, there is a beauty of this short-cycled project and you know that in our portal we have more or less equivalent of 1 billion barrels of short-cycle projects. So it could be a soul contribution in the future cashew, if by chance we benefit from price rebound.
Right. Perfect, thank you.
Operator
Thank you. And your next question comes from the line of Oswald Clint from Bernstein. Please go ahead.
Oswald Clint
Jean-Pierre, thank you. Just back on IGRP, just looking at your earnings down 50% year-over-year but cash flow is only down 5%. You know, you mentioned volumes up 9% but that’s a lot of trading which I can imagine was particularly profitable in the third quarter. So, can you just say why cash flow was so resilient relative to earnings this quarter? And is there any material power-related cash flow contributions showing up within that number?
And then secondly, I think you mentioned underinvestment in supply longer term and how that might set up for a bit of a price recovery. But what I find interesting is your — just your natural decline rate, 3%, I think for the last 6 or 7 quarters, it’s been pretty stable at minus 3%, which is remarkable in the year like 2020 with pressures on your short-term CapEx and things like logistics. So is that a real measured number? Or is that kind of backed out or an implied number from some of the other moving parts, please?
Jean-Pierre Sbraire
Yes. So regarding the iGRP performance, so the result and the cash flow generation. Yes, so the cash flow, the CFFO, the IRP CFFO from — for the third quarter was down more or less by 1/3 compared to last quarter. It was, of course, negatively impacted by the prices, by the LNG prices, but also by lower dividend coming from equity affiliates. And on the opposite, if you look at the net operating income, the equity contribution improved in Q3, to the answer I made to before, linked to the relatively good performance of the Russian assets and Yamal, in particular. And they have no — this has no impact on dividend. So that’s rationale behind the move you noticed on the CFO compared to the net adjusted income underinvestment. And so the second question? Sorry?
Oswald Clint
I’m sorry. Yes, just your natural decline rates of minus 3%, which is almost unchanged every quarter.
Jean-Pierre Sbraire
Yes, yes, yes, because we benefit from 50%, more or less our portfolio coming from LNG fields and fields in the Middle East, in particular, in Abu Dhabi, or in — yes, in the Middle East. So all in all, if you make the math, you have 50% of our portfolio benefiting from more or less zero decline and 50% with, I would say, standard or normal decline of 6% to 7%. So all in all, so you made the math, it leads to the 3%, 3% global decline for our production. And you’re right, it’s remarkably stable quarter-after-quarter.
Oswald Clint
Understood. Thank you.
Operator
Thank you. And your next question comes from the line of Lydia Rainforth of Barclays.
Lydia Rainforth
A couple of questions, if I could. The first one, can you just come back to this idea of gearing and the debt levels. We have seen a number of other companies now moving to absolute debt levels of targets. I’m just wondering sort of how you would think is still about the Total level of debt? And then the second question was just on the — so recently the idea of carbon-neutral LNG cargoes, I think the first one that you did this quarter. Are you actually getting a premium pricing on that? And just a little bit more detail on how big you think the market can actually be for carbon neutral LNG? And then very quickly, just a quick one. Can you give me what you’re thinking about the utilization rates for refining for the fourth quarter?
Jean-Pierre Sbraire
Okay. Gearing. Yes. So you noticed that we are able to reduce our gearing by almost 2% in the third quarter compared to the second quarter because we are more or less 24% in the second quarter. We are below 22% this quarter. But it’s the reduction, the translation of the fact that we are able to generate cash even after the payment of the dividend in Q4. We generated after dividend more than $1 billion of cash. And it’s — and of course, it’s lead to this gearing reduction. We — as we were very consistent in saying that, yes, our objective is to have a gearing below 20%. So you remember what we mentioned in September during the Investors Day. The priority, of course, to prepare the future is to allocate what I mentioned to join between $30 billion and $16 billion of CapEx from 2022 to 2025, $12 billion in 2021.
After that the dividends; so we heard that the dividend is supported at $40 per barrel. And you noticed that we come from this recent quarter, that referred interim dividend will be maintained at $0.66 per share. And after that very clearly, we would as a priority — the fact that we want to maintain a very strong balance sheet and in our mind a strong balance sheet means gearing below 20%; and so that’s why we mentioned that [indiscernible] is valuable to generate additional cash if the prices are or above $40 per barrel we first allocate this additional cash to deliver in the company.
The premium innovation with carbon neutral energy — honestly, I’m not — I’m not so sure to have this center and I will come back to you on the answer later on; the team will give you the answer. The outlook for the refinery tradition on the fourth quarter; honestly, I have no crystal ball, I just noticed that the margin albeit will go $10 per carton, since the beginning of the quarter; we’ll monitor that very, very precisely. We have the utilization rate below 60% in the Q3. And so utilization will improve, if margin improves, of course, we will adjust the utilization rates of our refineries to the level of — to the level of margin; but honestly, given the level of demand and given the level of inventories. I’m sure that the refineries — and perhaps, I don’t have to use this word, I’m sure that it’s likely that that the margins will become — will remain volatile and probably at relatively low level. And so as a consequence, the utilization rates in our refinaries will probably not be very different from the figures we have in the Q3.
Okay. Thank you.
Operator
Thank you. And your next question comes from the line of [indiscernible]. Please go ahead.
Unidentified Analyst
Hi, thank you for taking my question. Hi, Jean-Pierre. Two question, if I may. The first one is, I was looking at the aligned equity income and other items, and especially, the line other items. And year-to-date if I combine IGFT and upstream, it’s quite a big number; it’s above $600 million, whereas last year for the full year 2020, it was around $17 million. Can you remind me of what’s in there? And what kind of revenues is located inside other items? And the second question is on LNG and on Qatar. It looks like Qatar is finally moving with it’s massive expansion, having awarded already some long lead items; and can you share with us it’s Total is — obviously you have made the option but — is Total is still interested by participating in that expansion? And what are the conditions required for you to jump in if Qatar Petroleum takes final investment decision next year? Thank you.
Jean-Pierre Sbraire
All right. I think the answer for Qatar is very easy. You know that we are disciplined, we demonstrated that over the last couple of years that we sanctioned projects — perhaps I think you have to switch up your micro because there is an echo.
Unidentified Analyst
Okay, I will. Sorry.
Jean-Pierre Sbraire
So we are disciplined. So we sanctioned projects only if the conditions are attractive. So you know the way we sanction project and the internal richters [ph] we use and the project we use to sanction projects; so which will be, honestly, the same tomorrow for Qatar, there is no reason. So we’ll submit an offer only if terms are attractive. That’s clear that’s the true that we have been in Qatar for a long time. We are stronger partners. By the way, we were recently awarded, as you know for solar farms of 800 million watts. We know well the Qatar. By the way, we have embedded second this in at the request of [indiscernible] in this project. But we will go forward only if the conditions are attractive. That’s my answer. You can remember that was exactly what we did with our project in Brazil, we decided not to go, not to submit or not to make an offer given that the conditions were not good or did not meet our thresholds, and it will be exactly the same for Qatar. So your question regarding the equity affiliate income. Honestly, I’m a bit lost.
Unidentified Analyst
So maybe you want me to rephrase it or?
Jean-Pierre Sbraire
Yes. So you mentioned the equity affiliates contribution to the iGRP results?
Unidentified Analyst
No, in fact, when we look at your results, in fact, you combine a line which is equity income loss and other items, okay? As you also disclose the equity affiliate separately, we are able to in fact, to calculate what is these other items. And these other items to date is, if I combine iGRP and E&P, is above $600 million. So that’s a big number. And I was wondering what’s in there in terms of contribution knowing that last year, if I make the same calculation, is around $70 million. So that’s a $500 million difference.
Jean-Pierre Sbraire
The figure that I have in mind is the contribution globally at the level of the group of the equity affiliates and so its $350 million coming from Novatek participation, coming from Yamal, coming from our main LNG project.
Unidentified Analyst
So in fact, I was referring the $600 million figure I was referring was the nine-month figure. And in Q3, it’s around $165 million combined iGRP and E&P for these other items line.
Jean-Pierre Sbraire
Okay. It’s a detailed question, and I will come back to you with the precise answer.
Unidentified Analyst
Okay. Fair enough. Can I just make a follow-up on Qatar? I think we’re already aware of the condition. And is the binding process already started or not yet until the final cost of the project is done?
Jean-Pierre Sbraire
I will not disclose to you all this information, but the offers are due by year-end.
Unidentified Analyst
Thank you and sorry for the accounting question.
Jean-Pierre Sbraire
No, I will have a look because I do not have all the tables in front of me. But of course, there is a rational answer to your question.
Operator
And your next question comes from the line of Biraj Bukataria of RBC.
Biraj Bukataria
I thanks for taking my question. I had a couple for you. I just wanted to clarify on the net investment guidance, the less than $13 billion this year. You did $8.5 billion year-to-date. So I was wondering if I’m thinking about Q4, there’s either a big step-up in organic spend or an acquisition due or you’ll come in below guidance. Can you just unpick moving parts there? And then the second question is on Mozambique LNG. Could we get an update on your expectations when you expect to FID that? I understand in the short term, it’s partly a function of affordability, but also maybe you can talk about what you’re doing during the pause because I guess it gives you a chance to rework and retender? And how much more potential do you think there is on getting cost out of that project before FID?
Jean-Pierre Sbraire
Well, the guidance we gave on for the full year for the $13 billion, it’s clearly linked to the fact that we have a very good visibility on the Q4. Traditionally, the Q4 in terms of investment is a bit higher or a bit heavy than the previous quarters. And so it’s rational behind this guidance, $13 billion. And once again, as I already mentioned, so we have the Mozambique LNG project. We have the Arctic 2 project. We have some project in Brazil, of course, as well. That contributes to the level of CapEx that we will expand during the fourth quarter.
Mozambique, I think, perhaps I haven’t really understood your question, but has been taken. By the way, the Mozambique, the FID was taken before by Anadarko because at that time, it was in — I think it was in July last year, it was before we acquired the assets through [indiscernible]. So the project, what I can tell you is that the project is on track. Of course, we are monitoring the situation very closely. But yes, the project is on track. And so the first, as you know, we are building two trains that will come on stream by 2024, 2025. And on top of that, I think it was in September, we confirm that the project financing is in place. We were able to secure an external debt of about $14 billion on that project for the benefits of all the partners in the Mozambique.
Biraj Bukataria
Just to clarify on that because you guys have FID-ed it. Obviously, the partners on the other side, I’ve kind of paused it. In terms of the kind of chasing the synergy point, are there other limitations to what you can do if you’re working at different paces?
Jean-Pierre Sbraire
No, I don’t think so. The synergies you have in mind is probably the synergies with the project operated by Exxon. And that’s true that we could be onshore synergies with this project with Rovuma LNG project, but will not slow down the project linked to the Rovuma LNG project, to be very clear.
Operator
And your next question is from the line of Michele Vigna from Goldman Sachs.
Michele Vigna
Thank you, Jean-Pierre. Two questions on your legacy oil and gas business. You’ve really being the only major oil and Gas Company to continue to FID major long-term projects like Mozambique, like Mero. I was wondering whether, what you think about the next-generation of projects, Uganda, PNG, Cost Azul and whether you think this is the right time move ahead or perhaps wait a little bit longer? And then a second question on your recent discoveries. You’ve announced some really excited results in Surinam and South Africa. I was wondering if perhaps you could quantify what you believe could be the total amount of resources there.
Jean-Pierre Sbraire
Yes, you’re right. We continue to sanction projects because we definitely, we think, and that’s why we try to explain during the September Investors Day that the planet will continue to need oil in the coming years. And even in the most challenging scenarios for an oil and gas producer, oil will continue to play a significant portion in the energy mix by 2024, 2025. So we have to continue to invest on our project. But of course, very selectively, because perhaps the demand, the oil demand will plateau, I don’t exactly when, in 10 or 15 years time from now, and so our strategy is very clear, we want to position ourselves on low cost oil assets. And exactly the rationale we have in mind when we sanctioned projects.
You mentioned that, yes, we have the objective to sanction Uganda project before end of this year. And it particularly fits within the strategy of low oil projects. We have other project in mind, of course, or in our portfolio that could be sanctioned in the coming years. We just sanctioned the mill free, but we could sanction additional projects in Brazil as well in the coming years. We have some projects in Nigeria, very well positioned in terms of costs as well to sanction in the coming years. So we, by the way, we have the WU project, we have IMA project. You mentioned as well the Papua Guinea project. We are not to sanction that project. You know the status of a discussion between Exxon and the authorities regarding their gas agreement. So we have to be patient to be sure that we will be able to leverage on the synergies between our project and the Exxon one. But we are quite confident that we’ll be able to sanction that project in the coming years. And given that this project is, once again, a low-cost LNG project, very well positioned to supply the Asian markets.
So we tried, we continue with our strategy. We want to sanction a project if it’s definitely a low-cost project. And by the way, by doing so, where we are able to lock in the current situation and the fact that to capture, I would say, the deflation as far as contractors are concerned. So that’s the rationale we have in mind. So we will continue with this strategy, and we have demonstrated over the last couple of years that it’s worked well. And it’s the most efficient way to enhance our portfolio by doing so.
Exploration. Yes, Surinam and South Africa, yes, that’s one of the two area on which we made some significant discovery very recently. So Surinam, we entered into the asset, it was end of last year. We have a 50% rate in the project with Apache, having the 50 remaining percent. At present time, three wells has been drilled with three discoveries, Marka, Sakata and Carces. At present time, we are drilling a fourth well. And you know that after this drilling total will become the operator of the area. So the way forward is very clear for us. A lot of hydrocarbons has been discovered. And so now we need to some appraisal wells to clearly identify the level of reserves and to launch, if possible, development with an objective to start up production by 2025.
And on South Africa, we announced, it was last week or I think, or even this week, you have to remember that we made second discovery on the assets with a new well. So definitely, it’s open, I would say, a new world-class play in South Africa. And the way forward in South Africa will consist in evaluating, of course, the size of the discoveries, to make progress regarding the development studies and of course, engage discussions with the South African authorities regarding possible conditions for the gas commercialization. So that’s what we have in mind for the coming month on both Surinam and South Africa.
Michele Della Vigna
Thank you.
Operator
Thank you. And your next question comes from the line of Christopher Kuplent from Bank of America. Please go ahead.
Christopher Kuplent
Thank you. Hello, Jean-Pierre, two quick questions, please. On the CapEx cuts for this year, just wanted to understand whether you can identify specific projects that you are maybe forced to go a little bit more slowly on because of COVID restrictions and whether you can see from that CapEx cuts, any concerns about delays on those timelines that you talked about or whether you think it’s mostly a matter of efficiency, and perhaps discretionary cuts? Secondly, on a more broader level, just wanted to ask a cheeky question, whether you feel these days looking at what’s happening in North America, whether you feel vindicated about Total’s strategy to stay away from mostly U.S. shale or in fact, do you feel tempted by the kind of consolidation that’s happening without much share price premium being offered? Thank you.
Jean-Pierre Sbraire
Well, on the CapEx cuts, once again, there is nothing that is delays on the progressing project linked to the COVID-19. It’s more a matter of playing with the flexibility we have and the short cycle assets until you don’t anticipate large impact on our project linked to the COVID effect at this stage. On U.S. shale we are consistent, we haven’t changed our mind. We think that it’s the business on which we cannot — we will not be able to leverage on synergies because we are not present in the U.S. on this type of business significantly. It’s high breakevens assets and it’s completely inconsistent with our strategy to have enough portfolio or low-cost assets so that’s why we continue to think that it’s not like the most efficient way for us to allocate our capital.
Christopher Kuplent
Very clear. Thank you, Jean-Pierre.
Operator
Thank you. And your next question comes from the line of Thomas Adolff of Credit Suisse. Please go ahead.
Thomas Adolff
Good afternoon. I do apologize. I’ve got three questions, please. You’ve turned a bit cautious for next year, at least for budgeting purposes, $40 brent. I wonder as it relates to your credit metrics in a $40 world of whether you think next year, you’ll be consistent with a single A? Obviously you’re not for this year, and in the case, also the rating agencies lower their price decks like yourself, what are the measures which you consider to improve your credit metrics? Maybe link to that, are you open to perhaps do another one-off script offering like you’ve done this year or are you considering potentially sending some infrastructure type assets like many of your peers are doing and this should be fairly easy to sell these assets? Thank you very much.
Jean-Pierre Sbraire
You are right for sure regarding the prices for next year. And that’s true that we built our budget using the $40 per barrel assumption. If I remember well, S&P use a price deck at $50 per barrel for 2021 and I think the same $50 per barrel for 2022. I noticed that despite the drop in oil prices in March, April and the new price deck used by S&P and Moody’s, by the way, we are able to keep our rating. That’s all that we have a negative perspective, but honestly, it’s the same for almost all our peers. If the prices remain at $40 per barrel, what will be the impact on our rating? Honestly, it’s very difficult. It’s not so easy to anticipate. It’s not fully in my control. So what I can tell you is that we try to demonstrate that we will continue to be disciplined. We will, by the way, continue to put pressure on costs, try to reduce the gearing. So it’s the best answer I can make to simply to Moody’s regarding our credit rating. On the scrips, you know the rules in — for a French company. Given that this scrip dividend was not voted in June during the general assembly, we’ll not offer the scrip dividends for the interim dividend. So therefore, it was not offered for the first. It has not been offered for the second interim dividend. You notice that, of course, given the reason I mentioned to you, it was not offered for the third dividend. Honestly, at present time, if the prices remain at this level, we demonstrated that in the $40 per barrel environment, we are resilient. We are able to generate cash. So we’ll see in 2021 what the prices will be and if the prices will be significatively below $40 per barrel. But it’s a decision of the general assembly and not a decision that the Board could do on the payment of the incurring dividend. By the way, at the time, we have a yield at 9%, even 10%. And so a scrip with this level will be very expensive. So that’s, of course, what we have in mind at the time. I think your last question regarding the infrastructure or potential share asset sales? Yes, that’s true that in an environment with low prices, it could make sense to focus our M&A or divestments on infrastructure assets. We do not need to be an equity partner in infrastructure to benefit from the infrastructure. I’d say what we have demonstrated very recently with the divestments infrastructure we made last year, so we will continue with this strategy if possible. And definitely infrastructure assets, they are good. I would say, to divestments in low price environment.
Thomas Adolff
Perfect. So the bottom line is you’ll do whatever it takes to protect the single A and the few flexibilities around that selling assets, et cetera. But the single A…
Jean-Pierre Sbraire
We mentioned that in our — in the way we upgrade the cash, maintaining or having a strong balance sheet with an objective of gearing below 20%. And the single A, of course, is the priority in the way we will allocate the cash.
Operator
And your next question comes from the line of Christyan Malek of JPMorgan.
Christyan Malek
Two, if I may, Jean-Pierre. First, in a scenario where OPEC doesn’t reverse production outlets, so there’s a quite significant number around 100 million barrels. How that impact your production outlook.
Jean-Pierre Sbraire
Christyan, the line is very, very bad. And it’s impossible…
Christyan Malek
Can you hear me now?
Jean-Pierre Sbraire
Yes. Yes, it’s better. Sorry, yes. Yes. Go ahead.
Christyan Malek
Hello?
Jean-Pierre Sbraire
Yes?
Christyan Malek
Yes. Sorry about that, just a connection issue. In a scenario where OPEC doesn’t increase production next year, and so 1.9 million barrels, would that be material to your production outlook and your guidance? I just want to give some color as to how that affects your thinking around targets for next year? And the second question is regarding CapEx and sort of your dividend priority. I’m sorry to ask it directly, but to what extent is time an important factor as you think about your dividend and the fact that if we stay below $40, you’re effectively out the money. How long would you wait to make a decision on whether you’d continue to deliver that dividend?
Jean-Pierre Sbraire
Yes. So if I understand well your question regarding production, but we — the main rationale behind the declining production at Total level in 2021 — 2020, sorry, is directly linked to — with the OPEC quota. But by the way, of course, we are supportive of this quota because it helped to stabilize the prices above $40 per barrel. So I don’t know what the decision will be during the next OPEC meeting. I’m sure that the prices are — remains around $40 per barrel, the discipline will be maintained. And so we can imagine that the impact on production will remain more or less the same as the current impact. It’s already embedded in the figures of the guidance we gave during the last Investor Day. So we mentioned we have a profile between now and 2025, mentioning that the production will increase more or less by 2% on average per year between now and 2025. But we’d mentioned at the same time as well that this 2% will result from more stable, relatively stable production over period 2021, 2022. And that the increase will come later on with a start-up of the offshore Brazilian project, with the start-up of Arctic 2 and with the start-up of Mozambique Energy. Regarding your question concerning the dividends, I think we were very clear during the last Investor Day that we can support the dividend at $40 per barrel. And that the dividend policy is, I would say, well-sized for an environment at $40 per barrel. Again, the rationale behind that is that we have strong fundamentals. We have demonstrated quarter after quarter that we are able to maintain a breakeven below $25 per barrel per organic breakeven. We put pressure on OpEx. We put pressure on CapEx. We continue to be disciplined. And so all the teams, they are fully mobilized since the beginning of the crisis to implement the action plan we have decided very rapidly after the crisis. I think the best illustration of that is that at $40 per barrel, it was more or less the price we have this quarter. We are able to announce — or the Board decided to confirm the level of dividend. And at the same time, we are able to reduce the gearing. Having said that, we’re very clear, if the price falls below $40 per barrel, we’ll, of course, not overreact immediately. So we did not overreact in the Q2 when the prices were below $30 per barrel. But if the price stays below $40 per barrel, we will not overstretch the balance sheet.
Christyan Malek
Okay. And can you quantify what’s staying means, is it 3 months, 6 months, 9 months? Is there any way you can quantify that decline?
Jean-Pierre Sbraire
It’s a matter of perception rather than mathematical but again, you have to keep in mind that we are cautious people, but we have very strong fundamentals. We can play on our balance sheet, not over a very long time period, of course. But I will not give you, I know no formula to say if during 1, 2, 3 months, the price is below a certain number. Of course, we have to make a decision. So it’s a matter of perception as well of what the market could be.
Christyan Malek
Thank you very much.
Operator
And your next question comes from the line of Paul Cheng of Scotiabank.
Paul Cheng
Thank you. Good afternoon. Two questions, please. First, Jean-Pierre, can you talk about what’s trending in terms of — I mean there’s a number of nice discovery. Is that going to be candidate for fast-track development? What’s the gain plan there? Secondly, can you disclose what is the EBITDA or cash flow for your renewable and power business in the third quarter? And also what that you are concerned with the rising renewable power asset price in terms of your ability through acquisition to reach your target.
Jean-Pierre Sbraire
Okay. So yes, on Surinam, I think I have already answered more or less to this question. So given that we have already drilled 3 wells and the fourth well is ongoing at present time, the objective is now through appraisal to confirm the level of resources and the reserves and to sanction as soon as possible a project and possible faster development. Of course, if we have sizable resources in Surinam, the objective for us will be to put on-stream, to put on production these resources, these reserves as soon as possible. Concerning EBITDA, we noticed — or we will listen to you, by the way, what we heard from the analysts and from investors after the presentation we made in September. And so we — as you can see in the press release, we make more disclosures regarding our renewable business. Because now we gave a level of portfolio. We gave the level of capacities already benefiting from long-term PPA. Regarding the EBITDA, we’ll see in the coming reports what we can do regarding EBITDA and if we can communicate on that metric as well to give you more clarity on this business. And by the way, this could contribute to give more value to this business.
Operator
And your next question comes from the line of Lucas Herrmann of Exane.
Lucas Herrmann
A couple of questions or 2 or 3 questions, if I might. The first one is just when is the dividend reduction not a dividend reduction? Because I thought the dividend — the interim dividend Q3 last year was $0.68 per share, not $0.66. So just trying to understand what the annual payout is and how you think about it. And staying with dividends and perhaps to some degree going back to Christyan’s question, when I look at what your European peers have done, Shell admittedly by force and limited choice, they’ve restructured the payout policies to something which I think one could say is a lot more sensible given the transition and given the volatility that we’ve seen over the course of the last 9 months in oil prices. In short, they’ve moved to an absolute payout and to a buyback. You obviously haven’t. Your shares yield a short 11% at the present time. The market is not giving you huge credit. Would it not just make much more sense through this period when others have done something similar and when there is so much uncertainty and when you’re acknowledging the importance of your balance sheet to change the structure of your payouts, Jean-Pierre, such that you do use a fixed component, you do use a buyback component and you take advantage of the very depressed share price at the present time to buy an asset that today yields towards 11%, and which I think you feel probably offers exceptionally good value. Those are the 2 questions.
Jean-Pierre Sbraire
Yield stable at [EUR 0.66] per share compared in Q3 compared to Q2. That’s true that if you compare the third interim dividend this year with the third interim dividend we served in 2019, it’s $0.02 difference. But honestly, what you have not to forget is that in dollar, there is a strong increase because with this stability in euro, in dollar, you have a 3% increase.
Lucas Herrmann
Jean-Pierre, do I now need to think about your dividend in dollar terms then and adjust that mentally to consider what the euro number will be?
Jean-Pierre Sbraire
Sorry, I haven’t to captured your question.
Lucas Herrmann
Do I now need to think about what the dividend is in dollar terms and try thinking about flatlining that to think about what the euro declared will be?
Jean-Pierre Sbraire
No. You know that given, as a French company, we have to denominate our dividend in euro. And so the dividend policy is denominated in euro. Just to mention that in USD, if you convert this level of dividend in dollar, our investors in USD will benefit from an increase. European…
Lucas Herrmann
Structure payout, it makes less and less competitive strength or so.
Jean-Pierre Sbraire
It depends how you see this object. We consider that. Once again, we can support the dividend at $40 per barrel. So there is no way to reset the dividend policy at $40 per barrel. But on the opposite, that’s true that with this level of dividend and the share price we have at present time, it’s to yield above 9%. So in our view, it should lead to rating of the company rather than a drop or decline or reduction in our dividends. So that — by the way, the conclusion of our CEO in September after the — when we conclude the presentation. With the business case we presented with resilience we have demonstrated over the last couple of years with the fact that we can support the dividend at $40 per barrel, we anticipate that the share should be rated. And so that the current yield at 9%, 10%, will be — will go down in the coming — fully in the coming weeks or months.
Lucas Herrmann
Okay. I guess I’d just simply argue that it’s not necessarily the best structural policy for a company heading towards transition and given the constraints and volatility in markets, but I hear you.
Jean-Pierre Sbraire
So I think it was the last question?
Operator
It was the last question, sir. Please continue.
Jean-Pierre Sbraire
So thank you to everyone. And so once again, I hope that you will keep safe in this very challenging environment. And so have a nice weekend.
Operator
Thank you, sir. Ladies and gentlemen, that does conclude your conference call for today. Thank you for participating, and you may now all disconnect.
Jean-Pierre Sbraire
Thank you.
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